Foreign expansion is, debatably, one of the most common business targets for entrepreneurs and businessmen. Not only most common, but it can also be said to be one of the most prized and desired objectives for any business. Although in many people’s perspective, foreign expansion is something that bigger entities target. In fact, foreign expansion probably sounds like a dream to you if you’re new to the world of business. To be fair, though, it would sound like a dream to most budding or even starting entrepreneurs. However, it doesn’t have to be a goal only for bigger companies.
Even Small to Medium scale Enterprises (SMEs) can aim for and even achieve this target, provided they do it right. The trick to making it in a foreign country is to avoid making mistakes. Here’s why. When you move into a new territory, you also move into new rules of dealing with people, moving money, and conducting business. Every rule that is different from your home country is a potential pitfall that you’ll need to leap over or go around. This is why the trick behind successful foreign expansion for any company, small or large, is to avoid making mistakes.
If you’re considering foreign expansion for your organisation then you need to pay heed to this small but not insignificant secret. What kind of foreign expansion mistakes are we talking about? Here’s a list.
Foreign Expansion Mistake #1: Trying to Make a Quick Buck
There are many reasons why foreign expansion is such a holy grail of an objective for most businesses. The most common are finding cheaper manufacturing costs or labour costs and tapping into newer markets for greater sales or margins.
Regardless of what the specific reason is, it boils down to making money. However, this simple logic can often be misleading.
Many businesses and entrepreneurs conceive foreign expansion with the objective of trying to make a quick buck. That is the wrong way of approaching a goal so large and expansive.
With that kind of an objective, the business always tries to cut corners. This directly results in poor product or service being delivered in the new market. As a result, the expansion process fails.
Not only does the new division of the business fail but the poor reputation garnered ends up affecting primary operations too. Effectively, having such a short-sighted goal means that the entire foreign expansion exercise is doomed to fail even before it is kicked off.
Foreign Expansion Mistake #2: Not Doing Your Research
Every market is different. Every country has a different climate. Every nation has different rules. And, every culture has different expectations. So how can you do what you’re doing right now in the new environment and expect to get the same results? You cannot. Once you’ve decided that you want your business to move towards foreign expansion, the next task is to evaluate various potential markets.
You can’t decide which market to enter purely on the basis of a hunch, general economic forecasts, or even the desire to see a specific country. Your decision has to be based on hard statistics. This means doing research into potential markets with respect to how likely it is that your product or service will be adopted, to what extent you can tap into competitors’ market shares, what kind of profit margins you can expect, and even what kind of stepping stone the first step outside your borders can be for your business.
Foreign Expansion Mistake #3: Prioritising Without Empirical Proof
SMEs are almost always strapped for cash. Even the ones that are considering foreign expansion will have limited funding when compared to the numerous corporations operating out there. This means that promoters of SMEs almost always have to prioritise some baskets of eggs over others. When it comes to foreign expansion, this need for prioritisation can result in either the foreign arm getting preference or the home division. Either form of prioritisation is fine.
What isn’t fine, though, is prioritising without valid reasons. Inexperienced promoters can prioritise on the basis of hunches, personal preferences, or even hearsay. None of these is a good element to base prioritisations on. Prioritisation should only occur on the basis of empirical proof. This means completing the foreign expansion project and then watching how the new division performs vis-à-vis its older brother. Once you have enough empirical data, you can actually make a wiser prioritisation decision.
Foreign Expansion Mistake #4: Micromanaging Everything across Borders
Micromanagement is the worst thing in business. It is bad if you do it in a team of two people. It is bad if you do it in a whole department. It’s bad in a company. And, so it’s bad with your foreign branch too. You don’t want to micromanage your foreign division because you’ll end up slowing down the decision-making process of the new arm. In other words, you’ll be turning the new division into a lumbering, cumbersome elephant, where it needs to be an agile, versatile gazelle.
The only way around this would be for you to assign a decision maker for the new locale. This decision maker could be remotely placed or he could be on the ground. Needless to say, that latter arrangement is far better than the former one simply because being on the ground will give him more clarity. In either case, foreign expansion cannot be done via the bureaucratic format where every decision is deliberated upon by multiple individuals.
Foreign Expansion Mistake #5: Going For Quantity over Quality in Workforce
The effects of the aforementioned SME financial crunch can manifest in other ways as well. One of the most common ways they show up is in staff selection. When a promoter prioritises home business and wants to temporarily try out the foreign arm, he’ll typically hire cheaper staff abroad. This invariably means going for employees with less experience and skills. The choice also entails hiring more generic people on lower salaries over taking-on fewer skilled and experienced people on higher salaries.
Essentially, by choosing this hiring strategy, the promoter is choosing quantity over quality. The direct result of this, in the majority of cases, is poor output quality. This, in turn, affects the bottom line. The solution, obviously, is to higher more experience and know-how. When it comes to foreign expansion, the experience is particularly critical too. The reason for this is that an individual with experience of the new market will be able to perform far better than an individual with experience in some other market.
Moreover, in many scenarios, the requisite skills and know-how required by the new market may be different from what is needed in the existing market. What this shows us is that a considered recruitment policy where experience and local knowledge is given more importance is vital when it comes to foreign expansion.