What are the opportunities for a company to expand internationally?

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What are the opportunities for a company to expand internationally?

Once established in their country of origin, every enterprise should consider whether global expansion is a good idea for their business.

In this article, we look at the meaning of the term ‘global expansion’, and assess the pros and cons of global expansion as a business strategy.

What is global expansion?

The definition of global expansion is the growth of a business outside its base country into multiple overseas locations. Of course, expansion is the natural trajectory of any successful business. Initially, this expansion tends to occur ‘locally’: The business will grow in its original location. Over time, businesses will often explore expanding ‘nationally’: Expanding within their existing country.

At a certain point, many businesses will look at expanding into other countries. Even if it is simply an expansion into a neighboring country, this is where it becomes a ‘global’ or ‘international’ expansion. For example, post-Brexit, many United Kingdom businesses are considering how to best manage their expansion into EU countries.

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Infographic: Nimdzi global expansion framework
Localization experts Nimdzi offer the following framework for global expansion, with an international marketing focus.

Global Expansion

What are the benefits of international expansion?

There are significant global expansion benefits for companies, as well as potential global expansion challenges. First, let’s consider the benefits:

1. 
   Acquire global talent
   

Your people are your most important business asset: It is impossible to grow an innovative business without getting the right workers in the right positions. Wherever you are based, however, geography will place limitations on your workforce. While talent is abundant in international hubs like London, New York, and Hong Kong, top operators are also found in Bangkok, Shenzhen, and Hanoi. Global expansion may give you the workforce you need, at a significantly cheaper price.

In addition to sourcing talent, consider several other ways your workforce can benefit from global expansion:

Secondments or intra-group transfers

One survey reports that 39% of Generation Z and Millennial workers would not accept jobs that don’t allow for travel. Not only do many employees seek international experience, but this can also be crucial to business growth as well. Intra-group transfers and secondments from head office to other locations are an excellent mechanism for employees to see how things are done in other countries.
Diversity of skillsets and cultural backgrounds
In a connected world, it is essential that your business can deal with diverse customers from different corners of the globe. Global expansion can be a useful way to ensure your staff can engage all your customers. Advanced skills in other languages can be of particular benefit.
Enhanced knowledge of local markets
You may have worked out that expansion overseas is a crucial mechanism for accessing a lucrative new market for your goods and services: Having staff on the ground in the target market helps ensure that you have the necessary market intelligence.

2. 
   Reduce costs
   

Global expansion is often more cost-efficient than local/national expansion: In some countries, the costs of labor and materials are much lower. For some businesses, this will make it beneficial to move a core operational function, such as manufacturing, customer service, or research and development (R&D) to another country. For other enterprises, it may be sensible to outsource a back-office function such as payroll, HR, or finance to another country.

If making this move toward global expansion, it is crucial that enterprises consider the taxation consequences of the expansion overseas (see further discussion of this below).

3. 
   Become more resilient
   

A business in any one country can suffer shocks or negative business events that are localized to operations in that country. This may be caused by an economic or political event in that country. Or, there may be an event that affects a business in just one country, and not in others. International expansion reduces the overall risk to the business of any such event. A downturn in sales in one country, for example, can be balanced with an up-turn in revenue in another location.

4. 
   Expand globally for growth opportunities
   

Market research often reveals that there is a unique opportunity for your product or service in a target country or countries. For example, it may be the case that:

You produce a product that is not currently available in that country

Your competitors are not yet operating in that country and you seek to be ‘first to market’
The target market has shown a particular interest in the types of products or services that your company sells.
In any of these cases, global expansion will be an essential part of your growth strategy.

5. 
   Expand globally for tax and compliance benefits
   

Some overseas locations may have tax and compliance regimes that are more favorable to your company. This may include, for example, lower corporate tax rates, different rules about ‘permanent establishment’, or different rules about tax deductions: For example, setting up an R&D company to receive the benefits of generous R&D tax credits, or setting up an intellectual property (IP) holding company in a country with low effective taxes on IP gains (for more information, see A Global Guide to Business Relocation).

Note that international tax arrangements are complex and care needs to be taken to ensure that all tax obligations are complied with. For example, US tax authorities have significant scope to tax overseas profits as worldwide income. Professional advice on your international tax strategy is absolutely essential.

In addition to differing tax obligations, there may be significantly different employer obligations for employee benefits in different countries. For example, in Germany, employers must make significant contributions to employee health insurance and pay for the existence of a ‘works council‘ representing employee interests. By contrast, in New Zealand and Australia, with free public healthcare systems, and less stringent employer regulation, there are no such requirements.