WHY FIRMS GO ABROAD?/WHY DO COMPANIES GO INTERNATIONAL?

Companies go international for a variety of reasons. In general, companies go international because they want
to grow or expand operations. More specific motives include generating more revenue, competing for new
sales, investment opportunities, diversifying, reducing costs and recruiting new talent. Going international is a
strategy that is influenced by a variety of factors and is typically implemented over time. Sometimes,
governments will incentivize expansions into global markets.

Improving Profit Margins

Domestic companies constantly look for opportunities to add customers and revenue streams. When growth
strategies are used up on the national level, the next path is to seek out international growth. Distributing your
products in additional countries increases your customer base. As you offer compelling solutions and build
loyalty across international markets, revenue strengthens and escalates as well.
There are also significant cost savings that can be associated with going international. A company may want to
reduce costs by relocating closer to a supplier or benefit from lower production costs by expanding operations
to another country. Doing business internationally may open up new investment opportunities. Further, a lower
cost of acquiring customers may be another compelling reason to expand internationally.

Competing for New Sales

Closely connected to the goal of improved profit margins is the desire to increase sales. Even if company
operators generally are satisfied with revenue levels, international expansion can further improve overall
revenues. The race to expand internationally is often about gaining a presence in foreign markets. Being the
first to arrive in a new market can provide significant advantages.

If you don’t enter a ripe market with your solution, competitors do. Not only do you miss the revenue source,
but you lose out on other valuable assets that you could use to promote your company at home and abroad. In
some cases, a strong domestic company gets overrun by a lesser player that succeeds globally and grows big
through global synergy

Diversifying the Business

The international expansion allows a company to diversify its business in a couple of key ways. First, you
spread the risk of slowing demand across multiple countries. If one market never gains or loses interest in your
offerings, you can pick up the slack with success in other countries. In addition, you can connect with suppliers
in international markets and take advantage of raw materials and resources unavailable in domestic markets.

Also, companies often enhance innovation and develop additional variations of their solutions when they
operate in multiple countries. Product diversification similarly insulates you from the risks of declining interest in
a particular item.

For example, Xiaomi, one of the most popular smartphone manufacturers in China, seeks to expand in India
over the next few years. In addition to mobile devices, the company is planning to sell electric folding bikes,
self- balancing scooters, fitness bands and other products. This will allow it to reach a wider audience and
diversify its operations.
Recruiting New Talent

Operating in international markets also gives you access to a larger and more diversified talent pool.
Employees who speak different languages and understand different cultures enhance connections with a
broader customer base. Having an international brand that is well reputed will invite top talent to your
company. You can also structure global work teams in a way that allows for synergy in building a global brand.

Let’s move on to the advantages and disadvantages of global expansion or international expansion.

Global expansion is a growth strategy that involves moving business operations, products, and services from
one country to another. It is also known as "overseas expansion," "international expansion," and "foreign
expansion." It Is the transition from a strictly domestic business model to a global one by entering a new
country and market.

5 Factors that Affect International Expansion the Most

Reasons for overseas expansion are many. It depends on the business type, goals, and strategies. But,
regardless of the reason, businesses must consider these factors before planning the entry into an
international market.

1. Cost and time

When you plan an international expansion, estimating its cost and the average time for completion is crucial.

Why?

 Because it will help you set a budget for the expansion

 You will know the investment for the project success
 Also, it will help you execute and complete the expansion process on time
2. Human resources
Who will look after the new establishment? Who will perform the groundwork? Will you hire local talents or
transfer capable leaders?

Answer these questions before you plan to expand internationally. Consider how you will staff the office in the
new market. Plus, make a list of the other considerations like;

 Educational qualifications of the human resources;

 Their capabilities
 Employee compensation;
 HR laws, benefits, cultural norms, etc.
3. Market opportunities
Before you check the traditional and cultural considerations for global expansion, analyze the market’s growth
potential.

Once you test the market potential, you’ll know if your ideal customers exist in that specific international market
or not. Also, you will get an idea about the amount of investment you need to make in the market.

So, to avoid wasting resources, it is necessary to know the market’s growth potential.
4. Tax and legislative compliance
You must have extensive knowledge about the taxation system (local taxes), immigration rules, trade systems,
and establishment issues. You’ll need to comply with the country’s tax system and laws.

Here, professional help might be beneficial as consultants know better about the taxes, laws, and financial
regulations.

