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mageplaza.com

What is International Business? Key steps to expand your business globally

Summer Nguyen | 03-16-2020

What is International Business?

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Are you aiming to elevate your company’s status and venture into global markets? While navigating the path to worldwide success may pose challenges, with an effective strategy and approach, transforming your company into an international entity is within reach.

In this article, we’ll focus on key steps to help you realize this objective and elevate your business to unprecedented levels. From conducting thorough market research to formulating a robust business plan and securing suitable financing, we’ll equip you with the necessary tools and insights to thrive in the global marketplace.

If you’re prepared to propel your company onto the global platform, continue reading for our top recommendations on expanding your business into international territory.

What is international business?

The word “international business” appears many times nowadays. People can understand it but not really know its notion. The definition of international business cannot explain in a single word or the shortest form.

International business is also known as globalization. It refers to the trade of goods, services, resources, technology, capital, and knowledge across national boundaries.

International business
International Business

International business occurs in different formats:

  • The exchange of goods from one country to another. It can be exporting, importing, and trade.

  • Contractual agreements that allow foreign businesses to use products, services, and processes from other nations by using the licensing, franchising type.

  • The manufacturing, formation and research, and development, and distribution facilities in foreign markets, etc.

To conduct business overseas, we need to recognize the diversity of the world marketplace and are able to cope with potential risks in the global market.

International business can bring many benefits to your company, but besides that, it also brings challenges that we must anticipate.

Why is expanding your business globally necessary?

The significance of international business for organizations can be outlined by the following reasons:

Access to Global Talent

International enterprises access a global talent pool, enhancing the likelihood of securing top-tier employees. Diverse linguistic abilities, skill sets, and industry knowledge facilitate entry into potential markets. These employees bring their native country’s experiences, offering unique problem-solving approaches.

Enhance Workforce Diversity

Workforce diversity is achieved through hiring employees from varied countries, enriching the workforce with diverse cultural backgrounds, ethnicities, and genders. Such diversity fosters increased worker engagement, productivity, and ultimately, business profitability.

Expand the Market

Every business aims to expand its market share by selling products and services. International expansion opens avenues to tap into new markets, offering unique benefits and opportunities regardless of the company’s position in existing markets.

Optimize the Cost Structure

Exporting products to foreign markets enables global businesses to capitalize on cost advantages. This advantage is evident in the dominance of numerous global companies. For instance, cost reductions in production can be achieved by sourcing raw materials and labor from countries with competitive rates, greatly benefiting the business on a global scale.

Grasp the Monopoly Potential in New Markets

Entering untapped markets presents an excellent opportunity to establish a production advantage and maximize profits, potentially leading to a monopoly for the company.

Make Your Products Standout

Expanding internationally allows businesses to highlight their unique selling points (USPs) in less competitive markets, gaining a competitive edge over local players.

Offset Domestic Market Losses

Global expansion provides avenues for companies facing market share declines or product saturation in domestic markets to explore new growth opportunities.

Mitigate Domestic Economic Recession

International presence helps companies mitigate economic slowdowns in their home countries by diversifying market presence. Similar to product diversification, market diversification is essential for sustained company growth, providing a safety net during economic downturns.

Capture Demand Growth in Emerging Markets

Global businesses can capitalize on demand growth in emerging markets, reaching out to fulfill increased demand, thereby facilitating global outreach and expansion.

Optimize Production Capacity

One rationale for companies venturing into international business is to effectively utilize their surplus production capacity by exporting goods on the global stage. If a company’s production capacity remains underutilized in the domestic market, global expansion becomes necessary to mitigate losses and sustain optimal production levels.

As a result, companies begin selling their products in international markets, thereby generating revenue and making efficient use of the substantial volume produced in their factories.

Achieve Economies of Scale

The key to generating profits for any company lies in its capacity and timing to attain economies of scale. As businesses expand, fixed costs inevitably rise, triggering the effect of economies of scale. Essentially, the unit cost decreases as manufacturing scale increases without proportionally increasing resource usage. By strategically implementing this approach, a company gains a cost advantage over competitors, thereby enhancing its operational scale.

Leverage Purchasing Power

Targeting markets with high purchasing power, typically found in economically advanced countries, enables companies to increase profitability by catering to affluent consumer segments.

