Is an international business strategy the next step for your small business?
Expanding into new global markets can dramatically boost sales and profits, but it also requires careful planning. Don’t get bogged down in overly complex jargon like a multi-domestic strategy or transnational strategy.
Instead, use the tips to assess your opportunities and create a cross-border business plan that’s right for you.
Why create a global strategy?
Developing a customer base overseas offers several benefits to small-business owners.
First and foremost, moving from one local market to an international market diversifies your revenue streams. It also reduces your dependence on a particular geographic area. For instance, if sales are slow during your local winter months, entering an overseas market may be just the way to maintain healthy sales all year round.
Success in one geography can be used as a recipe for expansion into other foreign countries. Your first attempt to expand overseas may be difficult, but you can use the knowledge you gain to develop in other countries.
Meet Julie, she’s ready to expand her business internationally
Julie owns and operates Premier Mountain Bikes, a Newcastle-based
manufacturer that sells through retail shops in Australia. After 10 years of growth, sales have been flat for the past two. More Australian competition is making it difficult to increase sales. Because of that, Julie is considering expanding her business into France and Germany.
How can she—and you—develop a plan?
Understanding foreign market customers
Before making the move to do business overseas, you need to clearly understand what customers want. Equally important is anticipating what the buying experience will be like for customers overseas.
To understand these issues, Julie does research on the web and contacts several sporting goods companies that do business in France and Germany. She also spends three weeks in Europe and meets with retailers in both countries who sell bikes and other equipment.
Based on her market research and market size evaluations, Julie makes these observations:
- Getting attention: Customers in Europe will search the web to find mountain bikes. Julie’s programmer will need to create an option to view the company website in French, German, and several other languages.
- Influencers: Bike customers learn about manufacturers and brands online, but buyers rely heavily on the advice and opinions of shop owners when making a purchase. A Premier representative must build a relationship with local shop owners.
- Usage: The typical European client rides a mountain bike far more often than someone in Australia. Many use them both to commute and for recreational purposes. Julie will need to make design modifications to offer a bike that holds up to heavy usage.
- Price: Because Europeans use bikes more often, and they are willing to pay higher prices for a bike that will last longer.
Julie takes all of this information into account, and writes a formal business plan to expand into France and Germany.
Selling and distributing products globally
After considering buyer preferences, Julie researches how her business operations must change. While bike manufacturing will take place in Australia, Julie must have a clear plan to get her product into retail shops in Europe.
Julie decides to contract with a foreign distributor, who will get her product into stores overseas and take care of building as well as maintaining relationships with shop owners.
After talking with several chambers of commerce groups with European connections, Julie signs an agreement with Rhine River Distributing.
Premier must also deal with regulatory issues—such as custom inspections. So, Julie retains an Germany-based attorney who can help the firm comply with the legal requirements for shipping products overseas. If any shipments are delayed, due to customs inspections, Julie must have contingency plans in place to properly service her clients.
After putting these processes in place, Julie documents her system for shipping bikes overseas:
- Manufacturing: Bikes will be manufactured in Newcastle.
- Shipping: Once completed, the bikes will be shipped to Sydney, where they are inspected. Next, the bikes will move to Germany, where they are inspected again.
- Warehousing: Rhine River Distributing will accept the shipments and store them in a warehouse until the bikes are sent to retail shops.
Julie’s marketing and operations plan for her overseas expansion must be shared and discussed with her entire team. Premier’s staff deals with these issues each day, and they are in the best position to decide if Julie’s plans are reasonable.
International cash flow impact
Premier’s overseas plan will require the business to finance the cost to manufacture, ship, and store the bikes in Europe. In addition, it must pay the new distributor and the attorney.
To address the new cash need, Julie adds to her available line of credit. Her business plan takes into account that shipment delays may slow sales, which also slows cash collections on sales.
But that’s not her only financial consideration. Small businesses must also address a new type of risk that can be difficult to understand when developing an international business strategy: currency risk.
Currency risk is a possible loss incurred when currency exchange rates fluctuate.
Assume, for example, that Premier does a large amount of business in France and Germany, which use the Euro. Bike sales are completed in Euros, and Premier then converts the Euros into Australian dollars.
If the value of the Australian dollar declines, Premier may receive fewer dollars when Euros are converted into Australian dollars, and this will generate an additional expense for the company. The bike company may also recognise a gain on a currency exchange, but Premier is most concerned about limiting any potential losses.
Julie’s banker puts a currency hedging strategy in place to reduce the currency fluctuation risk. While this strategy requires Premier to pay fees to the bank, it reduces the risk of loss related to currency exchanges.
While often overlooked, be sure to consult with a banker about managing currency risk before you head into your next frontier.
Plan and succeed around the world
Your business may see a big increase in sales and profits by expanding overseas, but you need to plan carefully: market research, logistics, and finances.
With the right plan, your overseas expansion can succeed and even exceed your expectations.