What are the potential threats to SME’s in global expansion?

In Trade Blogs & Newsletter by WTCD

Expanding globally represents a great opportunity for SME’s. Thanks to the recent innovations in communication and transport, the World now is accessible from almost anywhere in the globe and it can be a lot more cost effective to trade with new and exciting partners if you use the appropriate tools. It has become increasingly necessary for companies to expand globally to take advantage of cheaper production costs.

However attractive it may be, International

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expansion is always a risk. Before expanding, you have to be aware of all potential risks and dangers that can lead your foreign investment to fail. There are several basic questions that you have to ask to yourself:

  • First of all, is your industry field friendly with the country you want to invest in? It’s common sense, but what works at home may not always work abroad. There are as many cultures as there are countries. For example, Pepsodent tried to sell their toothpaste in South East Asia with a promise of white teeth from the product. What they didn’t realise, is that in this this part of the world, the population chew betel nuts to blacken their teeth, a habit which is viewed as a status symbol.
  • Another concern is if there will be a local customer base. Even if your products are compatible with the culture, you need customers to make money; people to buy your products, so you need to be careful with the demographic you are targeting. Does the demographic fit your product? Do people have enough money to buy your products? Before deciding anything. It is imperative there is there is a real demand for your product or at least, a customer base that has the means to buy your products. Local Market research is crucial.
  • After looking at a potential customer base, you have to look at the competition. You are not alone on the market, companies on site could already sell products similar to yours or they could also have the same idea as you to invest in this country. How would this affect you if they did?
  • Readiness is crucial. There is a big difference between thinking about your project and realizing it to completion. Structure, manpower, and resources must all be in order before proceeding.
  • So, your project is ready, you have enough money to do it, you have a strong customer base and you are ready to sell your product abroad – However another factor to consider, are the legalities of trading in a new country. There are many procedures to fulfill, documents to be signed, and contacts to be made before being able to trade in the country in question. In addition, your project could also be rejected by the government for many reasons, for example, the country’s policy can have a big impact on your initial project – like when Google was censored by the Chinese government, or even Facebook and You Tube. So you have to ensure that your project and your products will respect the law, or cultural norms of the country.

Best countries to do business with:

Picture blog

Finally, you have to look to the wealth of the country and the level of development there, because even if this market seems very attractive to invest in, the product may be difficult to market. Let us take for example Cuba. As you probably know the country recently had an opening to foreign investment due to the end of the US embargo. Indeed, Cuba has a cheap labour, production costs, a new customer base and fantastic opportunities in tourism…. Perfect, you may say, but the reality is different, because of the lengthy embargo, the infrastructure is as yet underdeveloped, with slow internet capability as we write this.

It goes without saying that Companies have to be careful when considering expanding their business overseas. Luckily here at Webport Global, we have access to the experts and information required to make as smooth a transition as possible to your future International success.

Mathieu Le Dauphin,

International Trade Intern

World Trade Center Dublin

References:

http://www.internationalbusinessguide.org/10-successful-american-businesses-that-have-failed-overseas/

https://globalconnections.hsbc.com/brazil/en/articles/10-biggest-overseas-blunders-en

http://www.polyglot.com.au/australia-one-top-10-business-friendly-countries-world/

http://www.icaew.com/archive/about-icaew/newsroom/press-releases/2011-press-releases/exporting-overseas-key-for-sme-growth

https://velocityglobal.com/blog/international-strategy-for-smes/

http://www.theglobeandmail.com/report-on-business/small-business/going-global/three-companies-offer-advice-for-successful-global-expansion/article18336670/

http://www.businessnewsdaily.com/8211-expand-business-internationally.html

interesting tools:

procedures and formalities about export (European Commission):

http://madb.europa.eu/madb/datasetPreviewFormIFpubli.htm?datacat_id=IF&from=publi

Ease of doing business in the world by countries (World Bank):

http://data.worldbank.org/indicator/IC.BUS.EASE.XQ