Mistakes small companies make when going abroad
A quick summary of some common mistakes to avoid when expanding your small company internationally
Expanding to an international market is an exciting step for any small business. If you're considering tapping into overseas markets, you're likely already confident about the success of your business at the local level and are feeling ready for a new challenge. Congratulations! However, before you jump into international expansion, we recommend considering some of the most common mistakes businesses make as they move their products and services to a foreign market. Once you know these common mistakes, your own small business can avoid these pitfalls.
5 mistakes small companies make when going abroad
1. Expanding too quickly in a new market
One of the biggest mistakes that many small business owners make when expanding to a foreign country is simply expanding too quickly. Selling to an international market is an exciting move, but one that deserves careful consideration and preparation. Even if the country you want to expand to seems similar to your domestic market, don't underestimate the minor differences that could make your target market lukewarm or even hostile to your product or service.
For example, when the popular US box store Target tried to expand to the Canadian market, it was forced to close its 133 stores after less than two years. The story is a cautionary tale for small business owners looking to expand: Target, a massive corporation that seemed too big to fail, failed almost immediately after expanding to a seemingly similar international market.
The lesson from Target to small companies expanding abroad
The Target example illustrates the importance of thoroughly researching the country you want to expand to, hiring the correct team for the job, making sure there is a demand for the product or service you offer, and ensuring that you have enough supply to adequately meet customer demands.
2. Underbudgeting for hidden expansion costs and exchange rates
Expanding abroad is a risky venture that deserves proper planning, including a realistic, even generous, budget. No matter how much you research your new enterprise, you are likely to encounter financial surprises. You might need more product than anticipated. You might run into steeper shipping costs than expected. You might find that International exchange rates could mean you need to adjust your pricing.
Some financial mistakes small companies make when going abroad can be avoided
Knowing that there will be financial surprises can help you deal with those surprises before they happen. As soon as you start your international expansion, put a reserved amount of money in a rainy day fund—then it's there when you need it. Having a rainy day fund ready will help you deal with the inevitable financial hiccups that come with going abroad.
3. Failing to understand the federal and local laws of a foreign market
As you research expanding abroad, remember the importance of adhering to federal and local laws. For example, you may need to consider taxes, shipping regulations and product regulations. Failure to adhere to these rules could result in financial and legal trouble—an unfortunate start to your exciting new venture.
Expect foreign countries to have different regulations
Remember to always check the fine print! Foreign countries will have different rules and regulations than your domestic market. The product you sell may be regulated differently than in your home country, taxes could change while you are getting started in a new country, or you could be held liable for a shipping company's mistakes. This is why expert service providers such as international lawyers can be an invaluable asset as you expand into unfamiliar territory—and why we recommend seeking them out early on. Not sure how to do that? No problem. Connect with international lawyers and other expert service providers using B2BeeMatch. Sign up today for free!
4. Failing to understand the culture of the foreign market
One major difficulty of international expansion is understanding market differences from country to country. Though you'll want to maintain some brand consistency across your various markets, you'll have to modify how you market, offer products and services, and even accept payment if you want your expansion to be a success. Here are a few things to remember as you consider a foreign market!
Hire people that understand the foreign market and your business
As you plan an international expansion and consider the best hires for your new market, it's easy to make one of two costly mistakes.
It's tempting to hire someone from your own company. You've already established a rapport, you know they do good work, and you trust them. However, the fact that your valued employee is skilled at a job in one market does not mean that they will easily and seamlessly adapt to a market and buying culture that they know nothing about.
It’s tempting to hire locals. However, if the product or service you are offering is brand new to their market, they may be too inexperienced. These hires could be a valuable resource in understanding the local customer base, but they may not be familiar enough with your company and the products or services you offer to work seamlessly with you. As well, if you are moving into an international market and are not fluent in the local language, you may have difficulty communicating with your international team.
The best way to split this difference is to find an employee in your domestic company who understands your business and is familiar with the new market. Having such employees may even help you make a decision about where you want to take your cross-border or overseas expansion. So, if you’re starting a business with dreams of international success, you may want to snap up these critical hires early on.
Learn customer needs and wants in the new foreign market
When you started your business, you were confident that you were offering a valuable product or service and filling an important gap in the market. However, as you plan international growth, it's important to remember that not all markets will have the gap that your company is working to fill, and not all potential customers will either enjoy or trust the way that you offer your product or service.
Consider if any products, services or situations in the prospective market might make for a difficult time marketing to prospective customers. For instance, if shoppers feel that they already have the service or product you offer, they may be loyal to the companies they already know—they may not want your service or product just because it’s shiny and new.
Also, consider what the shopping culture is like in the market you want to move into. Ignoring cultural norms could torpedo your expansion efforts. For example, when the big-box store Walmart tried to expand to the Japanese market, executives failed to consider the Japanese preference for shopping in multiple locations. Japan’s dense urban centers make for ease of movement between stores, so a large central location is far less appealing to Japanese customers than it is to American consumers. Similarly, when Walmart tried to expand to Germany, they didn't modify their personable approach of hiring entrance greeters and cash register baggers. This proved to be a costly mistake because German shoppers tend to prefer personal space and felt that this approach was intrusive rather than welcoming.
In addition, think about how your new customers prefer to pay for goods and services—not all cultures prefer to use the same payment methods. For example, when Ebay tried to expand to the Chinese market, they found that their credit card-based system didn't play well with Chinese customers who were used to paying cash on delivery. If payment methods are inconvenient or unfamiliar to your target market, you could see a lack of interest in your business.
Successful international expansions start with understanding your new consumers
Don’t stick too rigidly to your company's existing methods of payment, shopping experience or marketing strategy. In other words, don’t stick to the ways you do things in your domestic market just because that’s how you’ve always done them. Success in a new market means catering to a new and different set of customers with a new and different set of cultural norms and expectations. Do your research ahead of time, learn what these new customers want and need, and put that into practice early on in your international expansion.
5. Having too much or too little contact with your international expansion team
Setting up an international location for your business might mean sending an entire team abroad. It can be challenging to know how much support and guidance to give this branch of your business. After all, they could be an ocean away and catering to a very different market than they’re used to. There are two common mistakes you could make when working with your new international team—you’ll want to avoid both of them!
Micromanaging an international team
When you expand to an international location, it's important to remember that this new location is a new entity that deserves some autonomy. It might be difficult to let go of some of the daily decisions, but we recommend delegating power to someone on location who knows the new market. For one thing, it's unsustainable for you, the small business owner, to make every decision for your domestic locations and international locations. Also, as we mentioned earlier, you should have employees in the international location who already know the target market well. Allowing these qualified people to make daily decisions will remove tasks from your plate and enable them to make key, timely decisions for the company without needing to wait for approval at critical moments.
Neglecting an international team
While your international team should have some autonomy, it's also important not to neglect them. Remember to call and visit—not to micromanage, but to show your support and develop a good rapport with your international team members.
We hope this list helps you avoid the common mistakes small companies make when going abroad
Though international expansion is a big step and shouldn't be taken lightly, we hope that you're able to learn from this list of common mistakes small businesses make when going abroad. We hope you remember to do your research, plan ahead and take your time on this exciting and challenging business journey. We wish you the best in your international expansion!