When Is The Right Time To Globally Expand Your Business?
Judging the right moment as to when to expand your company is a big moment for a leader and a daunting decision to make. It is important for CEOs and business leaders to take all the different elements of your company into consideration.
Weighing up the risks versus the opportunities at hand may seem overwhelming, but with the right tools and information, international expansion can massively help to grow your business. Here are some general rules that may help those considering when to expand into a new market.
The generally accepted wisdom for founders with big home markets was to win your domestic market first before thinking about going international after that. However, the most aggressive founders are now thinking about growing sales globally from day one. This may be due to the opportunities presented in a foreign market, the product matching the need when there is a gap in the market, as well as the economic opportunities that exist abroad.
Judging the right moment to go international is going to be a big moment for a leader and a daunting decision to make. You have to consider the timing, cost as well as resources, and HR challenges. Although you will have to take all these different elements of your company into consideration, there are some general rules we can look to start that might help tell you, you are on track.
The 25% Rule
This one is fairly straightforward. When 25% or more of your business is coming from international markets, it’s time to scale outside your home country. This signals a significant interest that there is a potential gap in the foreign market and need for the services or products you are providing. Although it is important to do your due diligence and successfully conduct some market research, if your product is adapting well, it is probably a good time to consider the business expansion into that market.
The Scale Rule
The Scale Rule can help founders to decide if they are ready or too early to scale by defining it. For this, we turn to Steven Carpenter, former Global Sales & Operations at Dropbox and exec at Accel.
“I define scale as when your company has reached “product/market fit” in tandem with “business model fit.” It’s the moment when your customer acquisition growth rate is increasing while your acquisition costs are decreasing, AND the unit economics of the business are moving in your favour. You aren’t yet profitable but you understand your cost levers.”
It is important to consider a properly planned growth strategy when considering this rule. If you are scaling at a time when the customer acquisition growth rate is increasing, you will need to ensure you have a strategic growth plan to help you achieve your success of continuing to scale.
The Go-Fast Rule
The founders that follow the Go-fast rule know that they can sell internationally with minimal incremental cost and that if they were successful, they would increase their growth rate and demonstrate that their addressable market extends beyond their home country, the goal is to drive valuation.
If your business can use its existing logistics or pass along new delivery costs to the customer to service in the new market then it can generally be a no-brainer to run an AdWords or Facebook campaign in your new market very early on and see what takes. You shouldn’t even need to localise your offering for these tests.
If the proposition is going to fly internationally then some customers will convert even when the pricing isn’t a local currency. If you are in a position where you are going to need people on the ground to sell and deliver your product then you need to consider the scale rule.
There is also an argument for expanding early that you can pre-empt copycats, American investors looking for ideas from European or Asian markets, etc., and vice versa.
Thinking of going global? Here are some reasons why you definitely should!
The model is working well enough rule
There’s often no clear moment when your business model is ‘working’. So, you can ask yourself does it feel like the management team has moved its focus from continually fighting fires to optimisation? If you are still fighting fires it might be too early but if you aren’t then your business model is probably working well enough that you can handle the fires of an international office.
Start-ups from countries with a population of less than 50 million go international twice as fast as start-ups from countries with a population of more than 50 million: 1.4 years as opposed to 2.8 years.
Companies in countries with smaller populations and market share need to think internationally from an early stage. A founder in the U.S. or China can focus 100 percent on their home market and comfortably build a $billion business. That’s the upside for bigger countries.
The downside is that they may only think about the international market at a late stage and may struggle to adapt their business accordingly. Whereas a founder in Sweden or Ireland knows from day one that their business needs to be international, if it is ever going to get really big, and builds accordingly.
As a general rule, the return on investment (ROI) of expanding internationally is usually less than the ROI of expanding domestically. Typically, with a business that is going well in its home market, €1 invested in local growth will increase users and revenues by more than €1 invested abroad.
Eventually, though, a company will reach saturation point in its home market and need to expand elsewhere, at which point this equation might switch around. But usually, it is cheaper to expand at home than abroad.
While the advice may be to go international as early as you can – If possible, start by selling internationally from your home base.
Market expansion strategy
So you have decided that it is the right time for you to enter a new market. However, what options exist that may suit your need and help you to achieve this successful market entry?
Depending on your business, as well as the priorities around timelines, cost and immigration, there are many solutions that may apply to you. Although it is always best to speak to an expert who can manage your case based on the individual needs and circumstances of your growth, there are some more popular options for you to consider.
1. Set up an Entity
Registering an entity allows companies to hire staff if necessary, sell goods/services apply for business benefits, and many other options. The main Entity types in most countries include ;
- Limited Liability Company
- Sole Proprietorship;
- Limited Partnership;
- Corporation; and Cooperative.
- Branch office
Deciding on which entity is best suited to your need depends on your business objective and background. Register to Centuro Connect to discover details about the entity types, documents required, timelines, and the procedure of how to apply.
Allow others in different locations to open up your business branches and operate them following your guidelines. They pay you a fee and a percentage of profits. However, they have more operations control within their local market.3. Direct ExportingMarket your goods and services within a region and export your goods and services from your home region.
- Can take many forms including JVs or having a local partner to represent your firm and help generate business.
- Some countries require a local partner to have an ownership stake within a region.
- You may simply need a distributor to sell your goods.
5. Buy a Company
- You immediately claim market share with an existing customer base.
- No incorporation or initial setup costs/laws to comply with
- However, expensive to buy and need to integrate into the company culture
Give ownership of your product to parties in different regions for them to sell on your behalf. Companies who are looking to fully scale into a new market should consider the benefits as well as limitations that licensing may offer their business growth.
7. PEO / EOR
A professional employer organisation (PEO)can be defined as an outsourcing firm that provides services to small and medium-sized entities (SMEs). An ‘ Employer of Record’ (EOR)is a third-party contracted by a client company to take on the core compliance responsibilities of an employer, as specified under the law.
If you liaise with a company offering PEO and EOR services you will be able to expand your company in a region without setting up an entity.
- This involves the "leasing" of employees. A resident firm will hire employees on your behalf, and cover payroll and other necessary HR requirements, whilst the employees work for you.
- This enables you to test the market with staff but without the up-front capital of setting up a company.
This may be a suitable option for companies that want to hire a few employees in a foreign country but are not ready to set up an entity.
It may never feel like the '' right time'' to expand into a new market, however, the benefits and opportunities it can provide well outweigh the risks. If you are looking to enter a new market but are not sure when or how to do so, explore Centuro Connect and contact one of our team.