Among the top 100 multinational corporations, international sales made up 60% of a company’s total sales in 2018. This data suggests that international expansion presents a critical growth opportunity for corporations. If you’re wondering how to expand your large business or enterprise internationally, this guide can help.
Top Challenges for Corporations Expanding Globally — Plus How to Overcome Them
Expanding into international markets brings a unique set of challenges for corporations. Differences in culture may change the way you market a product or the way you structure your corporate presence in a region. Also, each country you establish a presence in will have particular labor, tax, and licensing regulations you’ll need to meet. As with any new venture your company undertakes, you’ll also need to find an effective way to set goals and measure success.
1. Following Laws and National Regulations
Every country has unique labor, trademark, and tax laws. Depending on where you operate, you’ll need a specific set of business licenses. With every country working differently, your legal team may have trouble tracking these nuances. Your company may need to comply with specific rules when:
- Establishing a subsidiary or new branch
- Setting up national bank accounts
- Registering for taxes and obtaining a tax ID number
- Obtaining local commercial licenses and certifications
- Keeping corporate records, files, and bookkeeping
- Trademarking brands and patenting products
- Establishing a payroll process and providing employee benefits and compensation
Solution: Work Alongside a Global PEO
A global PEO, or a professional employer organization, works as a co-employer when you operate in another country. A PEO allows an organization to expand without setting up a subsidiary. A true global PEO will have a physical presence in many countries, and so acts as your expert in doing business locally. PEOs have extensive legal, HR, tax, and accounting experience. They understand and follow country-specific regulations to help you mitigate risk.
2. Aligning Products With a New Market
Every country has unique cultural values that may influence your products’ success in that market. You may target a different demographic than you do in your home country. Or, you might adopt new marketing strategies to appeal to consumers. Many companies seek to do a soft launch to test out products and see how the market responds. A test-run can be time and resource consuming. For many companies, selling products in another country may require a new manufacturing process and supply chain. Varying quality of raw materials can lead to product inconsistency.
Solution: Research Market and Cultural Values to Localize Products
Aligning a product with a new market will take careful market research. You can combine government demographic data with independent research to learn about the consumers in a given country. You can study consumers’ perceptions of your competitors and cultural values. From there, create new market segments that reflect the local landscape. Differences in gender norms, religious preferences, and more can influence what is culturally-appropriate marketing. Understanding these beliefs can help you fine-tune your marketing strategy.
Rewrapping products is an excellent way to align your product with the market. Through localization, you can bypass barriers to product testing and domestic manufacturing. You get ultimate control over your products when you manufacture them using your existing supply chain. With culturally-appropriate packaging, you can target local consumers. Take the time to translate labels accurately and design impactful packaging for the environment. Since packaging can be redesigned and reprinted, you can make adjustments as you learn more about your market.
3. Building an Organizational Infrastructure
Both local laws and cultural expectations will change the way you build out your infrastructure in an international market. Many departments are subject to local regulations, including legal, HR, IT, and finance. So, they may operate differently than your established hierarchy does in your home country. Further, cultural differences can influence how a corporation is organized. While some countries tend to value collaboration and a flat hierarchy, others adhere to rigid cultural norms about respecting authority.
These factors often prevent a corporation from transplanting their existing infrastructure. Instead, companies must redesign their back-office structures to follow a new set of standards.
Solution: Partner With Local Experts
Using a global PEO as your employer of record takes much of the expense out of establishing a new, locally-tailored infrastructure. As an expert in the laws of many countries, a PEO helps you follow local customs and regulations. Using a global PEO’s streamlined HR software solutions, you can quickly restructure and design new processes for:
- Human resources
- Bookkeeping and accounting
- Legal counsel
With a global PEO, you can efficiently and cost-effectively establish in-country operations that meet every standard.
4. Meeting Goals, Measuring Success, and Making Strategic Decisions
No matter how carefully researched and plotted your expansion strategy is, expanding to an international market will create a learning curve. As you learn what works and what doesn’t in an international market, your team will have to adapt rapidly to change. Once you establish your global strategy, you’ll need to find ways to track success and make decisions. Without a clear ongoing plan, all the data that goes into a global expansion strategy will quickly become out of date.
Solution: Establish Data-Driven Goals and Track Key Performance Metrics
Testing and starting in a new market requires agility and adaptability. Data-driven goals keep everyone on the same page about what defines success. Tracking these numbers let you find out immediately if efforts are not working as expected so you can change course. By keeping goals short-term, you can maintain a lean, adaptive strategy. You can revisit and establish new goals often to keep your company growing in a new market. It’s critical to set these goals and start tracking metrics right away.
