The Pros and Cons of Going Global: Is Globalization Right for You?

Taking your products or services abroad can create tremendous globalization opportunities for your business. Yet, many businesses hesitate to make the leap. Why? This is often due to a lack of preparation and research into the complexities of foreign markets. Expanding business internationally offers both pros and cons that need careful consideration.

Great Opportunity And Risk

Corporate entities have the clout to go international, often forming even larger global conglomerates that have come to dominate the world through extensive resources and established brand recognition. Yet, many small-scale startups have succeeded as well, focusing on strategic global brand building by beginning with low costs, conducting meticulous research, creating reliable international networks, and then leveraging the latest digital technologies to establish a unique and impactful presence in their chosen market niche.

advantages of going global with a business

Global expansion can be a game-changer for businesses, offering numerous advantages that drive growth and success:

1- Access to New Markets:

By venturing into new territories, businesses can tap into a vast pool of potential customers, leading to increased sales volumes and revenue streams. Research suggests that companies operating in multiple countries see an average revenue increase of 22%. This diversification also reduces reliance on a single market, safeguarding against economic downturns in any one region.

3- Cost Efficiency:

Operating in certain foreign markets can lead to significant cost reductions. Lower labor costs, reduced production expenses due to economies of scale, and access to less expensive raw materials can all contribute to improved profitability. A Boston Consulting Group study reported that companies with a global footprint achieved an average cost saving of 10-20% compared to their domestic-only counterparts.

2- Access to Talent:

Expanding globally opens doors to a larger talent pool, including specialized skills not readily available in a company’s home country. A recent survey by PwC found that 73% of CEOs cited access to talent as a key driver of their global expansion strategy. This diverse talent can bring fresh perspectives, innovation, and expertise to your business.

4- Diversification of Risk:

Economic and political risks are inherent in doing business. By operating in multiple markets, companies can spread this risk, ensuring that downturns in one region don’t cripple the entire business. This strategy can create a more stable and resilient business model.

5- Innovation and Creativity:

Exposure to different cultures, consumer preferences, and business practices fosters innovation and creativity. This can lead to the development of new products, services, and marketing strategies that resonate with a global audience. A study by McKinsey found that companies with a global mindset are 3 times more likely to create innovative products than those with a domestic focus.

6- Other Benefits:

Beyond these core advantages, going global can yield additional benefits:

• Improved Brand Recognition and Reputation: A global presence enhances brand image and credibility, potentially attracting more customers, investors, and partners.
• Increased Consumer Trust: Consumers often associate global brands with higher quality and reliability.
• Financial Incentives: Some governments offer tax breaks or other financial incentives to encourage foreign investment.
• Diverse Workforce: A global team brings diverse perspectives and experiences, enriching your company culture and decision-making processes.
• Cash Flow Management: Operating in multiple time zones can create a continuous cycle of business activity, potentially improving cash flow management.

By strategically leveraging these advantages, businesses can accelerate their growth, increase profitability, and establish a strong foothold in the global marketplace.

The Hidden Costs of Going Global: Are You Prepared for the Risks?

While the allure of international markets is undeniable, it’s crucial to approach global expansion with a clear understanding of the potential downsides. These “Cons of Going Global” can pose significant challenges, especially if not adequately addressed:

1- Language and Cultural Barriers:

Beyond simple translation, misinterpreting cultural nuances can lead to misunderstandings, damaged relationships, and missed opportunities. Unwritten rules of commerce vary widely across cultures, and deciphering them can be a significant hurdle. Investing in cross-cultural training for your team is crucial, but it can be costly and time-consuming.

2- Currency Fluctuations and Economic Dependency:

The volatility of exchange rates can significantly impact your profitability. A sudden shift in currency values can turn a lucrative deal into a loss, especially for small businesses with limited resources to hedge against these risks. Additionally, relying heavily on a single foreign market can expose your business to local economic downturns and political instability. Diversifying your international presence across multiple markets and implementing financial risk management strategies are crucial.

3- Exploitation and Trade Imbalances:

The pursuit of lower production costs can sometimes lead to the exploitation of resources and labor in developing countries. This can harm your brand reputation and contribute to environmental degradation and social inequities. Global trade can also create imbalances, leading to surplus inventory in one location and shortages in another. These challenges necessitate a commitment to ethical sourcing practices, responsible supply chain management, and logistical preparedness.

