Challenges faced when expanding to a foreign market

Key points to consider before engaging your activity in a new country.

As a business (SMB), you may face many obstacles when expanding your activity internationally. The complexity is overwhelming in the fields of market knowledge, culture differences, travel costs, regulatory compliance, managing risks, competition from established businesses and more. These challenges can hinder the growth potential and profitability of your business in the global market. To overcome these barriers, you need to adopt effective strategies that leverage your strengths and address your weaknesses.

As you can see challenges faced when expanding are multiples and varied.

Here, we touch on these different subjects and how we overcome them.

Each country is a different market

Each country is indeed a different market, and businesses face various challenges when expanding into foreign markets. Some of the differences that businesses may encounter when developing a business in foreign markets include differences in regulation, customs, business culture, bank systems, and legislation.

For example, when expanding into a foreign market, businesses must be aware of the local regulations and customs. This can include differences in labor laws, tax laws, and import/export regulations. In addition, businesses must also be aware of the local business culture, which can vary greatly from one country to another. For instance, in some countries, business relationships are built on personal relationships and trust, while in others, business is conducted more formally.

In terms of banking systems, businesses may also face challenges when expanding into foreign markets. For example, some countries may have more stringent requirements for opening bank accounts or transferring funds. Additionally, businesses must also be aware of the local currency and exchange rates.

Legislation is another area where businesses may face challenges when expanding into foreign markets. For example, some countries may have stricter laws regarding intellectual property or data protection. Businesses must ensure that they are compliant with all local laws and regulations when operating in a foreign market.

In terms of specific examples of differences faced by businesses related to France, South Korea, Vietnam and Dubai:

France has a strong tradition of labor rights and worker protections. Businesses operating in France must be aware of the local labor laws and ensure that they are compliant with all regulations.
South Korea has a unique business culture that places a strong emphasis on personal relationships and hierarchy. Businesses operating in South Korea must be aware of these cultural norms and adapt their practices accordingly.
Vietnam has undergone significant economic reforms in recent years and has become an attractive destination for foreign investment. However, businesses operating in Vietnam must still navigate a complex regulatory environment and ensure that they are compliant with all local laws.
Dubai is a major financial hub and has a business-friendly environment. However, businesses operating in Dubai must still be aware of the local customs and business practices.

Overall, expanding into foreign markets presents many challenges for businesses. It is important for businesses to conduct thorough research and due diligence before entering a new market to ensure that they are prepared to navigate the local business environment.

Marketing and customer behaviors can vary significantly when developing a business in foreign markets. According to research conducted by Boston Consulting Group, consumer mindsets and needs can vary greatly across different countries1. For example, Chinese consumers care deeply about how they are perceived by their peers, while Russian and French consumers generally do not1. Similarly, while Nigerians, Mexicans, and Indians are very keen to start businesses, Japanese consumers express little interest in entrepreneurship1. McKinsey also found that consumer sentiment varies greatly across countries impacted by COVID-192. Consumers in China, India, and Indonesia consistently report higher optimism than the rest of the world, while those in Europe and Japan remain less optimistic about their countries’ economic conditions after COVID-192. These differences in consumer mindsets and behaviors can have significant implications for businesses looking to expand into foreign markets. It is important for businesses to conduct thorough research and due diligence to understand the local market and adapt their marketing strategies accordingly.

The importance of having a local representative

Having a local sales representative who knows the language, cultural differences, and has access to local sources of information can be crucial for businesses looking to expand into foreign markets. A local sales representative can provide valuable insights into the local market and help businesses navigate the complexities of doing business in a foreign country. They can also help businesses build relationships with local customers and partners, which can be essential for success in a new market. Additionally, a local sales representative who is permanently present in the market can offer unmatched reactivity and responsiveness to customer needs. This can help businesses build trust and credibility with local customers, which is essential for long-term success in a foreign market. Overall, having a local sales representative can provide businesses with a significant competitive advantage when expanding into foreign markets.

