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The Pros and Cons of Going Global

Taking your products or services abroad can create tremendous opportunity.

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Few U.S. Businesses Consider Expanding Abroad

Taking your products or services abroad can create tremendous opportunity. Yet few U.S. businesses make the effort–and less than 25% of those that do succeed. Why? This is because of a complex range of factors beginning with inadequate research to ensure the fit of products and services to foreign business cultures and logistics.

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. Yet many small-scale startups have succeeded, as well, by beginning with low costs, doing careful research, creating reliable international networks and then using the latest, most effective digital and other technologies to secure their market niche.

Key Advantages Of Establishing A Global Presence Include–

  • Accelerating the sales cycle of your products/services to the expansive international market.
  • Reducing dependence on your local/national market.
  • Counterbalancing seasonal market fluctuations in your region/country with sales to the other hemisphere or a region with different market dynamics.
  • Becoming savvy about competing effectively in multiple markets will help you better understand your original consumer base, especially one demographically or psychographically diverse.

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.

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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.

The global economy grows stronger

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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.

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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.

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Risk Factors

  • 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, 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. 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 of the projected growth of 86% in international trade in the next 15 years (HSBC).

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Tips For Improving Your Odds Of Success

  • 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.

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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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