Business management

How to grow your business internationally

BGF, the UK and Ireland’s most active investor, explains how businesses can successfully navigate overseas expansion.

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 (for example, 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 that 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. Taxes, 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’ve 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.

1. Buy-and-build

Acquiring one or more businesses has proven to be 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 businesses 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 considered carefully.

2. 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.

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.

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 are 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.

3. 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.

This article originally appeared on the BGF Insights Hub.

About BGF

BGF was set up in 2011 and has invested over £2.5bn in more than 400 companies, making it the most active growth capital investor in the UK. BGF is a minority, non-controlling equity partner with a patient outlook on investments, based on shared long-term goals with the management teams it backs.

BGF invests in growing businesses in the UK and Ireland through its network of 16 offices.

This material is published by NatWest Group plc (“NatWest Group”), for information purposes only and should not be regarded as providing any specific advice. Recipients should make their own independent evaluation of this information and no action should be taken, solely relying on it. This material should not be reproduced or disclosed without our consent. It is not intended for distribution in any jurisdiction in which this would be prohibited. Whilst this information is believed to be reliable, it has not been independently verified by NatWest Group and NatWest Group makes no representation or warranty (express or implied) of any kind, as regards the accuracy or completeness of this information, nor does it accept any responsibility or liability for any loss or damage arising in any way from any use made of or reliance placed on, this information. Unless otherwise stated, any views, forecasts, or estimates are solely those of NatWest Group, as of this date and are subject to change without notice. Copyright © NatWest Group. All rights reserved.

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