Steer clear of these common international expansion failures
Expanding internationally is an enormous step in any company’s growth. It is both enthralling and terrifying at the same time. When a company is trying to expand internationally or is “going global,” it is looking to tap into uncharted territory and capture a new market where the demand is to be met.
There are many reasons for organizations to expand globally, like diversification, accessibility to new skills and talent, investment openings, etc. If a company does enough research and planning and the right execution, it can prove to be the best decision for the company. Sometimes the research isn’t done, and the company loses instead of making money. In this article, we will have a closer look at the common international expansion failures and what can be done to overcome them.
Hurdles in International Expansion
However, there are a lot of barriers too. When one is trying to expand internationally, it is not an easy task, to say the least:
- The Distance
In this day and age, you have the Internet and phones to connect overseas. But nothing comes closer to connecting in person to talk to your customers and your partners.
- Unfamiliar Cultures
Sometimes people don’t even research enough the country or the cultures they are getting into? Or how people respond and interact with each other? Understanding this and conquering all the cultural challenges is imperative for making your business global to adapt to the people who will become your customers.
- Tariffs and Export Fees
Many countries bill corporations for transporting goods into their country. In a way to set up and be operational, you need to figure out all the logistics.
Setting up business globally opens doors to new markets. Business arrangements may boost exports and economic growth, but the competition they offer is damaging to small, local businesses.
International Expansion Failures
A company looking for expansion should consider these tactics to avoid international expansion failures.
A Lack of Appropriate Planning
Keeping up to date with competitors and trends to persist long-term is a great way to start. Being the ultimate point of ignorance, this attitude has led many businesses to hurry into a new overseas endeavor without first ensuring that it was a clever strategic decision for its betterment and that the target market would be responsive.
Taking Walmart, for instance. Walmart has done multiple expansions into foreign markets all over the world. Trying to introduce its irreplaceable business model into other countries. Even though some countries were open to Walmart as a brand and its policies, others were not. The primary example would be Walmart trying to expand into South Korea, which failed.
An Absence of Local Amalgamation
When you know your products are fancied and satisfy a need, not familiarising with the local supply chains is another recipe for failure. Most businesses conclude that they can show up at a foreign land and add value to home-grown communities. Still, they miss the mark a lot of the time and don’t consider that the local businesses and suppliers have already been working there and already have a client base. New provisions or startups setting up outside a community’s already existing construction will often fail to stimulate the essential interest and might even be seen as outsiders stealing their wealth.
The best example suited here would be Best Buy’s exit from China. After over half a decade of vigorous hard work, Best Buy, in the end, removed itself from the country. Conferring to reports, one of Best Buy’s mistakes was constructing large flagship stores rather than opting for small, suitably located retail outlets that customers desired. It was furthermore alleged to be too expensive.
A Lack of Cultural Involvement
When you are already there in a foreign land, you should be ready to reflect, express, and operate as effectively as any other local business in that country. You should pay extra care to the market’s culture, language, practices followed, how people interact with each other, etc.
Hire someone who is helping accommodate cultural differences. This process should be done well before setting up in another country. You should be prepared with a plan and execute it when you are there. The need for conversion into the market’s language is imperative. According to one survey of 3,000 worldwide consumers found that 60% of online buyers wouldn’t buy from a brand that was English-only.
The easy one you can make out of many mistakes is a lack of understanding of cultural differences and not catering to a country’s particular identity or its people. A great example of this would be American Motors calling its Puerto Rican entry car the Matador. Though a matador is referred to as a bullfighter in English, it is another way of saying “killer” in Spanish.
The world is filled with innumerable examples of translation mistakes that could have been avoided easily, that have cost businesses millions, and injured their brand image for times to come. A company can easily prevent these transitional mistakes. You communicate through your brand. Always make sure you express to your target audience in their language precisely and efficiently. You can use language specialists, rather native speakers, who are acquainted with local dialects and cultures to correctly localize your brand’s image and your hard marketing work to the target audience.
