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Navigating the challenges SMEs face when expanding internationally

Written by Nicole Sahin on Monday, 19 October 2020. Posted in Global

In recent years there has been an increasing number of small-to-medium enterprises (SMEs) dipping their toes in international waters.

Navigating the challenges SMEs face when expanding internationally

In recent years there has been an increasing number of small-to-medium enterprises (SMEs) dipping their toes in international waters. And, while the current pandemic-induced economic crisis has meant global travel is on a partial and temporary pause, research shows businesses’ expansion plans are undeterred by the coronavirus pandemic. 

This is according to Globalization Partners’ CFO survey, which found 45% of respondents are either currently expanding globally or only slightly delaying their expansion, planning to do it within one year. Another 9% maintain intent to expand internationally but remain in a year-long holding pattern. 

Even in normal circumstances, the road to successful global expansion can be complicated for SMEs to navigate. Countries and industries vary considerably, each presenting unique challenges to global growth. Newable’s 2020 Growth Agenda Survey, found that of the 58% SMEs that said they were open to launching overseas, 41% of respondents admitted lacking confidence in how to go about it. 

A challenge worth overcoming

In many ways, expanding into new territories is like starting a business from scratch. Organisations need to raise brand recognition and develop a customer base, in a market and culture that can be entirely different from their experience at home. 

However, when equipped with the right tools, smart planning, and dedication, businesses are able to successfully adapt to markets across the globe. And whilst major challenges may present themselves along the way, the rewards are tenfold. 

In this article, we will cover how SMEs can overcome the six main hurdles of international expansion, and guidance on how organisations can build their business to thrive in new territories.  

Do your research

To successfully expand their business, SMEs must first learn about the international market. This requires examining the demographics of the new region to tailor an appropriate business strategy - repeating the in-depth process of market research that businesses carry out in their genesis, but for the chosen area of expansion. 

A key reason many SMEs want to expand into new territories is to extend the life cycle of a current product, as they feel they’ve exhausted the opportunity in their home market. A new country allows you to introduce the same product into a market unfamiliar with it, however, it’s crucial to do your due diligence and proper research. Although a product may be considered a necessity at home, it might not hold the same value in a different region. Or, the new market may already be saturated with similar products, leaving little room for growth. 

Conducting thorough market research, considering factors such as local competition and barriers to entry, is vital before deciding the right region to expand into. What’s more, business leaders should ensure that they consult a variety of sources of information in order to get a complete picture of the consumer. Only by understanding a population can SMEs find the best way to position themselves. 

Plan it right

Expanding into new territories takes thoughtful planning and considerable hard work. Before entering a new market, organisations need a strong track record in their home territory. Any existing business issues should be resolved to avoid duplicating problems across regions. 

To help calculate when business is ready to expand, businesses should perform an extensive audit alongside their market analysis, carried out through market segmentation, value and culture alignment, gap analysis and SWOT (Strengths, Weaknesses, Opportunities, and Threats) analysis. 

Businesses that plan correctly during this initial stage have a lot to gain from global presence, so ensuring the right steps are taken is key.

Navigating a complicated process

Traditionally, a business would need to set up a subsidiary in each country they want to expand into. This is a lengthy and expensive process which requires the need to manage and set up in-country human resources, payroll and the need to understand and manage compliance, tax, labour and legal issues for that country. When entering a new market, companies also need to follow minimum wage and employee benefit requirements.

For a team unfamiliar with the rules, this can be overwhelming, and an added stressor especially when teams are already busy at home. To ease this transition, businesses can opt to work with an Employer of Record (EOR).

An Employer of Record enables businesses  to grow into new markets easily, by  managing regulatory compliance, benefits, and payroll for international employees. EORs have local knowledge that can help to quickly escalate growth plans, offering legal, accounting, and HR expertise to help meet regulatory requirements. 

Knowing what support is out there to help navigate international expansion is really valuable to businesses at every stage of the expansion process. 

Not all cultures are the same

When an organisation decides to expand into new regions, they must adjust their marketing strategies and business practices according to the local culture. Etiquette, cultural norms, and communication styles all vary considerably depending on where you are. Workforces may also behave differently, and if doing business with local companies, a change of approach may be required to fit in with new customs. 

A company that understands how consumers behave and how business is done in different cultures, is better equipped to enter the market. Researching aspects of the company culture - such as communication styles, workplace etiquette, dining etiquette, body language, and organisational hierarchies - gives SMEs valuable insight into what is expected of them, and how they are able to thrive in the new culture. 

Considering the various differences in language and culture across international borders, it can be valuable for businesses to work with a local expert when entering these new markets. 

Keeping business on track

Planning for international expansion can take months when using traditional approaches, but both business and the market can change course quickly. Many businesses struggle to predict trends and develop proactive strategies, especially when using a fixed long-term plan. 

Setting short-term goals focused around data enables business to create an adaptive strategy that moves when the market moves, keeping closer tabs on strategy as it is being implemented. If something steers a plan off-target, data tracking enables a business to see, and solve, issues early on. 

Working for a distributed team also requires a concerted effort to keep everyone connected. 

When everyone has the same goals, and news is shared quickly, business is in a prime position to adapt. 

Global markets are an important source of growth for SMEs, offering a wealth of opportunities and benefits. Whilst research shows that many growing enterprises harbour the ambition to expand into new territories, but lack the confidence to do so - there is support out there. By following these crucial steps, SMEs can propel themselves to take a leap of faith into international waters. 

About the Author

Nicole Sahin

Nicole Sahin

Nicole Sahin’s mission is to eliminate barriers to doing business internationally and building global teams. As founder and CEO of Globalization Partners, she is recognised for having created an innovative solution that enables companies to hire great talent anywhere in the world, without the complexity of setting up international branch offices or subsidiaries.

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