Yes, of course! Having a local sales representative who knows the language, cultural differences, and has access to local sources of information can be crucial for businesses looking to expand into foreign markets. A local sales representative can provide valuable insights into the local market and help businesses navigate the complexities of doing business in a foreign country1. They can also help businesses build relationships with local customers and partners, which can be essential for success in a new market2. Additionally, a local sales representative who is permanently present in the market can offer unmatched reactivity and responsiveness to customer needs3. This can help businesses build trust and credibility with local customers, which is essential for long-term success in a foreign market4. Overall, having a local sales representative can provide businesses with a significant competitive advantage when expanding into foreign markets.

"At the outset, it’s crucial to remember launching overseas can't happen overnight; each country you expand to is like creating a new startup." – François Cazor - Forbes Councils Member

Protecting your business

When expanding your business into foreign markets, it is important to take steps to protect your intellectual property (IP) in terms of copyright, trademark, finance, regulation compliance, and potential lawsuits. Here are some steps you can take to protect your business:

Conduct due diligence: Before working with any foreign partners, make sure you conduct your due diligence. Research potential buyers or distributors to learn if they have any IP violations1.
Work with legal counsel: Make sure that you work with legal counsel to develop ironclad language that protects your IP rights in any licensing and subcontracting agreements1.
Record trademarks and copyrights: Many countries also have departments for securing and registering patents, trademarks, and copyrights, which can give you some defense against an IP rights violation in a worst-case scenario1.
Apply for patents or trademarks: Find information on how to apply for individual patents or trademarks in a foreign country with the intellectual property office in that country; a list of intellectual property offices worldwide is maintained by the World Intellectual Property Organization1.
Protect your copyright overseas: There is no international copyright law. However, it is possible to enforce your U.S. copyright overseas, provided that the country in which you are operating has signed on to any of the various international IP protection treaties1.

By following these steps, you can help protect your business when expanding into foreign markets.

When selling goods and services abroad, it is important to consider several factors to protect your business. These include payment protection, regulation compliance, and lawsuits protection.

Payment protection: To protect against the risk of non-payment by the foreign buyer, exporters should consider using secure payment methods such as letters of credit or cash-in-advance1. As global trade moves towards open account payment terms, understanding credit risk and protection against bad debts is essential2. Offering open account payment terms can be advantageous to compete against the local market2.
Regulation compliance: Successful exporters must comply with both U.S. regulations and foreign import requirements3. It can be challenging to understand and comply with U.S. and foreign regulations for your international sales3. Some products require an Export License before shipping3. Countries have product standards that have to be met, and there are a few countries that you cannot sell to3. There are also considerations when shipping to U.S. free trade agreement countries3.
Lawsuits protection: When selling goods internationally, it is important to consider the legal framework that governs your transactions. The United Nations Convention on Contracts for the International Sale of Goods (CISG) may apply to your sale of goods if you are selling non-consumer goods internationally between countries subject to CISG4. CISG provides a structure for the establishment of contracts for the purchase and sale of non-consumer goods between countries that have adopted CISG4. If CISG applies to your transaction automatically, no specific statement is needed in your contract to have CISG included, but if you prefer not to have all or some of the CISG apply, you must expressly exclude the application of all of CISG or expressly exclude the specific provisions of the CISG that you do not want to apply4.

By taking these factors into consideration, businesses can better protect themselves when selling goods and services abroad.

Accessing information

Having access to local information in the native language of the foreign market targeted through a local agent is crucial when expanding a business into a new country. A local agent who is fluent in the native language and familiar with the local business environment can provide valuable insights and help businesses navigate the complexities of doing business in a foreign country. They can also help businesses build relationships with local customers and partners, which can be essential for success in a new market.

On the other hand, not being able to access local information in the native language can put businesses at a significant disadvantage when expanding into foreign markets. Without access to local information, businesses may struggle to understand the local market and may miss out on important opportunities. They may also face challenges when it comes to complying with local regulations and building relationships with local customers and partners.

