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Pro and cons of expanding business overseas

In addition to faster and more efficient access to news and political developments, businesses are able to manufacture and sell their products all over the world.

  • A major 'pro' of going global is finding a market for a product that doesn't exist in your own country;
  • The best solution is to have senior management on location in your key global regions;
  • This could range from causing offence by not observing correct protocol, to inappropriate packaging and marketing;
  • Exchange rate risk Because exchange rates fluctuate there is also risk business trading in foreign currencies may not be able to forecast finances accordingly;
  • This is because a good product that sells well will actually deflate local-level competition;
  • If a market —or even economy — does slide, your business investments elsewhere can still bring in the money.

Yet while many companies are tempted to expand their businesses internationally, careful consideration should be given to the pros and cons of corporate overseas expansion. Language and Culture The development of a more global society means that learning another language and developing cultural savvy are increasingly important.

  • However, it may also lead to your business being outmaneuvered by more adept companies and beaten out for business;
  • When considering whether you'll go global with your company, you should consider if there is, indeed, a larger market waiting for your product in other countries.

Global languages, or those few languages that are increasingly learned for business communication are becoming the main means of communication in the global business community. A company that mandates an official corporate language may have greater opportunities to expand simply because they are able to communicate clearly with a greater number of people.

For example, if everyone in a company is required to speak English they will all be able to communicate on company business matters, even if they are spread through four different countries. Conversely, cultural sensitivity and deference to local customs also plays an important role in relationships with international customers.

12 Pros and Cons of Expanding a Business Internationally

Respect for the history and customs of other cultures strengthens relationships and builds bridges within the international marketplace. Understanding cultural nuances and social etiquette can also avoid corporate embarrassment when meeting with corporate leaders in other countries.

Cross-Time Zone Business Managed well, your market can be as large as 40 percent of the world population in the BRIC countries alone — Brazil, Russia, India and China — but cultural differences aren't your only problem.

  • And although the risks of expanding overseas are rather poignant, the benefits can outweigh them if foreign business is executed to good effect;
  • Understanding cultural nuances and social etiquette can also avoid corporate embarrassment when meeting with corporate leaders in other countries;
  • Competition By opening your business up to a global community, you'll also be opening it up to increased competition at a global level;
  • For example, as BCS asserts, if a business does most of its trade in US Dollars it may be beneficial for said business to trade with Japan to spread the exchange rate risk between the Dollar and the Yen, therefore creating benefit for the company.

Doing business in different time zones can also be difficult. Be prepared to have 24-hour management capabilities and customer care.

When a significant problem arises, such as a snafu at the port of entry, natural disaster or trouble with local government authorities, it must be handled immediately by an authorized manager. Even daily business decisions involve senior management. The best solution is to have senior management on location in your key global regions.

(Mis)Adventures in Business — the Pros and Cons of Expanding a Business Overseas

If you run your U. Varying Exchange Rates Unexpected currency fluctuation can destroy your profits, but can also produce a windfall. The strength or weakness of the U. This can be controlled through currency hedging, but unless you know a great deal about this, seek the services of a professional currency trading firm. Credit card currency translations can also be problematic, so look for a merchant account provider that provides the best currency conversions.

The Pros & Cons of Going Global With a Business

International Laws It may come as no surprise that different countries have different laws, but you may be surprised at the problems they can pose when it comes to business transactions internationally. It is important to thoroughly understands the regulations concerning compliance with labor laws, distribution rights and joint ventures as well.

Varying views regarding the protection of your intellectual property are also in play. It helps to license your IP to a trusted overseas partner with the understanding that the partner must responsibly protect your company interests. Knock-off products, pirated software and stolen intellectual property can be costly problems.

The Pros and Cons of Going Global With a Business

Before making expensive legal mistakes, hire an attorney experienced in international trade. You'll be playing in a local company's backyard, and your company is vulnerable to any complaints they may file against you. Reliable Delivery If you've had products manufactured overseas, you're aware it can take two months or longer to ship them to the United States.

International trade also requires payment guarantees for orders, accomplished through the use of bank letters-of-credit. You may also have faced the disappointment of receiving shipping containers that have been damaged, looted or that contain merchandise not meeting your expectations.

  1. Some businesses forge partnerships with local companies to help balance their risks, like a joint venture or a franchise. But what are the risks?
  2. For example, as BCS asserts, if a business does most of its trade in US Dollars it may be beneficial for said business to trade with Japan to spread the exchange rate risk between the Dollar and the Yen, therefore creating benefit for the company. A company that mandates an official corporate language may have greater opportunities to expand simply because they are able to communicate clearly with a greater number of people.
  3. Exchange rates As a business begins to trade overseas the reliance it has on its domestic market reduces and risks can be spread, especially in relation to exchange rates according to Business Case Studies.
  4. International trade also requires payment guarantees for orders, accomplished through the use of bank letters-of-credit. An international business is guarded against the changing trends of business because there is more access to markets within their targeted demographics.
  5. These approaches, however, offer little protection against policy risk.

Delivery of ordered goods from your U. Reliable delivery services, such as international overnight package companies, can solve such problems and open your customer market considerably.

Again, local company managers and a strong business relationship with an international bank, with branches in your target markets, provide vital on-the-scene problem-solving capability.