By Julian Hornby, below, Director of Debt Finance, Growth Lending
Despite challenging trading conditions, many SMEs remain optimistic about their potential for growth. Rathbones’ research found that 43% of business owners intend to expand their business in 2023 and international expansion is one route to making growth ambitions a reality.
Expanding into new territories can come with a whole host of benefits for a business including access to new markets, a wider talent pool and enhanced brand recognition. In addition, operating in new countries reduces dependence on domestic demand for products or services, which results in a more resilient business. It’s no surprise then, that 70% of UK SMEs plan to expand into, or further into, foreign markets this year. However, international expansion is no small feat and for business owners, there are a number of pivotal considerations that pave the way to successfully conquering new markets.
Get to know your international target market
Establishing if there is sufficient demand for the business’ products or services is the most crucial factor in determining if global growth will be fruitful. As a result, it’s the first step that SMEs should take.
Conducting market research is one way to do this and to find out how the business’s offering might need to be adapted to best serve the needs of those in the new territory. In addition, research will help to identify any risks involved in operating in the new country, as well as how these can be mitigated.
Spending time in the target country will also help to get a better feel for cultural differences, ways of working and how others in the industry operate. Furthermore, it’s key to building valuable connections.
Be clued up on legal differences
Beyond being informed about the new target market, it will also be key to research any legal and regulatory differences. Externally, evaluate how a different legal and tax system will affect your plans. Internally, consider how staffing, company structure and the industry you operate in may impact the set-up.
Another factor to consider is ensuring that the business’s intellectual property is protected in all the markets that it will operate in. Patents, design rights and trademarks all need to be registered in the new jurisdictions.
Other considerations include the translation of contracts if the country is not predominately English-speaking, different employment laws when hiring local staff and abiding by marketing and advertising regulations.
These are just a few of the many components to explore. As a result, seeking expert advice is the best way to make sure that all differences have been factored in and any nasty surprises can be avoided.
Consider external investment
While international expansion will likely boost revenue in the long term, in the short term, capital will be required to set up operations in a new territory. As a result, business owners need to determine what capital they have readily available and whether additional cash will be required for the expansion. If so, SMEs can consider external investment options.
Many countries will not allow a business to immediately obtain a loan with a local lender when they are first setting up operations. This means that business leaders need to evaluate the funding options in their domestic territory. It’s advisable to aim for lenders that can support multiple currencies and handle different jurisdictions.
Once the most suitable lenders have been identified, a well-informed pitch will be key to securing the investment. Business owners will need to demonstrate how they will adjust their offering to a new audience and prepare a number of supporting documents to illustrate that the funding and quantum requested are sufficient to cover costs.
Leverage local knowledge
Local knowledge and connections are invaluable to a business’s success when emerging into new markets. Building a network of partners, suppliers and even competitors will help business owners gain unique insights into local customs, cultural standards, and employee expectations.
Hiring local talent is also key to a smooth transition into new jurisdictions. Employees will bring with them a wealth of knowledge of how the industry operates in their region. In addition, professional networks can offer support for a successful launch, help with the longevity of the business, and even provide new business prospects.
If the business does not have existing employees, investors, or suppliers in the region, forming new connections will be crucial.
Set realistic timescales
Opening new sites abroad, recruiting the right staff and getting appropriate finance in place will take time. Business owners need to ensure that they set realistic timescales and plan ahead, as a global expansion can take months or even years to become a reality.
The best time to enter a new market will depend on a number of factors including the chosen location’s economic and political situation, the industry the business is in, the entry strategy and any seasonal factors. Business leaders should consider if there are any local events to base the launch around or particular times of the year to avoid. This is where leveraging local knowledge is key.
Overall, SMEs should embrace the learning curve of international expansion and be open to adapting as the business evolves in its new territory. My top three takeaways would be to never assume something is the same as it is at home, to ensure that there is a built-in safety net if things don’t go to plan and to build and foster a network to turn to for local business advice.
Targeting a new market is an exciting step in a business’s growth journey that can open up a plethora of opportunities. By considering these five key points, informed by Growth Lending’s own expansion into the US, business owners will be well on their way to going for global growth.