Creating an international expansion strategy

International expansion is a great way for an ambitious business to grow, but it involves numerous challenges. From legal and tax issues to problems of culture and language, many factors can trip up a global growth plan. This guide highlights the key things to consider when going global.

What is a global expansion strategy?

A global expansion strategy is a detailed plan of action for entering a new territory or territories. The goal of an international expansion strategy is to establish the business in the new territory as quickly as possible. Some key aspects include:

• Selecting a new target market – in which countries or territories does your business have the best chance of success?
• Detailed market analysis – where do you fit into the industry landscape in the new territory?
• Deciding on a market entry plan – what is the most effective way to achieve success quickly (e.g. target customers, value proposition and brand positioning)?
• Establishing an organisational structure in your new region – how will the new operation be organised and who will manage it?
• A roadmap for success – what timelines and targets are needed to grow quickly?

The biggest challenges of expanding overseas

A business model has been successful in one country will not necessarily work in another. There are a number of common challenges for any business targeting international expansion. These include:

• Finding the right talent. It’s vital to hit the ground running when entering a new region. Hiring the right staff to facilitate your growth can be difficult, so the right connections will be crucial.
• Regulatory divergence. Compliance can be a huge challenge for businesses establishing themselves in a new market. Tax, tariffs, trading standards and workplace requirements may differ from what you’re used to.
• Language and culture. This is an obvious challenge for any business expanding internationally. The relationships you build early on in a new region are vital, which is why it’s important that your team has the necessary local expertise and language skills.
• Supply chain risks. Selling products in a new market may present your company with big logistical challenges. Trading laws and border restrictions must be accounted for, and you may have to build up supply chain networks from scratch.

Three international expansion strategies

Once you have committed to international expansion, it’s time to build a formal strategy. Every global expansion strategy will be different depending on factors such as your company’s current position, the sector you operate in, the business landscape in the new territory and your specific business goals. However, there are a few common strategies that businesses can learn from.

Buy and build

Acquiring one or more businesses has proven a highly effective method of expanding internationally. A buy and build strategy involves acquiring a target company and then making a series of further acquisitions with the goal of creating a larger, more valuable company.

‘Buy and build’ is a particularly popular strategy for companies targeting international expansion because it can provide rapid access to new markets. Instead of starting from scratch, you benefit from the existing infrastructure, talent, local market expertise and connections that might otherwise have taken years to create. Your business may also benefit from the economies of scale and reduced costs that a larger organisation enables, helping to grow profits more quickly.

This strategy can also boost the value of the business overnight – something that is important for entrepreneurs with an eye on a successful exit. If you are on the lookout for a buyer to acquire your business, you may find that a buy-and-build strategy could raise your profile.

However, buy and build also presents a number of potential issues for companies expanding into new markets. Deals to acquire a new company are often lengthy and expensive processes – this is especially true when operating in a new country for the first time. Tax laws and fluctuating currency values can compound the problems, while local legislation can sometimes put obstacles in the way. Competition laws and rules around foreign investment need to be carefully considered.

Licensing

Licensing agreements are another common way for businesses to make a foray into a new market. Such an arrangement involves your company licensing the use or sale of its intellectual property to another company in your target market in exchange for payment. One sector where licensing agreements are common is the hospitality industry, in which restaurant and cafe businesses license their brands for third parties to operate in different regions.

Licensing can help businesses achieve market penetration in a new country quickly. It allows a business to build awareness of its products and services without necessarily investing large sums of its own capital. In a scenario where your company isn’t confident of being able to market itself in a new region straight away, licensing can provide the answer.

There are a number of potential downsides, however. Legislation around licensing is complex in many countries, which can slow down the process as well as bring legal fees into the equation. Thorough research and expert legal advice is required to determine whether licensing is appropriate for your business in your target region.

Licensing can also be associated with a loss of control over your brand, and an inability to interact directly with new customers, since their main point of contact will be your licensee and not yourself. On the other hand, a successful expansion through licensing can open the door to a more traditional expansion, once market share has been established.

Traditional expansion

A more traditional approach to international expansion is when a company aims to set up in a new country almost from scratch. Instead of looking to acquire a business in a target country or to license the sale of your products, traditional expansion involves creating business units on the ground.

There are a number of advantages to this approach – most obviously, control. Traditional expansion allows a business to do things its own way, without having to rely on a licensee or a local partner. With fewer entities involved, the potential profit margins may be greater.

On the other hand, building from scratch in a new country is expensive. It can take years to establish an operation in a new territory, and longer still for that operation to become profitable. For these reasons, traditional expansion is usually viewed as riskier than licensing or expanding by acquisition – though, as we have seen, the rewards are potentially greater.

If you do want to pursue this strategy, the right support is crucial. A professional employer organisation with expertise in your new region can assist with office set-up, compliance and hiring. The right investor may also be able to offer support. BGF, for example, has supported many portfolio businesses as they expand internationally.

The best form of business funding for global expansion

Choosing the right international expansion strategy is crucial, but it is equally important to choose the right funding method. Unless you have a large amount of capital on your balance sheet, it is likely you will need to turn to an investor to help finance your expansion. Picking the right investor can make the difference between failure and success.

BGF’s minority investment approach has helped more than 450 businesses to grow. We have invested more than £2.5 billion in ambitious businesses in the UK and Ireland. Many of these business used BGF funding for international expansion. For example:

Seasalt

Cornish clothes company Seasalt received £11.5 million from BGF to expand its business, in-store and online. With the support of its non-executive chair, Mike Harrison, a US-based adviser to consumer brands, the business is expanding in North America.

Appnovation

Vancouver-based digital consultancy Appnovation received more than £9 million from BGF to expand in Europe and elsewhere. Follow-on financing was provided alongside the Canadian Business Growth Fund.

Inoapps

BGF invested £14.5 million in Aberdeen-based Inoapps, a global Oracle Platinum Partner, to finance acquisitions, new customer offerings and international growth. Led by CEO Andy Bird, the business has expanded in the US, serving international blue-chip clients.

The information contained in this article is for general information and use. It does not constitute any form of advice and is not intended to be relied upon in making any investment decision. Independent advice should always be sought as to whether a particular transaction is suitable having regard to your personal and financial circumstances.