The Advantages and Disadvantages of International Expansion
Have you been thinking about taking your business global? Want to know the benefits and pitfalls of expanding your business abroad? In this post, we look at the advantages and the disadvantages of international expansion.
Why Research is Vital for Successful International Expansion
If you are considering global expansion as the next step, the first thing you need to do is research. Preparation for expanding globally can be the difference between success and failure. Before you begin to set up entities and hire staff abroad, it’s vital to understand the new market you plan to expand into.
What to Consider before Expansion?
Some of the key items to think about include:
- How much to invest?
- What are the costs and time frames needed to set up a foreign entity?
- How to manage compliance, taxation and immigration regulations in a new country?
- Who to hire to organise local payroll and international employment regulation?
- What is the process of shutting down a foreign entity, and how long does it take?
When you are considering the possibilities of expanding globally, don’t go in blind. Being aware of the advantages and pitfalls before you expand will help you succeed in international expansion.
Advantages of International Expansion
Obviously, one of the biggest advantages of international expansion is new sales. Increased sales equals more revenue, which can often lead to further business expansions. So, with that in mind, what are the other advantages of international expansion?
1. Entry to new markets
The first advantage of international expansion is access to new markets. Once a company has been successful in their home country, it makes sense to take the business abroad. With access to new markets, a business has the potential to build a new customer base.
In addition, open borders provide businesses with access to more untapped markets quicker. For example, a business that expands into Europe has access to many more countries and customers via open borders.
2. Access to local talent
Specialised talent can be hard to find in your home country. However, expanding abroad gives you access to a pool of potential workers with unique skill sets. As an added bonus, local talent with these skills will give you an edge over your competition.
3. Increased business growth
One of the biggest advantages of international expansion is increase in business growth. Entering overseas markets allows faster growth for businesses. By extending the businesses global footprint, new audiences experience your product or service. This could lead to further expansions.
4. Stay ahead of the competition
Go to market before your competitors do. Expanding abroad allows you access to new customers and visibility that your competitors might not have. Expanding abroad is also a benefit to get out of a saturated market and be one step ahead of the competition.
5. Regional centres
One of the reasons why businesses expand globally is to be able to provide a reliable service to their international clients. By setting up in a new country, a business will be able to lower their operational costs. In addition, by hiring local workers who know the local language and local customs, you can serve your clients within the same time zone without any complications. This enables you to reach a wider international audience.
Disadvantages of International Expansion
As well as there being lots of advantages, companies do face challenges when expanding abroad. Expanding abroad can bring lots of rewards, but it would be remiss of us to not explain the challenges a business can face when bringing their business global. Below, we provide information on the potential pitfalls and risks associated with international expansion.
1. Cost of establishing and termination of an entity
Whether you are planning a long-term expansion, or just testing a market you need to prepare and factor in both setting up and shutting down costs. Building infrastructure, setting up a business entity and paying local workers can be very costly. Not to mention, very time consuming.
Each country’s government operates differently. Therefore, to work legally and compliantly, you may need to hire lawyers, local tax accountants and international HR experts. In addition, ongoing costs are required to keep running the business successfully.
Again, if plans don’t work out you may want to shut the operation down. In some countries, closing operations can be expensive and may take a long time—sometimes up to two years depending on the country.
2. Compliance risk
Entering into new markets can be complex. When expanding into a new market, a business must adapt and operate accordingly to the country’s regulations. These regulations may be very different from your home country. Therefore, it’s important to partner with the right people who will help you to remain compliant and ensure the correct business procedures are in place from day one.
Remaining compliant is key to successful global expansion. Failure to remain compliant can lead to serious cases and costs.
3. Business practices and cultural barriers
Culture and business operations are different in each country and as such can present some challenges. If you are expanding to a country that has a different business culture to your own, it’s best to receive some cultural training in their business practices as well as social customs.
Language issues can also cause problems. So, it’s beneficial to understand the country’s language. This will also help smooth the transition of expanding into the new country.
4. Managing international employees – HR and payroll obligations
Going global brings many advantages. However, hiring international employees requires a new level of HR support and administration. If you do not have the capabilities in-house, then you will need to outsource.
As mentioned before, business and employment regulations may be different than in your home country. Therefore, it’s vital that you partner with an international HR expert who will ensure your workers are legal and compliant to work.
Before you take your business onto the global stage, it’s important to know the advantages and disadvantages of international expansion. Going global brings many opportunities but just like we have seen above, it also causes many headaches. One option to consider is to expand globally without setting up an entity. This solution avoids all the hassle, but provides you with all the advantages.If you are considering expanding and hiring staff abroad, an employer of record solution may suit your business.
Using an Employer of Record (EOR) Solution for Your Business Expansion Plans
Employer of record or international PEO is a global employment solution whereby a third-party provider hires your employees on your behalf. The EOR provider becomes the legal employer and takes responsibility for the entire employment relationship, employment benefits and HR. The end client company manages only the day- to- day responsibilities. With EOR, you do not need to set up an entity, and your workers will be employed legally and compliantly in a new country within a matter of days.