4 Fundamentals for Evaluating an Overseas Expansion The world is interconnected as never before but expanding into a foreign market retains its very steep learning curve.
By Zeynep Ilgaz Edited by Dan Bova
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Globalization has long been an important growth goal for young, budding companies in the U.S. According to the U.S. Department of Commerce, almost 98 percent of the businesses that exported goods in 2013 were small-or-medium.
Going international is no easy task even when it is clearly the natural next step. It's imperative that you think through the risks and rewards of expansion -- weighing the costs of adaptation against the attractiveness of the market -- before moving forward.
Going global is about more than geography. There are nearly 200 countries in the world, each with its own unique set of quirks, risks and rewards. You'll need to develop a tailor-made market strategy, operating model and product for the economic and social climate of the national markets you target, .
The following four steps will help you properly identify the right markets, assess the associated risks and ultimately make a strategic move overseas:
1. Find your focus, then set your goals.
It can be tough to choose the right markets with so many attractive options available. That's why it's crucial to set clear objectives for your expansion and stick to them. Strategize with your team to set your priorities and identify measurable performance indicators that can be tracked by both local managers and the head office.
Without clear motives and goals, it's close to impossible to accurately assess risk and determine whether expansion is a good idea.
Related: 5 Simple Steps for Reaching New Global Markets
2. Don't stint on research.
Make sure you do plenty of commercial and cultural homework. Read everything you can about the nation you're targeting, brush up on current events and seek advice from those already there to ensure you're making appropriate decisions. Make resources such as the CIA's World Factbook, the World Bank and Export.gov the foundation of your studies.
Consider the currency exchange rate and stability of the government. Watch out for red flags such as devaluation and inflation, and be aware of any political red tape that's intended to keep foreign companies from sending profits or funds outside the country. Pay attention to embargoes, trade sanctions, export controls and other regulations.
As a general rule of thumb, you'd be best served to avoid expanding during periods of political upheaval such as election seasons. People tend not to spend disposable income during uncertain times.
Related: The 6 Top Languages Global-Minded CEOs Should Know
3. Anticipate big changes to adapt internationally.
International expansion will require changing how your company is organized, operated and managed. To identify which areas will need to adjust, isolate every aspect of your domestic model and questioning whether it remains effective in a global setting. For starters, it's likely your domestic supply chain model will not translate internationally. Your goods need to travel much longer distances in potentially difficult conditions. This alone can make globalization a major challenge, especially if you're bringing items such as fresh foods to market.
4. Start small with calculated risks.
After you've studied, decided to take the plunge and made the necessary adjustments, conduct calculated market tests to gain a foothold and determine how to improve your offering to fit the climate. Through this methodology, McDonald's -- a company that made 65 percent of its 2013 operating income overseas -- has learned to completely change its menu depending on location. In Australia, it serves Chicken McBites; in Europe, full-size wraps are a hit. This approach addresses the needs of a diverse consumer market.
Tracking every sale made, dollar spent and all customer feedback will allow you to compare your results to other international brands and continually improve your offering.
Going international is risky, but failing to explore international market opportunities is also a risk. If you hold back, your brave competitors moving into new markets could reap the rewards before you have a chance to.
Moreover, the most successful entrepreneurs know that business setbacks and failures have value themselves. Doing the groundwork -- understanding what it takes to get into a market and thrive once you're there -- will pay dividends on a global scale.
Related: 3 Tips to Set Up Operations in Asia
