10 Questions to Ask Before Expanding Overseas
Deciding when to go global is a tough call for entrepreneurs. They may be tempted by opportunities in hot markets like China, India or Brazil, but could risk venturing abroad before they're fully prepared.
"Many companies expand too quickly," says Jon Fjeld, executive director of the Center for Entrepreneurship and Innovation at Duke University. While selling overseas extends your company's reach, he says, you don't want to move into international markets too soon and use resources you need to continue growing on your home turf.
Here are 10 key questions to ask before going international:
Have I built a solid foundation at home?
Make sure your business is stable on a day-to-day basis before pursuing overseas markets, Fjeld says. For instance, you should determine whether your business could function well in your absence. Companies also "need to have the distribution running smoothly enough so that they don't have to focus on it constantly," Fjeld says.
Do I have the bench strength for international expansion?
You will need to assign one or two senior employees to your international effort. So, you need to determine whether you can afford to move people from their current responsibilities, as well as whether they bring--or can quickly develop--the necessary skills for overseas sales and marketing. "At minimum, you'll need someone who is going to be accountable for the export sales part of the business," says Tom Moore, deputy assistant secretary for international operations at the U.S. Commercial Service, the country's trade promotion arm, in Washington D.C.
Will I find the talent I need in another country?
If you decide to expand, finding local talent can be a challenge. Some countries simply do not have enough of the skilled labor companies may need. You also will be competing with established companies that know where to find talent and how to recruit local candidates. One potential source: local educational institutions such as engineering programs and business schools.
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How will I need to adapt to the local culture?
Some countries such as France and Japan expect companies to adapt to the local culture, says Carl Theobald, chief executive of Avangate in Redwood City, Calif., which provides e-commerce capabilities to small and medium-size companies. That may mean customizing your product or service to meet local customers' tastes. At the very least, you will need to put your marketing message in the local language and make sure the meaning translates correctly.
Do I understand the cultural implications of the sales process?
Closing a deal abroad can be a vastly different experience than you're probably used to, says James Hunt, adjunct professor of entrepreneurship at Georgetown University's McDonough School of Business. "Some cultures struggle to say, 'No, we aren't interested' in a product or service, which means you can have an extremely long and costly sales process that never leads to a sale." Such behavior is especially prevalent in China and the Middle East, he says. To avoid this problem, look for customers who have bought similar items or services in the past, Hunt says. And sometimes it's better to cut off talks if they lag for too long.
Have I sized up the local competition?
Understanding your competitors abroad can provide insights into how--and whether--to expand. But many companies don't take time to figure out whether similar products and services are already available in a new market and what they would need to offer to compete successfully. Spending time abroad and speaking with potential customers can help to avoid costly mistakes.
Do I need an international partner?
For many companies, it's critical to find a local partner when expanding overseas, Moore says. Partners can help facilitate sales, while keeping costs down for the home office. Forming a partnership takes time--often, a year or longer--and requires plenty of due diligence to find the right fit, Moore says. The U.S. Commercial Service offers a matchmaking service to help U.S. businesses find appropriate international partnerships abroad.
Am I financially able to sustain an overseas expansion?
Expanding internationally requires a startup-like period that's longer than many entrepreneurs anticipate. "You have to expect to lose money for a while," Fjeld says. So, you not only need enough capital to make the initial investment, but you also should have a long-term financial plan in place, he says. You will likely need to update the plan to reflect actual revenue and expenses as you ramp up in the new market. "It's not something you are going to turn a profit on right away; you have to be there for the long haul," Moore says.
Where's the potential for red tape?
Expanding beyond the domestic market can mean lots of extra paperwork, especially for medical and technology companies. With such a variety of regulations surrounding exports, it's important to understand what's required for your particular industry before attempting to expand abroad. Medical-device companies, for instance, require extra documentation, including proof that the U.S. Food and Drug Administration regulates their products, Moore says. "Sensitive technology companies may require a [U.S.] export license."
Should I simply expand my online presence?
For some companies with a strong website, it may not be necessary to establish a physical presence abroad. You may be able to offer overseas shipping and expand payment options without the hassle of extensive tax regulations. "Selling online through an e-commerce partner with international capabilities is far easier and much less costly than building a local presence," Theobald says. But at least in some markets, you would need to develop websites in another language that accept the local currency. Online shoppers "are more likely to buy when the experience is in their local language [and] local currency," Theobald says.
Alina Dizik is a freelance journalist and writer based in New York City. Her work has been published in The Wall Street Journal, iVillage, More magazine, The Knot, BusinessWeek and the Financial Times.