4- Competitive Landscape and Regulatory Complexities:

Entering a new market means facing established local competitors who already understand the cultural nuances and consumer preferences. This can make it challenging to gain market share and establish your brand presence. Additionally, navigating the varying laws and regulations of different countries can be a daunting task. Thorough market research, a well-defined competitive strategy, and expert legal counsel are essential to address these Cons of Going Global.

Before You Start

Is your business offering is a good fit for your target foreign market? Begin with consumer testing to determine not only fit but also what, if any, product/service modifications you’ll have to make. Be ready to reevaluate all your initial assumptions about foreign market demand and the best ways to generate revenue.

Evaluate The Product Or Service Fit

• Most American products and services are well received overseas. This is not the case, however, if your potential customers are averse to milk products, certain clothing styles, etc.
• Is your target market familiar with your product or service? If not, you’ll need to educate your new consumers. This takes time and money. On the other hand, if you’re the first one to introduce a popular product in a foreign market, it will give your brand recognition and traction with the introduction of future products.
• Do you feel comfortable with the new culture? If not, this will be a big problem because you’ll need the motivation required to gain a thorough working knowledge of the language and culture.
• Is the foreign country’s infrastructure adequate? If you’re expecting Western standard accommodations and reliable logistical support you could be in for a series of shocks. If the roads aren’t up to par, hot water isn’t available, etc., be sure you have plans in place for maintaining the necessary profit margin within those limits.

Americans Are Notorious For Often Making A Poor Impression On Foreign Business Leaders, So Be Sure To–

• Cultivate a personal rapport before doing business. Foreign business leaders generally consider it rude to start talking business without first establishing personal rapport with small talk and sharing background information that doesn’t involve serious self-disclosure.
• Show respect for your hosts’ country by researching their culture beforehand, including demonstrating some familiarity with basic phrases in their language.
• Learn about their culture’s body language. Facial expressions are species-specific, but body language varies significantly from culture to culture and has a powerful effect on how well you are received.
• Avoid setting time limits. Keeping your initial meeting as open as possible puts others at ease and strengthens your negotiating position.
• Bring your own interpreter. Be aware, if they provide the interpreter, he/she will have their interests at heart, yours less so.
• Dress well and deport yourself with dignity.

Going forward, I’ll go into greater depth on the specific things you need to do to explore the viability of international business ventures.

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The Internet and mobility have ‘democratized’ the global economy. It’s now possible to communicate with customers instantaneously anywhere on the planet and to ship products with increasing speed and efficiency. Anyone with a new product or concept can potentially introduce it to the global market with minimal capital investment.

The global economy has ushered in a new age with a workforce based on skills, not geographic location. This means you can now significantly reduce costs by using inexpensive offshore customer, manufacturing and administrative services in any overseas venture. The newest online communications/meeting technologies reinforce this dynamic by allowing you to manage your foreign workforce and stay in contact with customers and partners. The same applies to small-scale businesses as well. –Just this morning, a small business owner friend of mine concluded an important business agreement via Skype with a company in South Africa.

All of this is exciting, but don’t forget you can also lose your shirt on what seems to be a sure-fire venture.

Critical Risk Factors in International Business Expansion

• Intellectual property rights vulnerability. Patent and copyright protections are often limited in foreign countries. Is your product difficult or easy to reproduce? If the latter, you are an easy target for intellectual property theft.
• Cumbersome foreign rules and regulations. If a foreign market is hampered by excessive red tape and international shipping problems, do you have the requisite legal resources to deal with it? International laws governing internet, phone and other sales can vary widely. One example–if you’re doing business in Europe, you’ll need to follow more stringent consumer privacy laws.
• Sudden currency fluctuations. If you conduct business with lag times from purchase to payment, currency fluctuations can quickly turn profit into loss. The underpinning variable is the current relative strength of different currencies. Hedging currencies may help, but requires the oversight of experienced international currency professionals.
• Limited credit card use. Is credit card use common in your target foreign market? This isn’t the case in many countries, so you need to check to see how many people in that country have access to credit cards. Also, make sure that you choose a merchant account provider to oversee your credit card translations and to ensure optimal currency conversions.
• Heavy tariffs and duties. Before giving up at the prospect of high tariffs, take a careful look at the Harmonized Tariff Schedule and Federal Trade Agreements to determine if previously inaccessible markets may have recently opened.
• Cross-time zone challenges. International marketing and international expansion can pose unsuspected problems. This week I’ve been struggling with the time differential communicating with international clients in Turkey and India. If you’re serious about establishing an international presence, you’ll need 24-hour management and customer support capabilities. When a significant crisis arises, e.g., a port of entry problem or natural disaster, you’ll need hands-on action from an authorized manager. Some problems require an on-site manager (or one who can travel there quickly) who can make emergency decisions.

Lastly, I’ll conclude with some final considerations and strategies for ensuring the success of international ventures.

Business abroad offers great opportunity as long as you understand and evaluate potential obstacles.

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Recap Of Challenges

Doing business abroad offers great opportunity as long as you understand and evaluate potential obstacles. Persistent problem areas include currency exchange fluctuations; intellectual property rights protection; cultural differences in need and receptivity towards specific products and services; establishing viable shipping logistics; dealing with foreign rules and regulations; credit card usage; cross-time zone management challenges; and disaster management.

However, if you do your due diligence, you will be well positioned to take advantage current and future free trade agreements and the projected growth of 86% in international trade in the next 15 years (HSBC).

Strategic Steps for Successful Global Expansion

• Get help from export assistance offices. Begin with the U.S. government site, www.export.gov where you’ll find valuable information about and support for new exporting ventures. There are numerous U.S. state-based and foreign nation export assistance offices located around the world dedicated to helping you.
• Carefully screen your foreign partners. Getting the right business partner in each country is vital to your success. Carefully investigate your potential partner’s financial status and business/community reputation. Do they have access to the essential resources required to bring your product or service to their home turf?
• Hire a well-respected international trade attorney. You will need the protection of an experienced attorney specializing in international trade and protection of intellectual property. They can help shield you from domestic competitors who may use legal (or illegal) means to undermine your invasion of ‘their market.’
• Make sure protective foreign regulations are enforced At first look, some target countries have regulations that would seem to protect foreign investors but are simply not enforced. This, of course, constitutes a ‘no-go.’
• Choose the right business model. Do you want to establish a franchise, joint venture or company-owned business? Each has advantages and disadvantages. But choose carefully because the business model you select will determine your earnings for years t come. Also, make sure that whatever business model you select is replicable. You don’t want to reinvent the wheel in subsequent international ventures, though modifications will be necessary. Finally, be cautious about long-term agreements in foreign markets.
• Set up a Virtual Office (VO). A VO will provide your company with a prestigious local address where you can send and receive mail and have a person responding to local phone calls who speaks the native language. Look for an expandable location in which you can rent/purchase additional office space as needed.
• Be patient, but not too patient. Be prepared for initial losses as your product/service gets established. Plan for long-term success with a five-year + business plan.

International Business Is Becoming Easier As Corruption Declines

Since 2010, the World Bank report has reported a significant increase in international business reforms. One of their recent reports states, “Governments in 125 countries out of 183 evaluated in the study implemented a total of 245 business regulatory reforms, up 13 percent within the span of one year.” Improvements include things like ease of getting construction permits and simpler tax compliance rules.

A parallel reduction in corruption is encouraging, spurred by the growing public and private sector realization that honesty accelerates growth. A recent survey found that 81 percent of international companies strongly favor anticorruption laws for this basic reason.

• “Companies from countries with tight enforcement report fewer losses than before from corrupt competitors. In 2006, 44 percent of US companies said they had lost out to corrupt competitors, compared with only 24 percent in 2015.”

The growing middle class in emerging economies is demanding greater honesty in government. This dynamic is now playing out in Brazil’s current political implosion. Whistleblower hackers are playing an essential supporting role, as well, as can be seen in the recent release of the Panama Papers. Bottom line– it is becoming more difficult for international elites to hide ill-gotten gains and avoid legitimate taxation in secret offshore accounts.

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