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Recent figures from Santander suggest that 1 in 4 domestic businesses in the UK are considering international growth in the next few years. Meanwhile, 28% of UK businesses already trading overseas expected international markets to account for the majority of their annual revenues.
While a great way for ambitious businesses to grow, international expansion is not without its challenges. Several factors can trip up a company’s global expansion, especially if you don’t have an effective plan in place before you start. This guide explores key considerations for businesses looking to expand overseas, including the pros and cons of this type of growth strategy, and how to develop a successful international expansion strategy.
What is an international expansion strategy?
International expansion strategies are detailed plans of action for entering and doing business in global markets. They will lay out your plans for navigating challenges and making the most of new growth opportunities, and can be crucial for success in international markets — helping to manage risks, maximise return on investment, and ensure product-market fit.
What are the benefits of international expansion?
Effective international expansions can bring several potential benefits to businesses, including:
- A larger customer base
- New revenue streams
- Market diversification
- Economies of scale
- Extended product life cycle
- Increased brand awareness
- Technology and knowledge transfer
Depending on the territory, expanding into new markets could also provide access to:
- Bigger or more diverse talent pools
- Lower operating costs
- Tax incentives
- New strategic partnerships
- Less stringent regulatory environments
- Global investors
In doing so, international expansion has the potential to significantly increase a company’s profits (which can then be reinvested into the business) and competitive advantage, while also encouraging innovation and unlocking new growth opportunities.
What are the challenges of international expansion?
There are common challenges that a business will likely face when targeting international expansion as part of their growth strategy. These include:
- Significant upfront costs to scale your team and infrastructure overseas
- Language barriers, time zones or cultural differences hindering your ability to build relationships in foreign markets
- Hiring talent without local connections, when labour laws and wage expectations may also differ to your home market
- Competitors that may already have a strong presence and market share in the territory you’re targeting
- Supply chain risks, such as trading laws that prevent you from importing materials
- Cultural nuances or a lack of brand awareness affecting demand for your product in new markets
- Different regulatory requirements that may be difficult or costly to comply with
- Economic downturns or political instability that could affect your business operations
A business model that’s been successful in your domestic market will not necessarily succeed in international markets, so it’s important to do your research. You’ll want to develop a robust international expansion strategy, that takes into account these challenges.
Local experts may also be able to help with overcoming these hurdles, for instance advising you with regulatory compliance, or connecting you to local suppliers or recruiters.
What to include in an international expansion strategy
An effective global expansion strategy is typically one in which you establish business operations in the new territory or territories as quickly as possible. As such, your strategy should cover areas like:
- Detailed market research, identifying target markets and how you’d fit into the existing industry landscape in these territories
- A market entry strategy, laying out the best mode of entry for your business
- How your team would be structured in different markets, and who would train or manage these employees
- Your go-to-market strategy, including value proposition, target audience, pricing model and messaging, and how you could adapt this to local customers
- How you plan to source materials and manufacturers (either locally or internationally)
- A roadmap for success, with timelines and targets for rapid growth
Examples of international expansion strategies
There are many different market entry strategies to choose from, when it comes to global business expansion. Ultimately, the best strategy will depend on the nature of your business, your growth objectives, and the current market conditions, among other factors. But common strategies for international growth include:
- Buy and build (acquiring existing businesses in your target market)
- Licencing or franchising (granting local businesses with the rights to use your IP or sell your products to their customer base)
- Exporting (not establishing a physical presence in new markets, but selling your product overseas, for instance through e-commerce platforms)
- Joint ventures (partnering with local companies to share resources or expertise)
- Traditional expansion (creating business units from scratch in new territories)
There are a number of pros and cons to each of these strategies, and an experienced business adviser or investor may be able to help with the decision.
For example, a traditional expansion may give you greater control and the potential profit margins might be greater, with fewer entities involved; it can also be a very expensive and slow process, however. On the other hand, while licencing is sometimes a more cost-effective and lower risk approach to entering new markets, it can also involve more complex legislation, and may mean you giving up a significant degree of control to your partners.
The buy and build route can provide rapid access to new markets, as companies can benefit from existing infrastructure, talent, local market expertise and connections, as well as economies of scale (that might otherwise take years to create). But business acquisitions can be lengthy and expensive deals, especially when operating in a new country for the first time — with local legislation, tax laws and fluctuating currency values sometimes compounding this. Competition laws and rules around foreign investment also need to be considered.
Again, having the right guidance and legal support will be crucial when undertaking any of these international expansion strategies.
How to fund your international business expansion
Deciding on the right market entry strategy for your business is important, but as is choosing the right funding method. Unless you have a large amount of capital on your balance sheet, it’s likely you’ll need external investment to help finance your expansion plans. Read our guide to equity investment here, to discover some of the most popular funding options for growing companies.
As the most active equity investor in the UK and Ireland, we’ve helped hundreds of ambitious businesses to achieve strong, sustainable growth — in both domestic and international markets. Hear from Paul Baker, Co-founder of BGF-backed St Pierre Groupe, below to learn how the Manchester bakery business carried out a highly successful international expansion, with growth capital and support from our team:
