When you are looking to expand into international markets, many factors can affect your decision. The country you’re expanding into could be very different from the one in which your company originated, and this difference could impact everything from language barriers, cultural differences, or even government regulations.
Before deciding whether or not to go forward with an international expansion strategy, it’s essential to consider these factors carefully and come up with a plan of action to address them.
In many cases, you’ll want to hire an international market entry consultant or firm to get advice on the risks and benefits of expanding internationally. The consultants can help guide business owners to develop international expansion strategies and guide them through the process.
Apart from understanding the risks and benefits, the experts will also help analyze your competitors’ expansion strategies and determine which ones have been successful thus far. Understanding what your competitors did right (or wrong) will give you valuable insight into whether it’s viable for you to go forward with international expansion efforts in that particular country.
Some of the vital factors that have to be considered before an expansion are as follows:
Culture
Culture is a critical factor in developing international business for obvious reasons. To succeed in a new culture, you’ll need to be aware of their attitudes towards certain things like time management or hierarchy within organizations and how these affect the business.
The first aspect of culture that affects international expansion is language barriers. Language barriers can make it difficult for companies to communicate with customers in other countries. Not everyone speaks the same language, both literally and figuratively. This creates a challenge when businesses expand their product lines into new markets and create international sales contacts.
With that said, language barriers are relatively easy to overcome with the proper preparation and tact. In doing so, business leaders inevitably help themselves clear the cultural hurdles too.
Barriers from Legal and Regulatory Factors
The legal and regulatory barriers faced by businesses in the international market are complex, which is why it’s essential to have a lawyer understand the specifics of your business, industry, and situation. Legal barriers are difficult to overcome for companies that are expanding internationally.
The laws of various countries vary greatly, making it hard to find a legal team that is familiar with the language or culture of your new location. This often results in expensive delays as translations must be provided. The case may worsen if one has to hire an attorney who has no better understanding of the situation. These costs can quickly eat into profits resulting in lost opportunities. This is because it’s too costly to promptly locate qualified help within a new country.
Consideration of the Foreign Governments
The stability of the local government and its authority is one of the most important factors when examining if a country is suitable for business. The more stable, the better. It’s not just about how fair or democratic it is but also about how powerful it is to enforce laws and regulations.
A weak government will struggle to protect investors. At best, they might offer little more than lip service in response to complaints from foreign businesses. However, in the worst cases, they might collide with foreign firms to exploit local workers. Many examples of fraud and corruption have caused investors significant financial loss or damaged their reputations when operating abroad.
If you’re looking for a country with no fraud risk, it would be best to look at countries that score high on Transparency International’s Corruption Perceptions Index (CPI).
Regulation in Regards to Employment and Taxation
Tax and employment regulations are vital considerations for any business looking to expand outside of its home country. Yet, when they are not considered in advance, these factors can significantly impact the success of an international expansion project and can prevent a company from realizing its full potential. Income taxes are not imposed equally across all countries.
In addition to individual income tax rates being different depending on where you reside, there is also a wide range of variation in corporate taxation laws between countries. For example, while some companies may pay very low levels of corporation tax due to favorable conditions offered by governments, other global businesses have been subject to double taxation or even triple taxation, which prevents them from transferring earnings back to their parent company.
To avoid becoming subject to exorbitant tax rates, a business with plans for international expansion must take advice from an experienced international tax specialist. The expert can help them maximize the amount of profit repatriated back home and minimize the impact on corporation taxes.
International Hiring of Employees
Hiring employees internationally is an essential factor for multinational companies who are expanding. They must hire people who will be culturally sensitive and understand their business needs. When hiring someone overseas, it’s important to take into account the distance between you and them and what type of work they will be doing for the company. Partnering with a PEO is one way to hire local professionals quickly, compliantly and without the expense and complexity of establishing a foreign entity.