Overall, having access to local information in the native language through a local agent is essential for businesses looking to expand into foreign markets. It can provide businesses with a significant competitive advantage and help them succeed in a new market.

Generating the highest ROI

When developing a business in a new foreign market, it is important to maximize return on investment (ROI) by being well-prepared and performing a thorough market study. This involves analyzing the market in relation to the business and establishing a strategy for success. Having a local partner can also be beneficial, as they can help accelerate business development by providing reactivity and trust to customers, communicating local information available only in the local language, and providing insights on customer habits and cultural awareness.

Being well-prepared means having a solid understanding of the local market, including its regulations, customs, and business culture. This can be achieved through conducting thorough research and due diligence before entering the market.

Performing a thorough market study involves gathering and analyzing data on the local market, including information on competitors, customers, and market trends. This can help businesses identify opportunities and challenges in the market and develop a strategy for success.

Analyzing the market in relation to the business involves understanding how the business fits into the local market and identifying any potential gaps or opportunities. This can help businesses tailor their products or services to meet the needs of local customers.

Having established a strategy means having a clear plan for how the business will operate in the new market. This can include plans for marketing, sales, distribution, and customer service.

Having a local partner can provide many benefits when developing a business in a new foreign market. A local partner can provide valuable insights into the local market and help businesses navigate the complexities of doing business in a foreign country. They can also help businesses build relationships with local customers and partners, which can be essential for success in a new market.

Overall, by being well-prepared, performing a thorough market study, analyzing the market in relation to the business, having established a strategy, and having a local partner, businesses can maximize their ROI when expanding into foreign markets.

In addition to being well-prepared and performing a thorough market study, it is also important for businesses to anticipate the threats posed to their business when expanding into foreign markets and implement decisions to mitigate these dangers. This can involve conducting a risk assessment to identify potential threats and developing a risk management plan to address them. Some common threats that businesses may face when expanding into foreign markets include political instability, economic uncertainty, and changes in regulations or laws. By anticipating these threats and implementing measures to mitigate them, businesses can better protect themselves and ensure their long-term success in foreign markets.

Spread the risk by being international

Operating in multiple foreign markets can help businesses spread their risks and improve their survivability in case of economic turmoil or changes in regulation in their country of origin. By diversifying their operations across multiple markets, businesses can reduce their exposure to any single market and better withstand economic shocks or changes in regulation.

An example of this can be seen in the case of Korean companies that were operating internationally in the late 90s when the International Monetary Fund (IMF) took over South Korea. During this time, South Korea experienced a severe economic crisis, with many local businesses shutting down. However, Korean companies that were operating internationally, such as Samsung and LG, were able to weather the crisis better than their domestic counterparts. These companies had diversified their operations across multiple markets and were able to continue generating revenue from their international operations even as the domestic market struggled. This helped them to survive the crisis and emerge stronger on the other side.

Overall, operating in multiple foreign markets can provide businesses with a valuable hedge against economic turmoil or changes in regulation in their country of origin. By spreading their risks across multiple markets, businesses can improve their survivability and resilience in the face of economic challenges.

Conclusion

Hiring a professional to achieve a successful international development and investing capital in order to obtain a leveraged return on investment (ROI) is crucial for businesses looking to expand into foreign markets. A professional with expertise in international business can provide valuable insights and guidance to help businesses navigate the complexities of doing business in a foreign country. They can also help businesses develop a strategy for success and ensure that they are well-prepared to enter the new market.

Investing capital in international development is also essential for achieving a leveraged ROI. This can involve investing in market research, marketing, sales, distribution, and customer service. By making these investments, businesses can better position themselves for success in the new market and maximize their ROI.

On the other hand, companies that do not adequately prepare for their expansion or do not invest in their development often fail within the first three years. This can result in a loss of capital that can be massive. By hiring a professional and investing in their international development, businesses can better position themselves for long-term success in foreign markets.