Thinking about expanding overseas? Ask yourself these questions first.

As a company grows and becomes more successful in its home country, moving into the international marketplace often becomes very attractive. An expansion into a new territory offers an appealing opportunity to grow your business by reaching an entirely new group of customers. Despite the financial potential, however, an overseas expansion can present challenges that could actually harm your business. As you consider your options, ask yourself the following questions. 

• Are my domestic operations stable? Your business in your home country will be shaken somewhat during any company-wide expansion into an overseas market. Key personnel will likely be absent for days or weeks at a time as they work on establishing the new location. Your corporate finances may be disrupted as capital is diverted and invested in the new location. Distribution channels may need to be revised and rerouted to support the overseas branch. Before moving into a foreign market, make sure your domestic operations are solid, stable, and able to withstand some inevitable disruptions while the new location is being established. 

• Are my company’s finances able to support an overseas expansion? Any expansion will have implications for the amount of working capital tied up in your business but expect expansion into an overseas market to cost more in the long run than a comparable expansion in your home country. Transportation, logistics, supply acquisition, and operating costs in a new country will be different than what you are used to at home. Add to this the very real possibility that your new operations overseas will not be profitably immediately, and that it is likely that they will drain resources from your home office. Plan the financial aspects of your overseas expansion carefully and in great detail. Model your cash flows carefully.  Adhere to your long-term financial plan as closely as possible, but be flexible enough to make changes in response to the conditions of your new market. Involve your accountant at all stages of the process. 

• Do I have a good grasp of foreign business and cultural practices? Doing business in a new country will likely require a different way of operating than you and your staff are familiar with. Cultural differences in other countries can place obstacles that you wouldn’t have to worry about in your home country. Business practices such as negotiations may require a different tone than you normally use. Violations of these practices could be damaging to your company and, in some cases, may be considered severe enough to destroy your chances at a successful expansion. Make sure you know about the new cultural and business practices you’ll have to apply. Hiring knowledgeable local managers and staff is a good way to ensure the new country’s norms are met. 

• Do I understand my local competition? A good understanding of the potential competition in your new marketplace is a key element of knowing whether an overseas expansion is a good idea. For example, are there already successful companies selling similar products and services in the new market? If so, you will need to determine what you must do to be different and competitive. Will customers in the new country have a genuine need or interest in what your company has to offer? If not, an expansion might not be a good idea. Take the time to do thorough research and talk to some of your potential customers. 

• Will I need a foreign partner? To achieve credibility and acceptance in a new country, you may need a local partner in that market. A foreign partner could help keep costs down as you make your expansion. A partner who is familiar with the market you’re targeting can also help you avoid any cultural, financial, or business pitfalls that could cause problems. 

• Will there be enough local talent? Exporting employees from your home country to the new location could be an expensive proposition. Check carefully to make sure the local labour market can support your hiring needs. This should include not only low-level employees but skilled labour, managers, and professional staff as well. 

• Would expanding my online presence be a better option? If you have a stable online presence that is attracting customers and making sales, you’re already operating in the international market. The virtual marketplace may well be sufficient for your particular products and services without the need for a physical presence in a different country. You can make an online expansion geared to appeal to consumers in a different country at a much lower cost than physically moving to that country. Online expansions can include processes such as structuring websites to rank for the new country in the search engines, building new sites in the country’s language, and making financial arrangements to accept payments in foreign currency.

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Neil Parker

MANAGING DIRECTOR

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