Going global for companies is a significant decision that could disrupt the existing business activities. However, it is also an important growth strategy to increase revenue or market share. Many companies that have expanded beyond borders have found that there are a lot of benefits, yet it is still crucial for businesses to understand its full impact and determine if the benefits outweigh the risks.
How might new markets help grow the business? How could an overseas operation effectively strengthen the domestic operations? How can new technologies, ideas, and management skills be acquired through an expansion? These are some of the questions; business leaders are asking themselves before they decide to enter the international arena. We must understand that going global comprises of both push and pull factors which lead companies to choose to expand abroad ultimately.
Diversifying the Risk
As the old saying goes, “don’t put all your eggs in one basket.” Companies that are over-reliant on a single (or domestic) market will find that they are extremely volatile to economic/market changes. A company, operating in Singapore, will very likely be affected if there is a local economic downturn. Global expansion provides greater insulation to businesses when growth from other markets can be used to sustain the overall business, counterbalancing the affected ones. As risky as it can be, it may also be an excellent way to maintain a measure of stability for the business.
Leveraging on Rich Resources and Climate Advantages
Businesses never go global just in the pursuit of pure profit; expansion also provides companies with the availability of resources which they can tap into. Going to a new country may mean that businesses can now capitalize on the rich talent pool, and in some cases, lowering the labor costs. Some governments may even provide funds, grants or even lower taxation to create a “business-friendly” ecosystem, making it favorable and more lucrative to set up businesses there.
The technologies and ideas in the foreign market can also be exploited to enhance a business’ operations in its domestic market. Collaborations with overseas companies may also provide valuable growth to the overall business.
Tapping the Untapped (Markets)
Oversaturated domestic market leaves few opportunities for expansion of local operations. It will also mean stiffer competition among companies, resulting in the war for market share. Singapore (5.6 million people) is considered a small market as compared to the rest of the world. Operating in such a small market will mean that for industries with a lower barrier of entry can result in an oversupply. This phenomenon happens when there is a surplus of supply and not enough demand to support this; as a result, businesses will eventually suffer. It also means that businesses have to grow outwards to find alternative sources of demand.
If a company is offering products or services that are unavailable in certain parts of the world but are in high demand. With first-mover advantage, expanding operations in these markets can provide a new base of eager customers, without the immediate threat of competition. For bigger markets like USA, UK, and China, this move will provide ample opportunity of growth and revenue sources.
Growing Brand Awareness
Going overseas provides additional exposure to the business which may result in increased brand awareness. In the competitive market today, brand awareness is imperative to stand out among the “noise.” Brand awareness does not have a dollar value tagged to it, but it is part of the collective effort needed for marketing to drive incremental sales. This effort will also result in greater brand recognition and credibility. It provides companies with the ease of customer acquisition and cultivates brand loyalty.
Herd-mentality or, in local terms,” monkey see monkey do” is a simple but real reason for many businesses that go global. If competitors expand into new markets, it may seem logical that one should do it too. Allowing competitors to gain increased brand exposure and recognition, or even entering new markets, will only mean that competitors will gain a competitive advantage. In the end, one that does not grow will one day be eliminated from the competition.
Despite the above benefits, companies must still assess its readiness, conduct sufficient market research and seek advice or assistance, before deciding on this bold move. It is essential that businesses do their due diligence before expanding overseas.
Update [11/05/19]: Removed broken links