Healthy Xenophobia - Avoiding the pitfalls of International Expansion

I was asked a question of whether or not I would expand my business internationally should there be a market for my product. I meditated on this for quite some time and, after much tortured deliberation, I came to the following conclusion…..YES. Thank you for reading my blog. Good night!!

Ok, I’ll prattle on a little further on this topic. I think it goes against my entrepreneurial nature to address why I would not pursue global expansion should there be a demand for my product. I believe it is important, however, to do every in my power to avoid the many pitfalls involved in doing business internationally.

Prior to expanding internationally, it is important to review the domestic operation. Do I have a smooth running business? Is my product experiencing strong and growing demand here in the U.S.? The stronger the performer domestically the better shot one has internationally. Of course, there can be examples where domestic demand drags but the company finds success overseas but that might not necessarily lead to relocation versus expansion. Now you’ve decided to take the plunge and try your product in France, for example. What business model works best in France? Here in the U.S. a particular business might work best as a stand alone entity but in another country a franchise might be the way to go. Some countries restrict foreign entities from having total control of a business operating within their borders. In this case you may need to pursue a joint venture with a local firm or individual. Cost is another issue to consider no matter which business model you choose. For the sake of this discussion, let’s assume the best route for entry into France is a joint partnership. This brings up a slew of new questions and concerns. Who will be the best business partner? How do we research potential partners and once found how do we check the references of our new business buddy? A business partner in a foreign land should not be chosen just because by linking up with him allows you to do business in a foreign country. This new business partner needs to bring something to the table as well. Do they have experience in your line of business? Are they connected to the local political and banking networks? Are they wanted for war crimes? Another concern to keep in mind, you need a plan to manage the language and cultural differences between all the countries you make expand into. The U.S. is one, huge market with the added benefit of a shared culture and a common language. Once you expand internationally you can find yourself dealing with multiple language and several confusing cultural differences where a single gaff can mean a serious loss of business. Now you know the How and the Who but what will be the capital requirements? Can you afford to expand into this country? Can you afford the lost revenue as you ramp up operations? Expanding overseas is a lot like starting from scratch and, like the business you built here at home, money was lost in the formative months or years. This will probably happen again when expanding into a foreign market. As you can see, homework is paramount when venturing into unknown territories. What is the labor situation like in the country at which you look to expand? Are labor costs higher? Is there a history of strikes? In France, a striking workforce is second only to soccer as the entertainment of choice. Higher labor costs cut directly into the bottom line. Currency rates can move rapidly and can increase cash flow rapidly or turn a profitable transaction into a money loser in a matter of days. Taxes, the U.S. tax code is confusing enough, throw in the tax code and tariffs of another country and you can quickly become overwhelmed. These costs all affect the bottom line. It bears repeating. Homework is paramount. You need to know as many of the variables in doing business in a foreign country as possible. Costs are a major concern but what about the political stability of the market? Business can be chugging along; smooth as silk, but a country with an unstable political atmosphere can shut you down overnight.

These are all potential scary scenarios but doing business internationally has been around as long as business itself. If you see an international market that can be exploited it is your duty as an entrepreneur to exploit it! It is important to remember, however, to get your ducks in a row before galloping off to France or wherever to expand your empire. Do your homework. Learn as much as possible about every market in which you are looking to expand. Take your time to make sure that you are armed with the knowledge and wherewithal to make your international expansion a success.