International expansion is usually considered when either:
- an international demand for the business’s product or service is received by, or made known to, the business; or
- the business is actively looking for new opportunities for growth.
A business that has reached its potential in the domestic marketplace will be required to look beyond domestic boundaries to drive its growth and remain competitive. The primary aims of a business when expanding internationally will be to increase sales, acquire resources and diversify its sources of sales and resources.
Nonetheless, reasons for entering into a particular market, however, may vary. For example, an Australian wine company may decide to enter the Chinese market because of the untapped potential of a growing population with an increasingly sophisticated palate, whilst it sells its products in the UK because it is aware that many British wine drinkers are used to the flavour and taste of Australian wines.
Goals of an international business
Developing an international business require a careful consideration of all factors affecting the success of the business on an international level. Beyond such factors is the ultimate aim of creating a global brand that may be identified by consumers around the world and at the same time, improving operational efficiency by exploiting economies of scale and scope to increase asset value. This in turn increases shareholder value for the business.
A business that adopts a reactive approach to international expansion will expand only in the following circumstances:
- response to an international demand for its product or services;
- response to the actions of domestic competitors that have expanded internationally;
- response to falling domestic sales and/or falling profits as a result of becoming less competitive;
- response to increasingly high production and/or administrative costs in its domestic marketplace.
A business that has a proactive approach to international expansion on the other hand, actively does the following:
- look for new opportunities for growth in new or emerging markets;
- look for ways to increase sales and profits by taking advantage of lower costs, incentives and tax concessions offered in the international marketplace;
- plans for penetrating new or emerging markets ahead of its domestic competitors; and
- establishes offices overseas to better service its customers.
For further insights into developing a strategic business plan for international expansion, call us for a consult.