Expanding globally offers a lot of great opportunities.
But it also comes with many challenges.
So, what are the elements that you and your company should consider when you start planning an expansion into any new territory?
That’s what I talked about with Rob Wellner, Senior VP of Sales at Velocity Global, on the most recent episode of B2B Revenue Acceleration. Rob shared his expertise on the advantages and challenges that come with global expansion, along with a few things companies commonly overlook. Here’s what he had to say.
The Primary Advantages of Global Expansion
There are really two key benefits of expanding internationally.
You get access to new talent pools.
In the United States, unemployment rates are hitting historical lows. That’s a trend we are seeing globally, as well.
So, to be able to go into a market outside of where a company normally operates and find top talent is a critical driver of global expansion.
You capture new streams of revenue.
Expansion not only helps to build up a firm’s infrastructure, it also allows a company to increase and diversify revenue outside of their current geographic footprint.
So, if those are the main advantages to global expansion, what are the key challenges you should prepare to overcome?
Challenges to Global Expansion:
There are tons of considerations to assess when going international.
- How will you test the new market first?
- How are you planning to hire immediately once you get in the new region?
- How will you protect your intellectual property?
- How will you proactively address employee retention, before it becomes an issue?
Overlooked Elements of Expansion
In the United States, employment rates are hitting historical lows. That’s a trend we are seeing globally, as well. So, finding top talent in a new market is a critical driver of global expansion.
There are five critical elements companies tend to overlook.
#1: Language barriers and cultural differences.
This one’s a bit obvious, but it still gets overlooked. Make sure you’re aware of how your new region might do things differently from your home country.
#2: Process of setting up a new entity.
You probably know you need a tax identification number. That’s relatively easy. But have you also thought about other issues? These might include setting up new bank accounts, placing resident directors in the new region, or finding a human resources professional with a working knowledge of the local employment laws.
#3: The social system of the new region and how it might be different.
Don’t forget to think about how the local region’s social security system works — and how it will affect your business plan. For example, if you’re looking at employing in the United Kingdom, social contributions might cost a company around 15%. In France, you might be paying somewhere in the mid 40% range, But if you’re employing in Brazil, you should expect to pay a much higher rate which could be as much as 70% or above.
#4: Different employment contract regulations.
Each country has their own requirements for employment contracts. Companies don’t often consider that and they want to be able to use the employment contract that they have in their own country. That’s just not always doable.
#5: The supplemental benefits which complement the state health or pension systems.
Employers will often lose employees to this one because they don’t take it into consideration. Make sure you’re thinking this one through.
The Regions That Can Be Most Difficult to Move Into — And Why
Everyone might have a different notion of which regions present the most challenges to overcome when expanding globally.
But according to Rob, there are two regions he believes can be the most challenging: Africa and Latin America.
#1: Abundant bureaucracy.
This tends to slow everything down significantly. Setting up a company in one of these areas will take a considerable amount of time and executive team interaction.
#2: Significant diversity in culture.
The culture in Brazil is significantly different from the culture in Argentina which is very different from the culture in Columbia. And when you go to Africa, the countries are even more diverse.
#3: In Africa, there’s a lot of uncertainty.
We’ve often seen the political landscape in Africa change on a dime. That means laws could change any time — it’s a volatile place to be.
#4: The cost of the social security system.
As we talked about before, the costs of social benefits in Latin America can be very high. In Africa, the cost is lower, but you still have the bureaucracy and uncertainty.
So, if you’re planning to expand globally, think through these potential challenges to ensure you’re deriving the full benefit of reaching a new market.
This post is based on an interview with Rob Wellner from Velocity Global.
To hear this episode, and many more like it, you can subscribe to The B2B Revenue Acceleration Podcast.