How to Develop an International Expansion Strategy
A strategic approach to international corporate expansion is vital to success in foreign markets. A plan that outlines how to expand your corporation globally will take months of careful research and preparation to design. A clear strategy can assist you in communicating goals across teams and gather support from all departments. Your strategy should be lean and adaptive, able to prepare your company for the long-term future and plan for a variety of scenarios. Follow these 10 steps to create a data-backed, detail-oriented expansion strategy.
1. Collect Data and Analyze the Market
The first step to developing a corporate global expansion strategy is to know where your company stands by conducting an internal audit. You’ll also need to investigate the market you plan to enter. You should do a thorough analysis of every department with an eye towards how each area can scale to support a new operation abroad. All your internal structures will have to be tested and tweaked to serve a new market.
As you conduct this review, plan to perform several critical audits across your company.
- Market segmentation: Using market research, break down your potential consumers into targeted pools. You can segment by cultural values, beliefs, lifestyles, and income.
- Gap analysis: Compare your product against the local products. Determine if there are gaps in demand in the current market that your offerings can fill.
- Product and service value alignment: Using the cultural values of your target demographic, determine how to tweak and pivot your products to the country’s population. Aligning your products will ensure consumers perceive your brand the right way.
- SWOT analysis: A detailed, data-backed SWOT analysis looks at your company’s strengths and weaknesses, as well as the opportunities and threats you may face. As an exporter, you’ll likely find that your goods cost more than the locally available products. Consider if consumers will buy your product in the market.
- Market opportunities: Analyze the size of the market and the percentage you wish to capture. How long will it take you to reach your targeted sales numbers?
2. Define Goals and Develop a High-Level Strategy
To bring your strategy into focus, have a clear idea of why you want to expand your corporation internationally and how you will do so. There are many reasons why a company might choose to expand.
- To find new talent in an international marketplace
- To stretch the sales life of a product in a saturated market
- To diversify market presence
- To capitalize on other changes, such as mergers or opening new locations
- To take advantage of measurable international demand
Your goal for global expansion might even be a combination of several objectives. Whatever the reason your company wants to expand, you’ll want to develop measurable goals and specify metrics for success. Next, you’ll need to outline your global expansion strategy at a high level. You should consider short-, medium-, and long-term goals. Create a preliminary budget and design a project plan with due dates.
3. Select a Method for Expansion
Understanding the logistical side goes hand-in-hand with establishing goals and overarching strategy. Different modes of entry can help a team accomplish various goals, with differing investments of time and resources. Corporations have a few different options to expand internationally.
- Exporting: Many corporations starting to expand globally choose to export their products. Exporting works well for ecommerce, and allows a company to reach international customers without a physical presence. In 2019, global ecommerce sales grew by 20.7%. By comparison, ecommerce sales grew by just 14.5% in North America and 10.2% in Western Europe. A company with their headquarters in one of these regions stands to increase their ecommerce market share by shipping internationally.
- Licensing: Licensing works similarly to exporting. In this case, a company grants a license to a international business, allowing it to represent the company’s brand in their home market. This strategy uses minimal investment and acts as a stepping stone into international markets. For true international expansion, your company will have to take things a step further.
- Strategic partnerships: Also called an international joint venture, this strategy allows a corporation to partner with an existing global company. As a corporation, you take advantage of built-in local brand awareness. Your partner company benefits from exclusive distribution rights to your products. For 85% of senior-level executives, strategic partnerships are considered essential to success. The challenge of dividing control between two companies can make some companies shy away from this tactic. Ceding some power to your partnering enterprise can help you learn the market while taking advantage of domestic expertise.
- Subsidiaries: For a company looking for complete control over their international locations, establishing a subsidiary may be the answer. With a subsidiary, a corporation purchases the rights to operate in a particular country. While you can build a local presence your company has full command over, this endeavor can be expensive and time-consuming. Establishing a subsidiary triggers the need to register with local tax authorities and comply with local regulations. Corporations can get around this by partnering with a global PEO. Through global employer of record services, a global PEO eliminates the need for you to establish a subsidiary, saving major costs. The partnering PEO also takes care of many of the legal and tax issues this type of expansion creates.
- Multinational expansion: Multinational corporations build locations all over the globe. These companies may have production facilities, regional headquarters, sales outlets, and training facilities in many countries. In the U.S., about half of all publicly traded firms are multinational corporations. Further, international sales represent roughly 40% of the average multinational firm’s total income. Instead of having one “home” country, you can take advantage of the international talent pool and global supply chains. For those looking to establish a physical presence in international countries, a global PEO’s HR expertise can allow you to hire your workforce quickly. You can build legally-compliant contracts and benefits packages while expanding rapidly.