What are the challenges for your business expansion?

Despite all the advantages that come with expanding your company internationally, you will need to remember that there are also many disadvantages you will primarily need to take into account if you want to have a successful expansion process. Some unhealthy factors may occur with your international business expansion.

Challenges of business expansion
Challenges of business expansion

Language and Culture barrier

One of the vital disadvantages that you need to take into account is the different languages and cultures when you do business in a foreign country. So researching the country where you are going to invest is an important step in order to properly understand the cultural differences you might have and what you can do in order to tailor your products or service to their specific habits and culture.

The common mistake is that people only realize their product is not a good fit for the specific country, which makes them lost money.

This is the reason why making market research before expanding is necessary if you want to avoid these disadvantages.

International compliance and regulatory issues

Nowadays, many free trade agreements allow businesses from one country to sell their products to another country. But it might still be a bit more challenging to expand into different countries.

You might have to pay additional taxes and other fees that will give you the possibility to sell your products in said country.

For other countries which are not in the free trade agreements, you need to pay attention to research their law and compliance to avoid making mistakes during your business. It is also important to pay close attention to data privacy laws when you are operating internationally. For example, US data privacy laws can vary state by state and you need to be very careful to comply with all regulations.

Exchange rate

Currency exchange issue is also another issue that you might encounter when going internationally. The constant fluctuation of exchange rates from one currency to the next can help you increase your sales, but it could lead to a decrease as well.

Remember that your currency can harm your ability to trade. Paying attention to the fluctuations often will, therefore, be necessary if you want to avoid having currency exchange as an important disadvantage and issue.

Local competition

It’s not easy to convince foreign customers to trust your brand while there is a similar product that is made in their home country.

For some big companies with famous brands, they can get customers’ trust more easily. But for small and medium-sized companies, it needs to work harder to persuade the international customers that their brands are trustful and better than the local competition.

International business: Key factors to consider

Nature

The essence of international business encompasses several elements:

  • Import and export of goods.

  • Exchange of services, including the transfer of intellectual property rights.

  • Expansion of licensing and franchising activities across various countries.

  • Foreign investments, encompassing both direct and portfolio investments.

Characteristics

International business exhibits the following distinguishing characteristics:

  • Large-scale operations: International enterprises operate on a significant scale globally, engaging in substantial activities such as manufacturing, promotion, and selling across local and foreign markets.

  • High-risk environment: The uncertainty associated with international business is substantial, given the extensive resources, capital investments, workforce, and geographical spread of operations.

  • Involvement of multiple intermediaries: Due to their large scale, international businesses require numerous intermediaries to perform various functions, enabling them to expand and thrive.

  • Encounter with international restrictions: International businesses contend with various regulations across countries, which may restrict the flow of goods, resources, and technology. Additionally, they face challenges related to foreign exchange barriers and trade blocs, impeding their operations.

  • Generation of foreign exchange: Transactions in international business involve currencies from different nations, making these ventures vital for generating foreign exchange reserves for countries.

  • Competitive market: International businesses face intense competition from established local companies, necessitating investment in advertising and innovation to compete effectively in international markets.

Main features

  • Multinational involvement: International business operates across multiple countries, necessitating transactions between different nations.

  • Extensive documentation: International businesses are mandated to adhere to various regulations, resulting in the maintenance and sharing of numerous documents with involved parties.

  • Legal responsibilities: Each country imposes specific laws concerning foreign trade, imposing compliance requirements on global businesses, which can complicate processes and financial transactions.

  • Time-intensive procedures: The duration between the shipment of goods or provision of services and the receipt of payment is typically longer compared to domestic business operations.

  • Limited interpersonal interaction: Due to the global nature of operations, there’s a lack of direct and personal contact between customers and producers.

Risks in international business

International business

Expanding globally presents abundant opportunities for business growth, yet it also exposes companies to various risks, which can impede their international expansion:

  • Operational risk: Failures in procedures, company policies, employee-related issues, system failures, and fraudulent activities can disrupt international business operations. Controlling production costs and enhancing efficiency are crucial for successful global expansion.

  • Faulty planning: Inadequate planning can lead to increased expenses in marketing, administration, and product development, along with potential violations of employment laws in foreign jurisdictions. Factors such as market saturation, political instability, and lack of accurate research can alienate customers from the brand.

