A guide to expanding your business in a foreign country

Risks, rewards and best practices: Learn about factors to consider for selling overseas

The aspirations of doing business in other countries come with several challenges and prerequisites that you need to consider before stepping into the world of expanding your abroad. Here we go into the specifics of conducting business in a foreign country, things to look out for, pitfalls etc. to get you started with your international expansion plans.

1 Overview

Here's our detailed guide to explore the following specifics of conducting business in a foreign country:

2 How to measure if a country is good for business

There are many different factors to consider when deciding where to expand your business overseas. Below are just 5 ways 1 that can help you gain a better understanding of a country’s economic performance, and whether it’s right for your business. Please note, these are merely starting points, and further research will help you make the most informed decision possible.

  1. Gross domestic product (GDP): This figure is the overall value of all final services and goods produced or manufactured within the country during a specific period of time. GDP is useful because it reveals how well an economy is performing – and how big it is.

  2. Consumer price index (CPI): This measures the changes in price of typical goods and services bought or consumed by the country’s households. It’s used to help calculate a country’s inflation rate – which impacts a country’s currency, and therefore has a bearing on how expensive it will be for you to invest in that country.

  3. PMI (purchasing managers’ index): This tells you how healthy a country’s manufacturing sector is during any given period. It will also give you an idea of the overall performance of businesses in that region – and the reasons for this.

  4. Employment indicators: Of all the figures to keep an eye on, a country’s employment levels will be among the most useful. High employment mean consumers have more disposable income to spend on non-essentials. Conversely, if unemployment soars, people tend to stop spending – and that in turn damages GDP and business prospects as a whole.

  5. Central bank minutes: Ultimately, a country’s central bank sets the financial policies that will dictate the economy during that financial year – so reading the official minutes from their meetings will give you some idea of where things are heading, and whether you should invest in that region.

3 Risks of expanding a business internationally

Expanding your business abroad also brings its fair share of risk. Here are some of the most common hurdles you may face during your overseas expansion:

Foreign exchange risk:

This is when the value of your investment changes due to exchange rate fluctuations. For example, if your domestic currency appreciates against a foreign currency, then any profits your business earns in that foreign country will decrease after being exchanged back into your own currency. Because exchange rates can be hard to predict, this can make protecting your business against this type of risk difficult.1

Political risk:

This happens when a country’s governing power unexpectedly changes its policy or position towards areas like trade barriers or foreign investment. For instance, to protect local firms, a government may suddenly demand certain tariffs or funds in return for your right to import products into their country.

Tactics like this could seriously impact your profits because they not only damage sales, they also potentially restrict the amount of revenue you can earn in that particular country.

Despite all this, the number of free trade agreements now in operation around the world have helped to soften the impact of political risk somewhat. However, you should be mindful of the everyday differences in laws that exist in your foreign markets, and how they could potentially impact your long-term success.

You could even take steps to address some of this risk. For example, hedging your foreign exchange risks by buying futures, forwards or options on the currency market. Another option is to acquire political risk insurance, which can help protect your equity investments and loans from any actions taken by governments abroad.2

Country risk in international business:

Before setting up in your new market, it’s important to assess its overall infrastructure and how this could impact your success. If roads, bridges and telecommunications networks are in a poor condition or underfunded, it could make your new venture more trouble than it’s worth.3

Economic environment:

Factors such as high unemployment or a predominantly unskilled workforce are important when assessing potential markets abroad. You should also weigh up any risk from terrorism, internal conflict, civil unrest, and even anti-foreign sentiment among citizens, workers and government officials. High levels of crime and corruption will also be detrimental to your organisation’s success.4

Regulatory risk:

Your business can also be impacted by changes to trade laws or a substandard legal system. Poor intellectual property laws may also leave your product vulnerable to copycats – and changes to the banking system may hamper your ability to repatriate money back to your home country, or even access funding.5

Cross-cultural risk:

This type of risk occurs as a result of differences in areas like language, lifestyles, customs, and religion. Such long-held practices and beliefs not only shape the mindset and working ethos of employees, but also the behaviour of shoppers. Perhaps the most common problems arise from language differences – in particular the inability to translate from one language to another, or find words that have the exact same meaning. Such hurdles prevent effective communication and lead to misunderstandings, inappropriate business strategies, bad relations with customers – and even managers making poor choices of business partners, market entry timing, pricing, product design, and promotional activities.6

The process of localization will help the experiences you create (both digitally and elsewhere) appeal to the diverse nature of your target audience. While localising your marketing, product packaging and online assets will take time and effort, the results will be worthwhile, and ensure you’re connecting more effectively with your cross-border customers.

4 Business culture in different countries

When doing business abroad, it is important to understand and respect the culture of the countries you are expanding to.

For example, business dealings in Italy are often relationship-driven, so you may need to invest a serious amount of time building trust and getting to know one another. On the other hand, in Germany a direct and upfront approach, especially in business dealings is the prefered approach. Try to avoid jokes and humour too, especially in a business environment or when brokering deals.1

Business culture in different countries is not the same. Each country will have its own cultural challenges and it is good to do thorough research about the markets you want to expand in.

5 First step to start doing business in a foreign country

The first step to expanding your business abroad is knowing which markets are suitable for the products or services you offer. That’s where Market Finder can help. It not only allows your business to quickly identify potential markets overseas, but also has lots of useful features, guides and success stories to help you build your operations and market your business to the right audience. Plus you’ll discover new potential partners that can help you conduct business in a foreign country and make your overseas expansion plans a success. Click here to find your marketing opportunities