With 95 percent of the world’s consumers living outside of the United States, how best to reach these untapped markets?
It's easier than ever for small and medium-sized businesses to connect with customers and suppliers around the globe. According to the U.S. Small Business Administration (SBA), more than 300,000 smaller businesses exported to at least one international market in 2013, up 28 percent from 2005 – and for good reason. The U.S. Department of Commerce says that more than 70 percent of the world’s purchasing power is located outside of the United States, which means going global can be good for your bottom line – if you tap into the right international markets. What’s more, a study published by the Institute for International Economics found that U.S. companies that export grow faster and are more than 8 percent less likely to go out of business than non-exporting companies.
A good local partner can help lessen foreign exchange risks and recommend suppliers who will maintain quality standards.
For any business, the decision to expand internationally comes down to one simple question: Are the investment and risks worth the potential gains? Considering that 95 percent of the world’s consumers live outside of the United States, there are large markets that may be waiting for what you have to offer.
Here are five considerations before expanding your business internationally:
1. Use analytics to refine goals. Big data can help clarify your business goals and inform your plans for expanding internationally. Should you add new geographic or demographic markets, or expand product offerings to your current customer base? Should you pursue growth in topline sales or net profits? Be open to all forms of expansion, such as licensing your products or taking on complementary product lines from other sources. Business intelligence software can also make it easier to track key performance indicators once you do expand, eliminating the need for manual data entry and allowing you to make strategic decisions faster and with more confidence.
2. Start by expanding domestically. Because of the challenges in entering some international markets, experts recommend expanding in the home market first. Robert Eberhart, assistant professor of management at Santa Clara University’s Leavey School of Business, says, “The research is fairly clear that, generally speaking, companies do much better by expanding nationally than trying to go into an unknown market in the first instance.” Add product lines or target new customers in domestic markets first to avoid issues with cultural differences as well as business relationships. A good way to test the waters is to start by simply doing business with our neighbor to the north. In fact, the SBA reports that most of the domestic small businesses that only export to one country choose Canada. Download our guide to shipping to Canada.
3. Understand new markets. International markets may differ in economic, political and regulatory perspectives, adding an extra layer of complexity. Fortunately, it’s not difficult to understand the nuances of a target market overseas. Here are some things you can do:
- Conduct market research to confirm that your products are desirable in the target locations. It's important to understand consumer preferences and the realities of local market conditions.
- Research trade regulations and customs requirements before shipping products across borders. Use UPS TradeAbility® tool to estimate international shipping costs, access international forms, find harmonized system codes and more to keep your shipments moving through customs.
4. Partner for growth. The next step is to find a smart shipping partner that fully understands international markets and their legal, regulatory and tax compliance laws. Companies may be required to modify a product or incorporate local content to comply with local regulations. Of course, it's critical to align objectives, incentives and expectations, as well as create transparency and visibility between partners. A good local partner can help lessen foreign exchange risks, identify logistics options, and recommend suppliers who will maintain quality standards. Customs brokers, for example, can help you navigate trade intricacies and maintain local regulatory compliance to help you avoid getting caught in red tape as you enter new and unfamiliar markets.
5. Outsource operational aspects For many small and medium size companies, it helps to outsource operational factors such as local labor and logistics. International logistics providers like UPS already have a supply chain infrastructure in place that can reduce costs and start-up times. A third-party logistics provider can offer services such as infrastructure and staffing, inventory management and supply chain optimization. They can also handle key functions such as warehousing, transportation and distribution. A larger logistics partner may even provide order and payment processing, as well as customer service support.
Companies with international expansion in mind would do well to gain experience with domestic expansion first in order to uncover gaps and grow their logistics capabilities. That way, expanding into foreign markets will be more likely to succeed after developing the resources and experience necessary for sustainable business growth.