  • Political risk: Government policies in foreign nations, especially in totalitarian regimes or unstable political environments, can negatively impact global business operations.

  • Tax-related risk: Varying tax policies across nations can result in higher or lower tax burdens for international businesses compared to their home country, affecting financial stability and posing tax-related risks.

  • Violation of employment contracts: Failure to fulfill contractual employment obligations in foreign countries can lead to legal risks. Multiplier provides solutions to mitigate cross-border employment-related risks by formulating compliant and inclusive contracts.

  • Global payroll risk: Lack of understanding of local laws and statutory requirements, along with continual regulatory amendments, poses challenges in managing payroll. Utilizing payroll solutions like Multiplier can ensure compliance and accuracy in payroll management.

  • Technological risk: While technological advancements offer benefits, they also pose risks such as security lapses, high upgrade costs, technology failures, and rapid obsolescence.

  • Financial risk: Government policies and currency exchange rates can impact fund transfers between countries, leading to financial risks due to currency devaluation and inflation.

Key steps to expand your business internationally

Steps to expand business internationally
Steps to expand business internationally

Do your research before embarking your international business

The most important thing that you need to do before growing your business in the new territory is to do research.

Conducting a marketing segment analysis will help you figure out where or not your product or service can meet the demands of the intended market. If your product or service is doing well in your current market, it does not mean that it will give your business an international acceptance.

Creating a strategic plan is necessary in order to deal with different markets in various countries. There are some essential plans that you need to analyze with your team to know more about your intended market that you are going to expand to.

With the PEST Analysis tool, you can determine what the Marco factors that may affect your business is.

PEST analysis
PEST analysis

PEST is an acronym that stands for Politics, Economics, Society, and Technology. PEST analysis has become increasingly popular among business owners before launching their stores.

You may want to read more about the article PEST analysis

SWOT analysis is well known as a useful tool to set a plan of action and develop your company. SWOT focuses on four keys elements: Strengths, Weaknesses, Opportunities, and Threats.

These four elements will be evaluated into two groups: internal and external factors. Strengths and Weaknesses can be classified in the internal group.

SWOT analysis
SWOT analysis

Strengths represent the advantages of your company, which make you outstanding and different from other rivalries.

Otherwise, Weaknesses show the disadvantages that your company is facing. This is important to acknowledge them as it is unhealthy for your business, and you need to take action to solve it as soon as possible to avoid losing sales.

External factors include Opportunities and Threats. You cannot control these factors as they come from changes in the market, economic, and political environment. To adapt well when these changes occur, you should figure out the positive impact, which is Opportunities and the negative one that is Threats which can influence your business. Then, you can prepare different plans to cope with it.

The analysis will help you determine not only what are the strengths and weaknesses of your products, but also what kind of opportunities and threats there are in the market.

Adapt to different cultures by gauging the behavior of customers

After analyzing the demand for your products and service in the global market, you should also understand the tone of your consumers in new territories. It requires to adapt to different cultures.

Even you have a high quality of your products and services, but if it does not suit the style and behavior of intended customers, your business will not succeed. To grow your business in the international market, you need to make sure that your business should seem original to the locality.

McDonald’s is an excellent example of the right adaptation. With the strategy closed to localization, McDonald’s adapts to the needs of consumers as required by the cultures of specific countries by providing its menu to each culture. In this way, McDonald’s shows that they respect the differences between cultures and adheres to the country’s policy when they have a plan to add an additional item for their menu.

For example, in Indonesia, the majority of the population is Muslim, McDonald’s replaces pork by fish. Since Indonesians prefer rice over bread, they serve rice together with some spicy meals that locals like.

In India, with a large number of consumers who are vegetarians, McDonald’s opened its first vegetarian restaurant to cater to local vegetarian customers.

Optimize your SEO

With the explosion of technology and global opportunities, store owners need to go beyond the traditional brick and mortar store approach. Building an e-commerce store also helps your business approach to customers, especially when expanding it globally. SEO is a necessary step to focus on.

SEO optimization
SEO optimization

What is SEO meaning is a question raising in your mind. SEO acronyms Searching Engine Optimization. The purpose of SEO is to attract as many viewers as possible to your site. By gaining a high position in the search results page of any search engine link Google, you can increase the number of traffic visiting your web store.