Lack of Planning
Lack of planning and acknowledgment plays a massive part in the failure of a business when expanding globally. The one reason for businesses to go beyond their country is to enter into new capital and clienteles. Trying to keep up with opponents, some companies dive right into overseas markets lacking a solid plan. They don’t study the uncharted markets, don’t evaluate changes in local versus global strategies, and don’t consider the variables of running a business globally. Businesses often pull out of international markets because they dive in, depriving of a plan.
These days, communication is the main trial for businesses, even locally. The load grows even larger when you enter markets that are different and new to you, the native language is different, and the behaviors of potential clients are different. Worldwide businesses must consider its effects in the communication area if they are hiring native talent, making global workplaces and virtual teams, and network with local customers.
People who are local and can speak the local language are an undeniable part of succeeding in doing business and serving clients right. Businesses that fail to accommodate for the communication challenges barely get a second chance.
Lack of Adaptability
The incapability to adapt to the needs of the local marketplace and people can also be the chief reason for a global failure. Many companies don’t consider the support of locals and don’t try to incorporate the communities they serve.
Consequently, businesses that enter global markets and fail to integrate local talent, manufacturers, and business partners can with no trouble become outsiders in the local markets. Social influences also critically affect expanding businesses because various people see products and businesses differently around the globe. Companies often fail by not acquainting themselves and their staff to the markets they are entering.
Bad Market Reception
Only having a good plan doesn’t ensure that it will all fall into place. Sometimes new consumers don’t understand your brand value and ethics. In several cases, people don’t buy into definite brands or product concepts to a different demographic.
Wrong Assumptions About New Markets
Businesses that have products and services that are already doing great and are established in the U.S. more often than not assume that the demand in international markets will be similar, if not better, than this. And capturing an under-served market will be a jackpot demanding only a small investment marketing. The hard lesson that some businesses learn at huge cost is that their product or service doesn’t fit into the market as they would have anticipated, or sometimes, that the product’s price point is way out of the purchasing power they have and are willing to pay. Appropriate and impartial market research can help avoid these grave mistakes.
A substitute tactic that can attain the same goal is a strategic acquisition of a recognized business and operating in that demographic. This approach permits leveraging many benefits such as the local network of people, existing business relationships, and legal necessities.
Underestimating The Market Costs
Expanding into a new demographic and failing to account for all of the costs of operations in the new market can hurt an otherwise successful plan. Operating on a foreign land may include expenses like higher taxes such as a value-added tax (VAT), extra fees, and duties atypical of business in the U.S. Sometimes these unwanted expenditures devoid the expected profit margins. It is crucial to take advantage of the well-informed and experienced individuals in the local market who can help you understand the real business budget and save you past the risky miscalculations about financial availability.
Distributing Your Domestic Operations To The Local Market
It is not the best strategy to give management to people who have no experience with the foreign land. Even though they have experience with the company or the product. While they understand the company and the product, they don’t understand the local traditions, rules, and culture. They don’t have meaningful relationships with the people of that country. The best advice is to have native management with a local backing staff in that particular country or area, who can be answerable to superior management in the parent company. To succeed in a domestic market, businesses and products eventually must be recognized as their own by the consumers. Not to mention the exclusion of products that are being branded and marketed as “imported.” Success in this area hinges on a variety of “localization” attempts.
Only translating marketing resources and advertisements into the local language is a grave mistake. These marketing and advertising campaigns are most fruitful and impactful in the local market mirroring the local ethics, culture, and values. They can also resonate with the audience.
Find local suppliers to work with. Enduring relying on your US supply chain instead of a local one could prove to be a major stumbling block. The business really shouldn’t miss out on the opportunity to take advantage of local resources. And when you spread that supply chain across overseas, not only do you upturn the cost of maintaining it, but you also increase the cost of managing it.
Too Late To The Party
Most businesses want to expand to other countries, but sometimes they are too early or too late. A company should decide when is the right time to grow and research markets where it is expanding. There are two dangers of going too early or too late. The understandable one is that competitors have already developed as the monopoly market player and stretched to the strongest positions in other markets. Not much obvious one is how the workplace culture of the corporate can harden around one country.
