How to expand your business internationally – A beginner’s guide
Valued at over US20 trillion a year, global trade is predicted by the WTO to grow by 2.4 percent in 2017. Asia Pacific is expected to grow at 5.3 percent according to the IMF , making it one of the world’s most attractive regions for business.
For entrepreneurs and business leaders, the opportunities to expand your business overseas look better now than ever before. Advances in global technology and trade infrastructure have also levelled the playing field for both large and small firms alike.
Thinking about venturing overseas? Read on to find out some of the most common possible forms of entry.
1. Export – Sell your goods overseas without a local presence
Exporting is the process of sending goods or services to another country for sale. The mode of transport does not matter. Any items which are produced locally and sold to someone from a foreign country may be considered an export.
More profitable as all revenue are directly gained by your business
Diversify risks by protecting yourself against downturn in any single market
Gains exposure to new ideas and ways of doing business
May place additional demands on your business
Can be harder to estimate costs of business, which means greater financial risk
May bring logistic challenges, especially in large and diverse markets like India or China
Pro-tip: Do your due diligence prior to jumping on board, from testing your market fit and choosing the right channel partners, to planning logistics and financing options. Also, ensure that you have a robust market analysis and funding plan that will tide you through the worst possible scenarios.
2. Joint Venture – Partner with a local business
A joint venture (JV) is a partnership built with one or more parties in the local market of your target country. The JV parties come together and agree to share assets, knowledge, skills and profits for the benefit of the joint venture.
Joint ventures can help smaller companies achieve scale in a quicker way
Foster information exchange and knowledge sharing
Allow insights into local business context, regulatory environment and culture
Sharing of business risk and costs
Some countries limit the share ownership of foreign companies to minority participation in the venture, which also means less control
Time and resources needed to conduct due diligence exercise
Less profitable than direct export and sales
Pro-tip: Look for partners with complementary strengths, assets or technical know-how. Seek all necessary legal advice before setting up the JV and signing the agreement.
3. Distributorship – Partner with a local distributor who helps to re-sell your products
A distributor is someone you assign to buy your company’s products and resell them to their own customers. They usually have established sales networks, e-commerce or retail stores, providing you an immediate local presence while reducing your own sales and logistics requirements.
Immediate access and presence in established markets
Benefit from experience and market knowledge of established local contacts
Reduce logistics and funding requirements
Minimal control over the way distributors handle customers or market your product
Sharing of profits with distributors
Pro-tip: Take time to select the right and most reliable distributor partner to work with. You will also need to spend time and money training your distributor to understand the product /service well, and deliver it according to market needs and customer satisfaction.
4. Franchising / Licensing – Equip and License Company to Sell Locally
In a franchising arrangement, you as a brand owner provide training, merchandising, marketing support and the use of a trademark for your franchisee. In return, your franchisee would pay you an initial sum of money (called a franchise fee) as well as ongoing royalties from the sale of goods and services.
A licensing agreement has certain similarities to the franchising model in that your licensee will be allowed to use your intellectual property (eg. product and character designs and logos). However, it is usually offered at a lower cost as it only allows the licensee to use, make and sell a licensed product.
Enlarge your distributor network and presence
Enhance branding and customer reach
Economies of scale
Participate in a tried and tested business model (for franchisee)
Reputation may be at stake if franchisee or licensee are uncooperative
Requires high capital outlay (on the part of the franchisee)
Requires a tested and proven business model and systems
Pro-tip: If you’re interested in becoming a franchisor, you should start by building up your company’s brand name, and consider overseas markets that have good growth potential. Participate in overseas franchise fairs and do your own research online to determine the feasibility of finding a local franchisee in your target market.
5. Overseas Direct Incorporation – Set up your own shop
Companies can expand into new markets by setting up a branch office, representative office or subsidiary company. Most companies start with a branch office overseas and staff it with one or two senior staff to do business development before making the necessary connections.
Directly benefit from all new sales made
Establish and grow new markets on your own terms
High capital and resource outlay
High business risks
Steep learning curve for beginners
Pro-tip: Do your homework and seek local advice or business mentors to help you prior to taking the leap. Do also conduct extensive research to ensure that you are familiar with the legal framework in the country of interest.
6. Mergers and Acquisitions – Buy over an existing business
Mergers and acquisitions (M&A) is the buying, selling, or coming together of different companies. Smaller companies can benefit from being acquired particularly if they are weathering tough times and experiencing difficulty staying afloat.
Greater cost efficiency through economies of scale
Potential to gain complementary business units, talent and skillsets
Increase their market share
Highly complex and costly exercise
Potential integration issues
Potential disagreements from shareholders
Pro-tip: Apart from identifying the right business to buy, you will also need to take time to understand the regulatory / political framework surrounding the business. Proper investment banking and legal advice at the start of the process can go a long way.
- Raymond Lim, Chief Technology Officer, Hatchhit International Pte Ltd -