What to Consider Before Expanding Your Business Internationally

When a company matures in their domestic market, it becomes increasingly difficult to sustain continued growth.  One way for a company to continue to grow is to enter new markets internationally. Entering a new market presents a company with both potential opportunities and potential risks. Carefully evaluating these opportunities and risks is necessary to determine whether the company should enter a specific market and, if so, what approach they should take in doing so.

There are a series of things to consider then determining the potential opportunities related to entering a new market. First, the firm would likely consider the financial aspects of entering the market by determining per-capita Gross Domestic Product (GDP) of the market. They would also determine the number of potential customers that exist in the market by segmenting the overall population into demographic or functional groups that match those of the company’s customers. There may also be additional opportunities to market complimentary products in a foreign market that don’t exist in the company’s base county. The company might also consider whether any potential channel partners exist in the target market which could provide local expertise and logistics.

Likewise, when assessing the risks the company must consider a number of factors. The company would first need to understand if there are any legal considerations that might impact their ability to conduct business in that market or prevent them doing so altogether. For example, European privacy laws are very different from that of the United States and Internet companies have to tailor their offerings to local standards in order to comply with these laws. Furthermore, the core stability of the local government and socio-economic makeup of the target market are also critical for a company to understand. A change in government or major social upheaval could risk the company’s entire venture in that market.

The company should understand if there are any differences in local customs or customer needs that should be factored in. Determining if a product will need to be customized for the local market or if marketing will need to be altered both have a bearing on the decision  whether or not to enter that market. Plus, any potential channel partners will need to be vetted in order to determine the extent and nature of their expertise and whether they have the capability to service local customers.

One company that has been quite successful expanding internationally has been Dunkin Donuts.  After some initial missteps early in their global expansion, Dunkin Donuts retrenched and adjusted their strategy. Two important components of their strategy have been to supplement their core menu offerings with items specific to each country and to staff overseas corporate teams with local professionals who have expertise in the market.  For example, German outlets feature both plum and cherry/banana donuts that mirror local tastes, while U.K. shops feature Nutella-filled donuts. As a result of the success of this strategy, Dunkin currently has over 3,100 stores in 30 countries outside of the U.S. and continues to expand.

By contrast, U.S.-based Target failed miserably in their attempt to expand into Canada.  On the surface, one may think of these two markets as being very similar and an expansion north would be a layup for Target.  Target even had in their favor a segment of Canadians who were familiar with the brand and its shopping experience because they had visited Target stores on trips to the United States.

However, much of Target’s issues centered around the implementation of their expansion.  They quickly opened over 100 stores, largely by assuming the leases of 220 Zellers stores – a chain that was on the decline.  The resulting Canadian Target locations were substandard compared to their American counterparts. Not only had Target over-extended with its rapid expansion, but those customers who were already familiar with the shopping experience in the U.S. were disappointed with the local experience in Canada. 

To compound this issue, Target had moved too quickly with their expansion and did not have a mature supply chain in place that could support the number of stores they opened.  The result was that popular products often went out of stock quickly. Furthermore, because of the shortcomings of the hastily implemented supply chain, many products were priced higher in Canada than they were in the United States. After significant financial losses, Target exited the Canadian market less than 2 years after launching there.

A number of companies have chosen to operate solely within the country they are headquartered in.  They have often reached this decision for any of a number of reasons, such as cost, risk, or complications related to infrastructure or distribution channels. Some of these companies may have never even considered international expansion. 

Companies who have determined that international expansion is an appropriate path forward need to carefully analyze each new market and developing a detailed strategy before launching there.  There are plenty of examples of firms who have rushed into new international markets with an insufficient strategy and suffered catastrophic results.There are also a number of examples of firms who were well-prepared for international expansion and achieved great success.  Whether expansion into international markets makes sense for your business is something your firm will need to determine. World markets can provide a much larger pool of customers and careful planning greatly increases the likelihood of success.

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