For many entrepreneurs and startups, the idea of international expansion is an easy concept, but often more complicated to execute. The Internet has without doubt made overseas expansion easier, but with the relative ease of international trade comes an abundance of choices that can often seem overwhelming.
For many one of the most important considerations will be which country provides the very best opportunities for overseas expansion. To successfully establish trade in a new market you will need to take these strategic decisions, and the choice of international market is a vital component for future success. Any errors at this stage can be costly, having the potential to reduce your overall potential for growth.
There are a number of approaches and methodologies that discuss entry into international markets, but the majority of them agree that breaking down the process into stages will not only make the process more manageable, but can help you reach the very best decision for your business.
There are two basic approaches to the selection of international markets, namely expansive and contractible.
In this approach a startup or company will favour locations that are similar to the markets in which they already operate. It ensure that you can use your accumulated knowledge and experiences from market conditions, and apply this knowledge to countries with similar audiences, languages, values, wealth and education.
This approach often occurs within smaller businesses that respond to unsolicited demand from other countries, organically building relationships and sales within a particular geographic market.
When a business has been established for a longer period of time (or they may have already been through the process of international expansion) they are more inclined to take a global perspective, going through in-depth screening to find the very best markets. These tend to have a greater physical distance between company “headquarters” and the new target market.
The argument for adopting a contractible approach is that companies tend to experience faster growth than those who limit their choice to just a few alternatives, essentially uncovering opportunities that may have previously been missed.
While it may initially seem daunting, there are a number of stages you can follow to make the process as efficient and effective as possible.
Stage 1 – The decision
It can be very helpful to clearly articulate the reasons for your expansion, as these motivations will ultimately play a role in your final country selection.
Understanding if the primary focus is increased sales, profits, short or long term security, exclusivity, innovation, government incentives or tax (to name just a few) will help to define the variables that you use to compare countries.
The criteria (used during the screening process) should ideally be defined before the process starts to ensure that reliable data can be compared between countries. These criteria will vary depending on the strategic approach of any business, for example if you’re looking to export, if you have an e-commerce business or are opting to go down the investment route, all will require different analysis.
It can also help define which requirements are an absolute prerequisite for the success of your business. For example do your customers need to speak English, do you need a developed infrastructure for transport or do your customers need a fast Internet connection?
Stage 2 – Creating a shortlist of countries
The world is literally your oyster, but the diversity and complexity of analysing all 196 countries throughout the world is a huge undertaking. For time sensitive entrepreneurs and startups, this simply isn’t feasible.
So one of the first priorities will be to create a shortlist of countries – automatically eliminating any country that don’t meet your pre-requisites – for more detailed analysis.
At this stage you can take a very general view of countries, adding or removing them from your list for a variety of reasons ranging from language to political ideologies and safety.
The purpose of this is to minimise the time required to investigate countries that are poor prospects, essentially it should be a relatively fast screening process to remove “high risk” or “low opportunity” locations.
Stage 3 – Preliminary screening
Now we’re starting to take a bit more of an in-depth look at the options available to you. During preliminary screening it can be helpful to focus on external macro-level factors, gathering industry-specific information such as:
- Market size
- GDP growth
- Level of competition
- Entry barriers
- Cultural considerations
- Economic stability
- Company formation requirements
- Tax and VAT considerations
- Exchange rates
Now you can start to compile data with which to score, weight and rank nations based upon these macro-economic factors. With this information you can begin the process of calculating the various costs and risks of entering a specific country.
Stage 4 – Final selection
Now that you have refined the shortlist of the very best opportunities, the final stage will be to assess revenue potential, profit margins, internal resources and marketing strategies; essentially the focus will be on internal business information as opposed to external considerations.
The findings from the previous stages will help business owners to think in a more complex and complete way about the various options available to them, using both quantitative and qualitative data together to make the very best decision.
While this is a somewhat simplified version of an often-complex process, if you do your homework and get some help from professionals who have been there and done it before, going global could be one of the smartest and most profitable decisions you’ve ever made. But as you’ve probably heard before, it’s all about location location location.
This post was written by Heather Landau at Open A European Company.com. Heather works with companies across Europe to assist with company formation, incorporation, bookkeeping, virtual offices, accounting and immigration advice.