Expansion into foreign markets can be an effective business development strategy. Despite the potential risks of such a solution, it is possible to build your business internationally at some stage of its life cycle. How can you do it so that you don’t lose out? Read our article and find out.

Entering foreign markets – table of contents:

How to enter a foreign market?

When planning to enter foreign markets, choosing the right target location is an important step. It largely determines whether the venture will be a success and allow you to generate more profits. For example, you can use a PEST analysis to examine the external factors of the business environment that affect the development of your company. These include:

  • Legal regulations – does the country have specific guidelines for manufacturing, selling goods, and providing services? Will you need certain permits and certifications to operate your business legally? In addition, get familiar with tax regulations to best manage your finances and avoid potential penalties,
  • Social and cultural issues – in some countries, the demand for certain goods may differ significantly from other places in the world, for example, food, clothing, or alcohol,
  • Competition – is there a lot of competition in a particular foreign market? If you have an innovative, niche product or service, you can use a blue ocean strategy to stand out from the competition. Alternatively, you can compete with other companies by looking for other ways to gain an advantage,
  • Transportation – consider the cost and organization of transportation so you don’t stretch your company’s budget and keep profitability at a good level.

Is it worth entering a foreign market?

There is no doubt that international expansion is a big challenge that requires a lot of preparation and involves certain risks. On the other hand, the prospect of much higher profits and business development speaks in favor of this solution. What are its pros and cons?

Pros
  • Optimizing costs – in other countries, operating costs (e.g., depreciation, tax liabilities, employee salaries, rent, etc.) can be much lower than in the home country,
  • Minimizing risk – by diversifying and expanding geographically, you are less dependent on economic or political events in a particular country. By being in multiple markets, even in a crisis situation, you still have the chance for a steady source of revenue and business growth,
  • Gaining a competitive edge – entering an emerging market with an effective strategy can enable you to dominate it in a short period of time. Such a position allows you to build strong brand equity, increase sales, etc. However, this requires a quick response to change and a flexible approach to take advantage of opportunities as they arise.
Cons
  • Cultural barrier – differences stemming from different customs and cultures can significantly affect the pace of business development, so it is not worth ignoring this aspect. Ignorance of the applicable rules in business or customer relations can have unpleasant consequences,
  • Legal/financial risk – any investment of this kind carries a certain amount of risk because sometimes the returns are lower than expected due to external factors or organizational shortcomings. Therefore, it is worth conducting a risk analysis and identifying possible threats to the company’s foreign expansion.

Strategies for entering foreign markets

There are many strategies for entering foreign markets. Here are a few of them:

  1. Export

    2. It involves producing goods in the home country and then shipping and selling them in the foreign market. It allows you to save on production costs if they are higher abroad than in your home country. On the other hand, you should keep in mind the costs associated with transportation, any fees, distribution, etc.

    It involves producing goods in the home country and then shipping and selling them in the foreign market. It allows you to save on production costs if they are higher abroad than in your home country. On the other hand, you should keep in mind the costs associated with transportation, any fees, distribution, etc.

  2. Strategic partnerships

    3. Another solution is to form a strategic alliance with another company. In this way, companies can share their resources, technology, experience, and know-how to grow together and conquer the foreign market.

  3. Franchise

    4. This is a way to expand your business by using another company’s brand and know-how in exchange for a licensing fee.

  4. Foreign direct investment (FDI)

    5. It involves either investing in a newly established company (greenfield investment) or carrying out a merger, i.e. transferring ownership rights to the company’s assets abroad. Greenfield investment is quite expensive and risky, but it also has the highest profit potential.

foreign markets

Summary

Entering a foreign market is an important part of a company’s development and can bring many benefits. Choosing the right strategy depends on many factors, such as the type of business, risks, availability of resources, and legal and cultural issues. This is why it is so important to conduct a detailed analysis of the market and business environment in order to understand the specifics of the country and mitigate risks.

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Author: Martin Sparks

E-commerce enthusiasts which constantly digs around the internet in order to make sure he hasn’t missed any important information on the topic of starting and scaling profitable online stores.

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