Technology, product, and marketing are all adjusted for the home market, making it harder and harder to rebuild them or remold them to fit into international platforms and markets. In these scenarios, international operations may be unprofitable and cracked down by the home market for years to come. It is then easier for these unprofitable global operations to shut down.
Failing to Get Expert Opinion
A small number of entrepreneurs hold all of the knowledge and skills required to lead their companies into a worldwide expansion. Many experts have done that before anyone else. They can provide incomparable advice and guidance to help avoid the many slip-ups and consequences awaiting the uninformed person leading the expansion. Of course, expert advice is not for free. Still, it is nothing compared to the operational costs, lost opportunities, and damaged brand name caused by failed attempts or other initiatives, which may lead to the ultimate pitfall.
Furthermore, committing to not using the international talent and resources required is also lethal. Opt for an internal staff for which the international expansion is not just another responsibility. People who connect to your brand will help you get farther in this journey. Commit them to this as their primary obligation. Pair them up with overseas experts and ensure the transfer of knowledge so that you’re developing internal capability while growing the business.
Avoid Common International Expansion Failures Mistakes
Avoid International Marketing Errors
- First and foremost, research to ensure that your company doesn’t fall prey to an international marketing error. You should do a few things before setting up the store in a new country, region, or even state. R&D being the first on your list.
- It’s important to find first whether or not there is an opportunity and needs for your service or product in that international market before arriving.
- Sometimes companies fail to accommodate according to customers’ preferences. An example would be Starbucks in Australia. Starbucks thought that it didn’t need to accommodate its offerings according to the needs of Australian consumers. Australia is already a rich country in coffee culture, they didn’t change the menu according to the consumers, and their coffee was too sugary according to their tastes. Cafes in Australia already offer a different menu of coffee-related drinks to their customers. Starbucks didn’t offer anything different.
- In addition, you have to double down on the consumer preferences of the new target audience. What type of products they like, what their behaviors are, what flavors they desire, and simply whether or not your contribution will be valuable to them.
- Be willing to pay for excellence because talented people are like good investments. They will help you in your future. Always hire the best employees possible to lead your company to grow into success in global markets. You need to understand that local experts will better understand what customers want and how to sell it to them. They are in a better place to understand consumers’ needs.
Study Your Target Country
Another mistake behind international business expansion failures is not doing enough research on your target market.
In addition to planning your expansion, you need to ensure that you have a detailed understanding and knowledge of your local market. Many businesses avoid this step, assuming that all markets are the same as their home markets.
Get to know the following aspects about your target country:
- Local trends of the industry and predictions
- Important players: opponents, suppliers, manufacturers, partners
- Market dynamic forces: distribution channels, marketing channels, etc.
- Culture and traditions, local languages, behavioral practices, etc.
- Rules and Regulations: taxes, legal documents, customs, etc
Questions To Ask Yourself To Avoid International Expansion Failures
Consider asking yourself these questions to avoid international expansion failures and if you are expanding for the right reasons:
- Is your business arrangement flexible enough to adapt to new markets. Can you adjust according to the new requirements if needed?
- Do you have enough financial stability to acquire international growth and sustain it?
- Can your company handle failure expansion into the global market and still sustain operations back home?
- Does your company have a dedicated management team in place which is locally enriched snd sufficient to handle operations overseas?
- Is your company ready to face global challenges?
- Does the company looking for expansion have the necessary resources and staff to facilitate international expansion while maintaining your existing domestic customer base?
Expanding business in the 21st century is necessary for survival, and it is not an easy task to combat. You cannot put it off till it is very late, or you can’t get into it too soon too. Specialists think that businesses that fail to prepare themselves for globalization will predictably shut down. Yes, global expansion is essential for business growth. but ensure you avoid common international business expansion failures.
You can try expanding your customer base from your home market and charm to a larger market. And then eventually expand overseas when you already have some followers or customer base. However, without proper planning and assets, achieving all of this is impossible.
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You might also enjoy these popular startup growth-related articles What To Consider When Expanding A Business Internationally, International Market Selection For Startups and When Is The Right Time For A Startup To Expand Into International Markets? on the same topic.
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