Most customers nowadays have the habit of searching on Google or other kinds of search tools to find their desired products. If your site gains a high rank and takes as much attention as possible, your brand name will have a chance to be in customers’ minds.

Related posts:

Focus on customer support service

Once you launch the business overseas, you will have more international customers. Customer Support will need to be significantly focused when you expand globally.

You will nor serve only for your local clients but also for your international one. They are coming from different countries all over the world with a different timezone. Ensuring that you can answer their question as fast as possible will help you gain their trust and satisfaction.

Delivering excellent customer service is critical to retain clients, then make your business grow. There are different types of customer service such as telecommunication, email, live chat, and social media.

Using Chatbots on the live chat will make your customers feel that they are always be served immediately. However, it also causes a negative impact if a customer wants to speak with your company’s representatives, they may get frustrated with an automated response of a chatbot.

Chatbots are not best suited for every business and industry. If you provide service with consultations, a chatbox is not probably fit your business.

You may want to read more about the chatbox with the blog Revolutionize Customer Experience With The Beset AI Chatbots On The Planet.

Make your products and service familiar to your local customers

Localization of a product is a process consisting of customizing a product to a specific audience and geographical location by translating a name or slightly changing the packaging, for instance.

You will need to determine if your product requires any localization. Then if it needs, it is necessary to do your research in order to see which changes you can make to make this product more attractive to this specific audience.

Besides, if you create your website for customers coming from different countries, you need to redirect them to a suitable store view with their language and currency. It makes customers familiar with your business.

If you are using Magento - one of the popular e-commerce platforms for your store, the store switcher module can be a useful tool to help you do this.

Review the regulations and compliance of the target market

To ensure that you can expand your business globally to avoid any potential legal troubles, you need to implement reliable legal processes.

Review the regulation in the specific industry that you want to attend to make sure that you have all the certification and compliance that it requires. Besides, you need to update the regulations to minimize financial risk and penalty.

For example, on May 25th, 2018, the General Data Protection Regulation (GDPR in the acronym) becomes active. It requires protecting personal data privacy and control over personal information in the European Union. All the store owners who have their e-shop selling products to the EU need to update and follow this rule.

Related post: Magento 2 & GDPR5 must-known


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International business: Best examples

Here are some prime examples of successful international businesses:

Apple

Apple Founded by Steve Jobs, Ronald Wayne, and Steve Wozniak in the 1970s, Apple Inc. has grown into one of the most influential companies globally. With its headquarters in the United States, Apple began its international expansion in Tokyo, Japan, in 2003.

Through its extensive supply chain spanning 43 countries and a commitment to sustainability, Apple has solidified its position as a leader in technology and innovation.

Coca-Cola

Coca-Cola

Originally formulated by pharmacist John Pemberton in 1886 in Atlanta, Georgia, Coca-Cola started as a tonic and evolved into a global beverage giant. With strong leadership from figures like Asa Griggs Candler and strategic expansions into markets like China, Germany, and India, Coca-Cola now boasts a global presence, with over 900 bottling and manufacturing facilities worldwide.

McDonald’s

McDonald's

Established in 1948 by Maurice and Richard McDonald, McDonald’s started as a barbecue restaurant in California before transitioning into the fast-food industry. With a focus on efficiency and a self-service model, McDonald’s pioneered the concept of fast food with its “Speedee” system.

Today, McDonald’s operates over 38,000 restaurants across 120 countries, making it a quintessential example of successful global expansion.

Financial Times

Financial Times

Originally a British daily newspaper, the Financial Times is now owned by the Japanese holding company Nikkei.

Despite initial challenges, the Financial Times successfully expanded its reach internationally, providing unbiased economic and investment information to over 26 million readers monthly, ranging from corporations to individual consumers.

Conclusion

To sum up, there are lots of hurdles to overcome if you want to expand your business internationally. Growing your business abroad in the age of globalization can be risky, but if you have a clear strategic plan, you will receive rewards. Observing the challenges that your company will be faced with is what a successful expansion requires.

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    Summer

    A data-driven marketing leader with over 10 years of experience in the ecommerce industry. Summer leverages her deep understanding of customer behavior and market trends to develop strategic marketing campaigns that drive brand awareness, customer acquisition, and ultimately, sales growth for our company.



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