The world has gone global — and there’s no going back.
Take retail. The rise in e-commerce launched companies into successful international businesses with very little friction. In fact, 21% of all retail came from e-commerce in 2020, at a value of $4.28 trillion USD. That’s exponential growth in just a few short years.
With e-commerce making it so easy to expand, the real question is: Is your business ready?
What is global expansion?
Global expansion is the process by which companies from one market (often referred to as their home market) expand operations into a foreign market (often referred to as the target market).
This may be done one market at a time, or regionally — for example, expanding to all of North America instead of expanding just to Canada or Mexico separately from the United States.
Why expand? The benefits to your business can be substantial:
- Better profit margins: The larger companies grow, the easier it is to access economies of scale. For example, the cost for $93-billion giant Walmart to open a new store is negligible compared to their bottom line.
- Less competition: How you bring a new category or product to a market can define it forever, similar to the way many people refer to tissues as Kleenex regardless of brand.
- Playgrounds for innovation: New markets mean new ideas. Different tastes and preferences, business structures, and competitive pressures can help your business create something totally new.
- New talent: Expanding your business internationally unlocks a global talent pool that brings new energy, ideas, and expertise, especially as you navigate different cultures.
5 elements of building a global expansion strategy
Global growth can be one of the biggest tests your company will face. Every market has a different set of norms, expectations, and competitive pressures — so what worked for you domestically may not translate perfectly into other countries.
In fact, expanding globally too soon can wreak havoc on your business, according to Harvard Business Review. Most companies lose money on global expansion, and only 40% of companies turned in more than 3% return.
The reason? Companies weren’t ready for the challenges that come with international growth, treating it as a default growth option rather than a strategic investment.
Don’t make the same mistakes — consider these five elements of a global expansion strategy before making a move:
1. Choosing the right strategic model
Many brands leap to expansion without thinking through all of the elements of a cohesive expansion strategy. So, the first thing to do is align on which structural model for your business strategy you want to consider.
Globalization isn’t one-size-fits-all. In fact, companies choose from a variety of models, including:
- International Strategy: This is usually the first approach most businesses take with global expansion and the one referenced by the retail example above. An international strategy focuses on exporting or importing goods and services while maintaining a head office or offices in their home country. Think luxury goods like wine importers or coveted imported cars like Porsche as examples.
- Transnational Strategy: Transnational businesses operate with a central or head office in one country that coordinates local subsidiaries in international markets, combining the best of centralized decision-making and scale. Companies McDonald’s, Nike, and Coca-Cola use this model.
- Multi-Domestic Strategy: When businesses use entirely different sales, marketing, and product strategies based on the specific companies they’re operating in. Rather than one global brand, there are many smaller, country-specific brands tailored to local tastes and local customers. Think of big-name wellness brands like Johnson & Johnson — if you’ve bought Band-Aids, Neutragena moisturizer, Splenda, or Tylenol, you’ve actually bought something from Johnson & Johnson.
- Global Strategy: When businesses define one global brand, making little to zero changes for other markets. Tech giant Apple is perhaps the greatest example of a complete global takeover, with the same technology in every market (and only a few minor changes on keyboards and software to show for it.)
Don’t worry about locking into one type of strategy only to realize it’s not the right fit.
Companies move between these strategies as they grow and expand into the markets that best work for them, so you should expect to do the same.
2. Determining the right markets and how to enter them
“Global expansion” covers a lot of ground. Once you know what model is right for you, it’s important to consider your market entry strategy. These align with different sections of the structural model you’ve chosen above.
Every market will require something different, so depending on your strategic model, you’ll need to adapt your operations to accommodate different legal and regulatory procedures, currencies, languages, and cultural differences.
Aiming to enter a new country like China, India, or Japan is entirely different than entering Germany, Italy, or France, and vice versa.
The five most common market entry strategies for global markets (based on the models above) are:
- International Strategy
- Exporting: Businesses engage in either direct exporting and indirect exporting through a third-party reseller or distributor. Exporting allows you to enter many markets simultaneously but can be challenging to scale without hiring in-country resources.
- Licensing: This involves transferring the rights and intellectual property from one company to another, using a local partner (the licensee) to create and distribute your product. This can give up some control of the quality and brand, but it’s an efficient way to access a new market.
- Transnational Strategy
- Franchising: Franchising involves bringing in an outside company (known as the franchisee) to run additional locations for a fee. Franchising is one of the fastest market entry models because it distributes the entire process and brand materials with corporate assistance.
- Multi-Domestic Strategy
- Partnering and Joint Ventures: Partnerships and joint ventures tend to be less formal and cohesive, depending on the nature of the partnership. It can be as simple as a co-marketing agreement with a well-known foreign brand (you promote our products; I’ll promote yours) or as complex as manufacturing and sub-contracting for the supply chain management. Joint ventures formalize a partnership to create a brand new company that operates in the new market.
- Mergers and acquisitions: A more aggressive model, mergers and acquisitions take over a competitor operating in a given market in order to reap the benefits. It’s often used as a shortcut to accessing the competitive advantage from a local firm, using their resources, knowledge, and talent to enter a market seamlessly.
- Global Strategy
- Greenfield Investments: This is the most challenging of the market entry strategies but the most rewarding in the long run. Rather than becoming reliant on different forms of outsourcing, this strategy essentially re-starts the company in a brand new market.
3. Hiring a team with a global-first mindset
Everyone loves to talk about the perfect products, sleek advertising, or a killer sales strategy as the thing that will make a company successful. But what’s underneath all of those? People.
Your global expansion strategy hinges on your hiring and staffing plans. Whether or not you plan to open in-country offices or manufacturing, you still need people on your team comfortable working for consumers in that market. That can be fluency in a given language, experience living or working there, or deep expertise in the market trends.
At a minimum, you need to make sure you’re facilitating a corporate culture that promotes a global-first mindset. That means thinking about the implications of imagery, how well a given phrase will translate, or whether or not that meeting might be in the middle of the night for global colleagues.
One of the greatest benefits of working as a global business is accessing top-quality talent from anywhere in the world. You really can find the best designers, translators, engineers, and managers — if you’re willing to expand your aperture. Make sure your business is comfortable and ready for remote work across time zones, borders, and cultures before expanding beyond your borders.
4. Understanding your target markets
Once you have your team in place, conduct a deep dive into your new customer base.
It’s an old adage in marketing to “understand your audience.” Yet, it’s still relevant because companies often skip this crucial step in their global expansion plans. That doesn’t mean talking about what you think you know about a market — or what you think you know based on a week spent on vacation there a few years ago.
To understand the market in different countries, you have to listen to your potential customers in that market. Conduct market research and find out more. What are their pain points, and how does your product solve them?
Just as you did for your domestic product launch, make sure you fully know what your customers in those markets care about, their communication style, which kind of messaging resonates, and any specific cultural norms for doing business. Something as simple as the right style of a handshake or correct greeting can make a big difference.
A big piece of this is language.
5. Managing localization and translation
When deciding between two similar products, 75% of consumers are more likely to choose the product available in a language they understand. Before you expand into a new market, make sure you’re providing everything they need in their language of choice.
That means preparing your website for localization and translation — a few back-end steps in your code so that text can expand or contract, handle multiple languages, and right-to-left or top-to-bottom orientations, depending on your target market — and finding the right localization service to make sure every new web page, app workflow, or content piece is ready for primetime.
Translation refers to changing the words of a given language to another, while localization does the tougher work of making sure an experience feels as local as possible, from colloquial references to imagery relevant to the local market.
Today, creating localized experiences has become an integral part of businesses looking to expand globally. Your digital presence is your brand — so make sure you’re making the best impression possible by translating your content into that language.
Ready to expand globally? Talk to Smartling.
The good news? While the localization and translation may seem like the most daunting aspects of global expansion, they don’t have to be. Smartling offers a world-class translation software solution built for you.
That way, you can professionally translate and localize all of your content across devices and platforms without sending a single email, touching any button, or managing strings in spreadsheets...no matter how many markets you choose to enter. https://www.smartling.com/localization-software/