4. Prepare Your Product for the Market
Next, your company will need to prepare your product for the market you seek to expand into. Starting with your gap analysis, look for a way to infiltrate your target market with effective product differentiation. First, ensure your product meets local regulations. Many countries have rules about which ingredients can be used in food products, for example. Obtain the necessary certifications to operate a business in the area. You may also need new trademarks and patents to prevent other local companies from putting out similar products.
Next, consider how you will localize your brand and products for a different culture or native language. If you need to translate the brand name, pay careful attention so you can project the right image to your target market. You may also want to test and focus-group your product for the local market.
Finally, decide how you will distribute the products. Who will sell your products, and how will they get delivered to retailers?
5. Adapt Your Company’s Organization
Cultural differences and local laws may influence how an organization structures itself in an international country. You may have to be flexible about company policies while finding a way to balance local rules and customs with the way your organization operates.
- Evaluate which elements of your organization’s structure are essential to execute your strategy.
- Develop a company handbook with policies and procedures that meet local demands while staying true to your company’s mission and values. The key is to make the necessary tweaks while allowing for compatibility with the rest of your organization.
- Research average wages and expected benefits in the local area and develop competitive compensation packages.
- Design a legally-compliant IT infrastructure that’s compatible with your overall IT processes.
- Establish a payroll and human resources structure that meets local expectations.
6. Define Your Localized Marketing Strategy
The sales model and marketing strategy that works in your home country may need to adapt to how consumers shop in your new market. You’ll have to take a comprehensive look at your home turf marketing playbook. See what elements will translate into an international market and which will need changing. Your strategy should include:
- Sales strategy: Decide on a sales model that works for your product in your market. You might focus on direct, indirect, distributor, or a hybrid of several models.
- Sales delivery: Will you focus on solutions, features, pricing, or consultations to make your value proposition?
- Branding: As you localize your products, do you need to establish a new brand, or can you leverage your parent brand?
- Pricing models: Know that in developing countries, consumers will likely have less buying power and be more price-conscious. Consider how the local economy will impact your pricing and ensure your consumers can afford the products at the price point you offer.
- Marketing plan: Establish a data-driven marketing plan, using key performance indicators to measure success.
7. Set up Compliant Legal Processes
Differences in international legal systems account for a significant level of commercial risk. Most governments have strict documentation requirements, and you must have the proper licenses in place before operating in another country.
You’ll need to define commercial agreements and ensure you follow all industry-specific regulations. When relocating employees or shipping goods across international borders, you’ll need to understand local immigration, customs, and import rules. Also, each government you work with will specify standards for maintaining corporate records.
A global PEO with expertise in international compliance and legal issues can offer you legal counsel in a foreign environment. With this expertise, you can follow local regulations and ensure all your processes follow the law.
8. Prepare Tax and Financial Processes
Establishing a presence in an international country requires registering for taxes and obtaining a new tax ID number. You’ll need to report sales and VAT taxes to the government of your host country and open domestic bank accounts. Due to different laws for finance, it can be helpful to consult a local tax expert and outsource your accounting and bookkeeping. You will also need to establish an international payroll system that complies with income, social security, and payroll taxes in the country where you are operating.
Depending on where and how you operate, you may have to exchange currencies and develop a strategy for repatriating funds. Decide what aspects of your tax and financial processes can be automated or outsourced to local experts.
9. Define Your Budget
Once you have fleshed out many aspects of your strategy, you’ll have a better understanding of the required budget. Prepare a final budget that accounts for new employees, marketing, sales and distribution strategies, the services you plan to outsource, and more.
Be sure to make a budget that extends three years alongside a one-year business plan. Plan to review and update the budget and business plan every six months, and perform operating reviews every quarter. Once you prepare a final budget, you can send it off to your new local team to manage. Establish a method for reporting actual spending to track alongside the budget.
10. Network With Local Businesses
As you enter an international market, you will need to establish a new network of partners. You may want to start developing products specifically geared toward your new market. As you grow, you will require partnerships with existing businesses or new supply chains. You will likely need to find a network of retailers to distribute your products or rely on other firms to outsource portions of your operations.
Contact Globalization Partners
If you’re a corporation looking to expand internationally, partner with Globalization Partners. We have a physical, on-the-ground presence around the world and can act as your employer of record in more than 187 countries. When you need to get your company up and running quickly in nearly any other country, we can help you establish a capable, legally-compliant infrastructure for accounting, legal counsel, HR, and IT. Our comprehensive solution allows you to handle administrative processes in one easy-to-use interface. Get in touch with Globalization Partners to start discussing your international expansion today.
For more information regarding expanding internationally, download our eBook 10 International Expansion Mistakes to Avoid here: