International Business Expansion Risks

International Business Expansion Risks

If you are a successful business owner, who is looking to take his brand internationally but unsure about the International Business Expansion Risks involved, let that not hamper your thought of expansion.  Sparkleminds is just a call away, to guide you in the right direction.

When we talk about international business expansion risks, the first thought that comes to our mind is political and foreign exchange concerns. Foreign exchange risk is the possibility that a currency’s value will change. This is typical as a result of the local currency increasing in value relative to a foreign currency.

Internal– International Business Expansion Risks

  • Budget and Risk Tolerance – Some market expansion tactics are lower risk & investment than others on the continuum. You need to invest at least a certain minimum to see if your expansion plan will be successful. Under- or over-investing carries a significant amount of risk.
  • Readiness within your business – All internal operations you carry out on your business model include potential failure spots. This includes sales, marketing, logistics, deployment, engineering, support, human resources, and finance. Particularly if you plan to support a global expansion by making decisions and carrying out crucial activities from your home market.
  • Proven Business Model – The amount of prior experience your company can draw from preceding international expansion projects has a big impact on overall risk.
  • Cost Risk Possibility – By going global, are you giving your domestic rivals more opportunities? Of course, there is a risk involved in this study that involves opening up global marketplaces to competition.

External – International Business Expansion Risks

  • Political and economic factors – Over a sufficient amount of time, all economies and countries have ups and downs, sometimes significantly. Sometimes there are few warning signals, and other times the writing is clearly on the wall. Extreme currency fluctuations, political unrest, war, trade disputes, tax law changes, and extreme weather are a few examples.
  • Legislative and Regulatory Risk – The value proposition, target clients, the way you convey your value proposition to them, the mechanisms of revenue and expense that produce profits from the business model, the activities and resources you require to operate the model—every component of a business model is a risk factor.
  • Competition – If you’re a late arrival to a market, established competitors may be exceedingly challenging to unseat because they have already built up their brand reputation and market infrastructure. You may be crushing Competitor X in your home market.

7 Risks to consider when taking your business Internationally

Any entrepreneur who considers international expansion gets enthusiastic. It is an excellent risk-distribution approach that can boost their brand’s reputation and bring in additional clients. You should be aware of the risks associated with international expansion despite the enormous advantages it offers.

#1.  Financial capacity

The process of moving abroad is expensive. Even while expansion may seem posh, you must consider whether your company’s finances can support it.

A young company should prioritise promoting its primary business inside the area before thinking about expanding into foreign markets. Many companies gladly set up shop abroad, only to discover later that they have enough money for the initial investments but not for long-term expansion.

#2.  Volatility in exchange rates

Currency exchange rates are constantly changing, whether as a result of economic instability or diplomatic hiccups. Due to these fluctuations, inexperienced investors may find it difficult to evaluate the true value of their international investments. 

While some investors have the intuition to capitalise on favourable timing, it’s also conceivable for the currency in your new market to drop abruptly without warning and you could lose a significant amount of money.

#3.  Political turbulence

Your international investments may be significantly impacted by a country’s political situation. Political stability and economic prosperity are mutually beneficial. Significant political events that can significantly affect the market include elections, diplomatic agreements, policy changes, and labour strikes.

#4.  Cultural distinctions

Business cultures can differ significantly between countries, particularly between the East and the West. Misunderstandings based on culture could harm international business ties.

#5.  Challenges to compliance

Regulatory norms vary by nation and include things like tax laws, licence requirements, and employment restrictions. A corporation may find it difficult, even with legal guidance, to alter its internal controls or accounting practises to comply with global standards. 

International accounting is a major concern for investors looking to explore global markets. Complex tax regimes, rates, and exemptions may deter investors who lack accounting expertise. Potentially, new regulations could make it more challenging for global corporations to conduct business.

#6.  Locally based rivalry

It might be challenging to persuade a foreign customer to trust your brand when a comparable product is supplied by a local company with a strong local reputation. Local firms often have better access to market knowledge and business opportunities than your organisation does due to their stronger social and economic links. 

If you can’t get first-hand experience, you can be missing out on a number of potentially lucrative business opportunities.

#7.  Localised Demands

Many well-known brands thrive domestically, but when they expand outside, they struggle. While conducting market research and due diligence can help you determine whether your business idea is viable, you can never accurately predict client response until you open for business.

Why Choose Sparkleminds for International Business Expansion?

International Business Expansion Risks

International business issues today are a lot more for brands looking at expanding on international waters. They have to pay heed to a lot of things during their expansion phase in the host country. 

Risks of International Business Expansion are numerous and hence need to be dealt with complete caution and care.

Franchisors who wish to set base in a foreign location of their brand have to make note of a few basic points like – Chalking down the prospective countries which will fit the bill for their product or service, finalizing the location, understanding the market dynamics for the demand of your product or service. 

It also includes getting insights on who are your competitors, overcoming language and dialect barriers, and most important various governments involved, permissions that need to be taken before you start.

The other types of risk are while expanding in a foreign location are – Financial capabilities, local labour/manpower issues, and market uncertainties. The franchisor should also look at adopting the local tastes and preferences and make changes in their product or service offerings.

Examples of International Business Expansion 

Something like what Mc. Donald’s in India, Mc Donald’s the US fast-food major is popularly known for its beef burgers throughout the world, but it has to revamp its offering in India. 

As India is not a major beef-consuming country, it has to adapt to local preferences and concentrate more on chicken products. They also rework their menu when entering Gujarat – It is a vegetarian state of India. 

To Sum up,

International business expansion risks vary from country to country. Considering the above example, it is easy to grasp that there are a lot of international business risks today, for franchisors planning to grow outside India.

Grab the opportunity of speaking with our consultants to understand how international business expansion works in India.