It might seem like an odd time to craft an international strategy, but services have become a global business – and that’s just one reason you can’t afford to stay within your borders.
These are strange times. Wars, weather and a COVID-19 pandemic are reshaping the global business landscape. For many executives, surviving is a fight to the death and expanding internationally seems like a pipe dream.
But business leaders with big aspirations still need international strategies. The movement of goods and people has slowed in the last two years but global business isn’t going away. It’s evolving. To keep pace, grow and flourish, you need to evolve, too.
The death of distance is a key driver for international business in 2022. Despite the short-term supply-chain crunch, improved logistics, travel and technology are enabling goods, people and ideas to move around the world faster than at any other time in history.
Activities that previously had to be done in one place have been unbundled and spread out around multiple geographies. In many industries, especially elaborate manufactures, supply chains have become truly global. New technologies let us meet people on the other side of the world, transmit our data across the globe in a heartbeat and make and receive payments in the space of a few minutes. Services including telemedicine, architecture, design, accounting, coaching, management consulting, and dozens of others can be provided to and from virtually anywhere.
The death of distance has implications for almost everyone in business because we can communicate and work with customers and suppliers who were unreachable just a few short years ago. On one hand, I believe we are seeing a big, permanent step change in the way services are sold. On the other hand, while global trade in goods may have slowed for now, it will eventually return to historical levels as supply chains recalibrate. That’s because no country can make every product that consumers want, and because trade has and always will drive economic prosperity.
Limitless opportunity creates unbridled competition
What this means, especially for service providers, is that international markets are more accessible than ever. Increased uptake of technology-enabled service delivery equals lower barriers to entry. In other words, if you have a great product that can be delivered without you needing to be there in person, and a powerful message that resonates with your audience, you suddenly have almost limitless potential to sell anywhere.
The downside to limitless opportunity is a massive increase in competition. If barriers to entry fall and you can suddenly sell anywhere, people from all over the world can suddenly sell into your home market, too. And if they can create and sell a better product at less cost and market it with equal flair, that’s the end of your market share. The truth is that the dark side of borderless markets (increased competition) should be just as great a driver for a perceptive CEO as their bright side (increased opportunity).
Foreign competitors are not the only worry. You can’t afford to ignore the threats at home. Some of your canny domestic competitors have already realised that they can turn geo-arbitrage to their favour. They’re using web developers and designers from Jamaica, graphic designers from Hungary and Slovenia, bookkeepers from India and virtual assistants from the Philippines to source services for themselves and their clients at a fraction of the cost of buying domestically. They are able to reduce their cost of goods sold and undercut you, while still making a profit.
Expanding overseas remains a smart way to counter the threat from overseas competitors and local firms capitalising on geo-arbitrage to compete with you at home. Here are six reasons international expansion gives your business an edge.
1. Reach more customers
Access to international markets enables access to more customers. This matters for any company that has clients only in one geography, and is especially true if you are based in a country like Australia, which has a relatively small domestic market.
Over the last 20 years, the global marketplace has grown by around three to four billion new customers, to a total of around 7.6 billion people. This reflects the way economies have evolved in that time. Not so long ago, China and India were still considered developing countries. These days, they are leading economies whose rapidly expanding middle classes have money to spend. Similar trends are apparent elsewhere in the world, as the middle classes grow rapidly throughout Asia, the Middle East and Latin America. In many cases, 99 per cent of the people you could sell to are now located outside your own country.
2. Spread your risks
The expression “don’t put all your eggs in one basket” applies equally to investment portfolios and customer bases. A business can pay dearly if too many of its clients are concentrated in one country and conditions change quickly. If you sell in only one market and there is a downturn, new competitors appear, regulations change or your machinery fails, sales may drop dramatically, putting the company at serious risk.
Diversifying your markets offsets risk in the domestic market by opening up opportunities with new clients, new partnerships and joint ventures, as well as new chances to develop products for specific geographies.
Diversification can also help smaller companies survive tough economic times and political volatility, factors that are becoming increasingly important as global politics and the dynamics of international trade continue to shift rapidly and unpredictably.
3. Control costs
Every astute CEO wants to reduce expenses and going global can help. Even though COVID-19 has manufacturers everywhere re-evaluating supply-chain reliability and looking for s solutions closer to home, you may still find more economical answers to your production and manufacturing challenges offshore.
And in Asia, low taxes and set-up schemes abound to encourage foreign businesses to set up on-shore.
4. Maximise profits
Overseas markets may generate higher returns, especially if they are less advanced, attractive or competitive than your domestic market. Difficult markets usually attract fewer foreign companies and you may find that there is a blank space in the market that you can fill, potentially allowing you to charge a higher premium than you can attract at home.
5. Expansion equals innovation
In an era when robots are replacing highly trained professionals, business leaders can’t afford to be complacent about innovation. The commercial and technological environment is changing so quickly that those who stand still will be left behind.
The good news is that research suggests that operating internationally drives innovation. In other words, if you want a company that is more innovative, productive and competitive, look offshore. Exposure to new ideas and clients and the challenge of generating solutions to new problems will help you and your team become more innovative and more productive, creating an enduring competitive edge, at home and abroad. The result? A virtuous circle with the potential to drive further international success.
6. Increased company value
Lastly, nothing increases the value of your company like an international footprint. When a management team can demonstrate to investors that it is selling internationally, they’ve flagged the potential for making a lot more money, for all the reasons I’ve touched on above. Simply put, companies with international reach have an unfair advantage over their domestic cousins.
This article first appeared in issue 37 of the Inside Small Business quarterly magazine
