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2.5 Identify risks and opportunities (I)

Before expanding your business to another location internationally you do need to carefully consider all the benefits, advantages and opporutnities as well as disadvantages and risks.

However, there are pros and cons with any business expansion, and international growth is no exception. With careful forethought and planning, your business can go to the next level and take advantage of a whole world of opportunities.

Here are some ways in which international expansion may or may not be the right move for your business.

Advantages and opportunities

Reaching new customers

You probably have a good idea of how your business performs in its home country, but the available pool of prospects will expand dramatically, and they may even have an enthusiasm for your products and services that outmatches the customers at home.

Spreading business risk

The more countries in which you have a presence, the more the ups and downs of business fortune will become smoothed out and easier to manage.

Accessing new talent

Expanding to an international location could give you access to talented, invaluable new employees and business partners who would take your enterprise to the next level.

Amplifying your brand

Expanding your business out from its home country will have the effect of increasing the visibility and therefore brand equity of your name, logo and ethos.

Securing foreign investment

You may find that growing your business internationally gives you access to investment capital far beyond that which is available in your original location.

Lowering costs

Operating in multiple locations will quite naturally increase the quantity of products and supplies you need to order, allowing you to negotiate lower prices for your growing bulk purchases.

Increased immunity to trends

Having a presence in more than one country can help you to ride out the winds of trends, fashions and fads – a product or service that has become dated in one location may still be going strong in another, buying you time to rethink your approach.

Disadvantages and risks

Foreign rules and regulations

Every country has its own tax and employment laws as well as business registration and trademark considerations and papers that must be filed in a foreign language.

Handling logistics

Handling communication and/or organising shipping of physical goods between sites might be difficult as well as considering that not every country has the same resources and infrastructure and it may be best not to make any assumptions about the things you need to operate in the new country.

Speaking the language

More than three-quarters of the world’s 195 countries don’t speak English as their primary language, and even if you are expanding to one of the many nations that speaks it as a secondary language you will need to get to grips with the local tongue if you intend to communicate properly with your new customers.

Coordinating time zones

Another consequence of expanding internationally is that you can introduce a time zone disconnect between your sites – as an example, an American company expanding to India might find themselves in a predicament, as the 9am-5pm office hours in America would correspond to 6:30pm-2:30am Indian time!

Monitoring currency fluctuations

The value of your home currency relative to your target location at any given moment can have huge significance for the success of your business, so, for instance, if your home currency is weak by comparison, this can allow you to offer competitive pricing in the secondary location

Mitigating credit risk

A domestic customer who defaults on their bill can represent serious trouble, but that goes double for foreign clients, as depending on the location there may be no guarantee at all you will be able to recoup outstanding debts from non-paying customers.

Following foreign politics

Assuming that your target country has the same political environment as your own nation could be a recipe for disaster. Political events can affect your business dramatically – what are you going to do if the foreign government embargoes or outlaws something you rely on?

Gathering market research

Depending on your business, you may find it necessary to rebrand your company or rethink your products/services for best results.

PESTLE analysis example

A strategic management tool used to identify, analyse, organise and monitor key external factors that can have an impact on your business now and in the future is the PESTLE analysis.

It examines opportunities and threats due to the follwoing factors that can support you in carefully plan your internationalisation process and make appropriate decisions:

Factors

Issues to consider

Questions to ask

P

Political

Government policy, political stability or instability, bureaucracy, corruption, foreign trade policy, tax policy, trade restrictions, labour / environmental / copyright / consumer protection laws, competition regulation, funding grants & initiatives, etc.

What government policies or political groups could be beneficial or detrimental to our success?

Is the political environment stable or likely to change?

E

Economic

Economic trends, growth rates, industry growth, seasonal factors, taxation, inflation, interest rates, international exchange rates, International trade, labour costs, consumer disposable income, unemployment rates, availability of credit, monetary policies, raw material costs, etc.

What economic factors will impact on us moving forward?

Does the current economic performance affect us?

How does each economic factor impact our pricing, revenues, and costs?

S

Social

Attitudes and shared beliefs about a range of factors including health, work, leisure, money, customer service, imports, religion, cultural taboos, the environment; population growth and demographics, family size / structure, immigration / emigration, lifestyle trends, etc.

How do our consumer’s values and beliefs impact on their buying habits?

How does human behaviour or cultural trends play a role in our business?

T

Technological

Technology and communications infrastructure, consumer access to technology, emerging technologies, automation, legislation around technology, research and innovation, intellectual property regulation, competitor technology and development, technology incentives, etc.

What innovations and technological advancements are available or on the horizon?

How might they affect our operations?

L

Legal

Laws regarding consumer protection, labour, health & safety, antitrust, intellectual property, data protection, tax and discrimination; international and domestic trade regulations/restrictions, advertising standards, product labelling and safety standards, etc.

What regulations and laws apply to our business?

Do they help or hinder our business?

Do we understand the laws across all our markets?

E

Environmental

Weather, climate change, your carbon footprint, environmental regulations, pollution laws and targets, recycling and waste management policies, endangered species, support for renewable energy, etc.

How does our physical environment affect us and vice versa?

What are the effects of climate, weather or geographical location?

Are we prepared for future environmental targets?

Let us explore an example of PESTLE analysis carried out by Uber, a rapidly growing taxi service provider in the world allowing easy access to the service through an app.

Political Factor

One of the things that have put Uber in trouble is that it has not made its regulations clear. For example, people have questions about its insurance policy. Some of the questions that are in the mind of the users are if there is an accident, then the company will hold the driver as accountable or the company will take the blame for itself.

Economic Factor

Social Factor

Technological Factor

Legal Factors

Uber needs to follow technical usage laws, labour and employee safety laws and copyrights laws as well.

Environmental Factors

The impact of Uber on the environment is not certain. Few say that fuel usage and traffic congestion is increasing.

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