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International expansion can provide a major boost to a startup — driving growth, profitability, and market share — and significantly improving the company’s long-term prospects. Investing in different markets early can help entrepreneurs get a jump on the competition, increase global business recognition for their company and products, and add new revenue streams. This in turn can help boost sales, drive word-of-mouth marketing, and lead to further expansion.
Another advantage of expanding into new markets is access to an expanded talent pool. Hiring global talent with diverse perspectives and experiences can help spur innovation and fuel additional growth.
Entering a new market is not without its challenges, but by following these five expansion strategy steps, startups can increase their chance for a successful global expansion.
1. Conduct a Financial Wellness Check
Before entering new markets, it’s important to first analyze the overall financial health of the business to determine if it’s feasible to take on the additional costs of opening locations in different countries. While the goal may be global expansion, it’s still critical not to consider international growth if it could pose a financial risk to the overall business.
Choosing the best global expansion strategy is also dependent on the startup’s business model. Some options include opening a new physical location, exporting, franchising, or forming strategic partnerships with existing businesses in the target market.
Next, startup companies need to create a budget for the cost of the planned expansion. This should include allocating funds for market research, legal fees, ensuring compliance with local laws and regulations, and hiring and managing an international workforce. Establishing relationships early on with local partners can allow startups to tap into their expertise in the local market, and help with risk mitigation.
If the numbers look good, it’s now time to analyze which countries have the most potential for a business expansion.
2. Determine the Target Markets
Startup founders should start by identifying which global markets seem like the best fit. This should include determining the level of demand for the company’s goods or services in a target country. Once a potential country for expansion has been identified, it’s important to:
- Analyze competitors and identify market gaps and opportunities
- Understand local customer preferences, purchasing power, and buying behavior
- Consider cultural norms that may impact business operations and consumer behavior
Any market entry strategy should begin with establishing relationships with local advisors, legal specialists, and industry peers. These local experts will be able to provide guidance and insights on best practices and potential pitfalls to be aware of before entering the new market. Businesses may also want to consider investing in training for employees who aren’t familiar with the nuances of the new market’s culture.
3. Create a Customized Sales and Marketing Plan
While the customer base may be similar in many ways to those in the startup’s country of origin, there are often subtle differences that need to be taken into consideration. Before expanding into an international market, it’s important to create a customer persona so you can tailor marketing strategy efforts to the needs and preferences of the potential customers’ local culture.
Market research is essential in international markets where the language and culture differ from those in the company’s home base. For example, marketing techniques that work well in one country may not make sense in another, or might even rub potential customers the wrong way due to cultural differences. Understanding who their potential customers are first enables startups to effectively tailor their messaging.
The marketing campaigns should reflect the information you’ve gathered about your target audience, and include strategies for attracting new customers, retaining current customers, and increasing sales.
4. Establish a Physical Presence
Startups planning on opening a brick and mortar location in a new country will first need to set up a legal entity, which can be costly and challenging. It can also be time consuming, so once a decision to expand has been made, it’s important to start the process as soon as possible.
Other potential expenses to consider when estimating the expense of a new physical space include:
- Costs for an office, utilities, equipment, and infrastructure setup
- Technology and infrastructure investments, including technology upgrades, software licenses, and IT infrastructure
- Supply chain and logistics setup, which could include shipping, warehousing, and distribution networks costs
- Travel and relocation expenses for any staff who will be moving to work at the new location
Companies will also need to budget for any necessary legal consultations, permits, and licenses.
5. Hire and Pay a Global Workforce
Recruiting, hiring, and compliantly paying local talent in a global workforce requires extensive knowledge of country-specific employment laws. Even if a business is only expanding into one new country, there is still a significant learning curve, as every country has its own employment laws regarding:
- Working hours
- Employment contracts
- Payroll taxes
- Sick pay
- Holidays
- Insurance
If you plan on hiring independent contractors, that can pose additional challenges, including running the risk of misclassification. For example, in Germany businesses can only classify a worker as a contractor for 18 months. At that point, the business would either need to end the contract or hire the employee full-time. Companies that run afoul of employment laws can face stiff penalties and fines for violations, even if unintentional.
Do it all with an EOR
One way to mitigate the risk of employee misclassification and ensure full compliance with all employment laws is to partner with an Employer of Record (EOR). An EOR helps companies expand by acting as the legal employer for your staff in other countries. The EOR assumes the responsibility of hiring and managing employees, while the employer is in charge of the day-to-day management of employees. This way startups expanding in new countries can legally hire talent in other countries without the need to set up a legal entity or physical presence, or risk costly violations of local employment laws.
Global expansion presents several challenges, but with careful planning, strategic partnerships, and a commitment to innovation, startups can overcome obstacles, ensure long-term success, and thrive in international markets. By addressing key pain points and implementing actionable growth strategies, startups can unlock new opportunities and achieve sustainable growth on a global scale.
If you’re thinking about an international business expansion, schedule a demo to learn how RemoFirst can help.