5. Local trends and flavors

One of the reasons for international business expansion is the opportunity of exploring a new market. But,
when you are venturing into a new country, it is a must to learn about the local cultures, people, preferences,
and beliefs. It helps in understanding how the new customers will perceive your business.

Get every detail you can about the local cultures, traditions, and other things that you’ll need to adapt.

Also, know the population demographics like age group, income, etc. It will help you boost sales and increase
your chances of success.

5 Crucial Benefits of International Business Expansion

Along with the global expansion, there are several benefits for firms.

Because of these benefits of global business expansion, firms look forward to expanding the business beyond
borders.

1. Access to new markets and growth opportunities

One of the biggest motivators for international expansion is access to new markets. Being able to sell in a
global marketplace is very attractive to companies, especially those that operate in smaller markets.
Once a firm is successful in the domestic market, it makes sense to take the business beyond borders.
Because with the access to foreign markets, there’s a huge possibility of growth for the company.

Once a firm enters a foreign market, it can also identify other untapped potential markets. For instance, a firm
that expands to India will have access to many other Asian countries through open borders.

2. Access to the global talent pool

One of the advantages of international expansion is access to new talent and new markets.

With the international expansion, you open doors for hiring talents from the global markets. You can find a pool
of potential employees with the right skillset for your business.

Also, hiring from the international market will give you an edge over the local competition. The overseas hires
can help you navigate through the market and understand the nuances of business in the market.

3. Cost-effective production
Among the benefits of international expansion, cost-effective manufacturing is one benefit that leads many
businesses to expand internationally.

Several firms outsource their production function to countries where labor is cheaper, and the infrastructure
costs are also low.

For instance, several US and European companies have manufacturing units in China or India. Outsourcing
production to these countries can result in actual cost savings.
4. Create a new global customer base
When you successfully conquer the local market, finding new customers and expanding the customer base
becomes difficult.

Customers become used to your products. After some time, they might also start experimenting with your
competitors’ products. Hence, it comes as a battleground for you to win over customers. Again.

The benefit of global expansion is that it gives you access to a new customer base. These customers are not
generally aware of your product. Thus, you can sell your products repeatedly to this whole new set of
customers.

However, to avoid risks of international expansion, evaluate the new customers well. Plus, hire international
talents who can prevent the risk of global expansion failures.

5. Get a competitive advantage

When there’s overwhelming competition, globalization becomes less of an option and more of a necessity.

International expansion is the most widely used growth strategy to outpace the ever-growing competition. So,
taking your business to foreign markets open new growth opportunities. You get access to new talents,
customers, and options for cost savings.

5 Critical Disadvantages of Global Expansion that You should Know of

If you have benefits, you also have internal risks of international expansion that require attention.

So, when you plan a global expansion, it is always necessary to consider the pros and cons of international
expansion.

Once you know the disadvantages or risks of global expansion, you can chalk out mitigation strategies.

1. Language and cultural barriers

The regional markets like the EU or Southeast Asia have several cultural and language barriers. For example,
if you are a Europe-based business and decide to expand to Malaysia or Thailand, you will have to research
and learn about their culture and traditions.

2. Risk of compliance
International expansion is full of complexities, especially when it comes to compliance.

When entering a new market, you must adapt and abide by the country’s regulations, payroll obligations, other
taxes, and labor laws. These regulations are generally different from your home country.
Hence, it is significant to connect with the right people who can help you stay compliant with the business rules
and processes.

3. High costs of setup and termination

Whether you test a new market or plan a long-term expansion, you’ll need to bear the setup and termination
costs, building infrastructure, setting up the office, paying local workers are few to name. Plus, hiring
professional consultants to help you with your taxes, legalities, and finances is additional.

Overall, the disadvantage of global expansion is that it is an expensive affair.

4. Government restrictions on immigration
In the face of stringent immigration regulations for long-term workers, establishing a branch and hiring staff is
quite challenging.

So, stay updated on the rules. Plus, expect a tight review from the government. So, make sure you have the
necessary documentation and work permits ready for the employees.
5. International employee management
One of the disadvantages of international expansion is managing the HR and payroll obligations.

Though hiring international talents works great in global expansion, it also demands a whole new level of HR
support.
Why?

Because, in a new market, employment regulations and tax systems are different than in the home country of a
business. So, a strong HR administration to look after the international employee taxes, laws, and
compensation is necessary.

“Don’t try to beat the competitors at their own game. You have to invent a new game and master it” -Reid
Hoffman