5 good reasons to expand internationally

11 April 2022

You are considering going international? Find out how international expansion can be a great opportunity 

By Kompass International

11 April 2022

Are you a company considering exporting but don’t yet know where to start? Before even thinking about your internationalization strategy, you must first make sure that you have good reasons to expand internationally. Indeed, it is important to identify the reasons that push you to consider internationalization. This will allow you to determine relevant objectives and to implement an adequate and successful strategy. The reasons can be multiple. In this article, we will discuss 5 important reasons to go international.

1. Increase your turnover

Going international is an excellent opportunity to reduce your risks and increase your revenues. Indeed, exporting gives access to markets with greater potential and thus increases your customer portfolio.

There are different situations that can lead your company to international development. First, exporting is useful when your local market is saturated with a limited or no market share left to capture. The acquisition of new customers creates an increase in your turnover. In this case, it is diversification based on a market development strategy.

This strategy was adopted by IKEA in the 1960’s, a few years after its founding in Sweden in 1953. The furniture market in Sweden quickly became saturated as the country had a small population. This situation pushed IKEA to first open to neighboring Scandinavian countries and then become the world leader we know. If increasing the volume of sales increases the turnover, it is also possible to make economies of scale. Indeed, producing on a larger scale allows you to reduce unit production costs and increase your profitability.

Secondly, expanding internationally can also be a priority if your local market has little or no potential. The domestic market may face an unstable economic or political situation or lack demand for your offering. Choosing countries with different seasonality and economic cycles allows you to stabilize your revenues throughout the year and reduces the risk of market saturation. The situation of Arçelik, the Turkish appliance manufacturer, perfectly illustrates the opportunity of international markets when there is a lack of potential in its local market. Indeed, Arçelik was driven to international expansion by the crisis that hit Turkey in 2001. Unemployment soared and market demand plummeted, forcing Arçelik to go global. By expanding, the appliance giant reduced its vulnerability to local market fluctuations and is now a leader in its sector.

Finally, depending on the sector, competition can sometimes be omnipresent and install barriers to entry that are difficult to overcome. In this case, opening your business internationally represents a real opportunity to grow your turnover. Creating new commercial networks in markets where development is booming, allows you to counter the competition and to develop in more affordable markets.

2. Expand your customer portfolio

International expansion offers a larger and more diversified customer base. Indeed, new markets or countries mean new customers and with them, new expectations, and behaviors regarding your offer. These new expectations can lead companies that choose to adapt, to offer more innovative products and services that differentiate themselves from the competition in these new markets.

On the one hand, this is an opportunity to improve your performance in terms of customer satisfaction, and on the other hand, it has an influence on your growth.

Also, considering the new customer expectations has as a consequence to reinforce and enrich the value proposition of companies and positively impact your revenues. Thus, offering products and services that respond more precisely to local needs allows you to stand out and improve your capacity to adapt and innovate.

For companies that choose to standardize their offer, increasing their customer portfolio is also an opportunity for sales volume, and therefore revenue (explained above). A larger customer base is also an opportunity to improve sales performance. By multiplying sales and marketing actions, it is possible to increase the average consumer basket. Moreover, it can increase the regularity of consumption or to improve customer loyalty while taking advantage of the expansion of its customer base.

3. Improve your brand image

Deciding to expand your business abroad gives you the opportunity to strengthen your brand image and visibility. First of all, communicating about your international growth conveys an image of a successful and reliable company. Reaching out internationally brings credibility to your brand and improves the confidence potential customers may have in your offering. It is an excellent selling point that will make it easier for your target customers to adopt your offer. This is especially important when offering a premium or innovative product or service.

Internationalization allows you to expand your network of partners and at the same time improve your brand image with them. As for your customers, your partners will have more confidence and will be reassured by a company that is already exporting. A good reputation with partners can broaden your network and offer you new opportunities in these and other new markets.

4. Better access to local talent

Going global gives, you access to diverse profiles from different cultures that enrich teams and improve international performance. Their cultural differences give them an advantage over other exporting companies because they bring a better understanding of the target country’s culture and customers’ expectations. They can also better understand the legislation in force in the target country, which facilitates entry into the country. Employing locals is also an opportunity to access a network from different cultures which can help development in export countries or even in the domestic market. We can take the example of Netflix when it set up a branch in the Netherlands in 2017. The entertainment giant hired multilingual international employees to better understand the European markets and their different cultures.

Leveraging local expertise in order to expand internationally can also be a strategy on its own. Employing locals avoids the need to expatriate employees and makes it easier to enforce local human resources laws. Moreover, it will be easier to find people with specific skills in your field depending on the country of establishment or export. For example, a company in the automotive sector would be better off setting up in Germany, Japan, or France to benefit from the expertise of its workforce in this field.

5. Competitive advantage

As mentioned above, in some sectors, competition is very tough, and internationalization is chosen for survival. To make the most of this situation, you can target countries that are little or no exploited in your sector to benefit from the status of the first mover. This status allows time to establish yourself, adapt, and educate the population to use your product or service. Properly executed, being first in a market builds credibility abroad and becomes the trend setter in your new market.

To conclude, there are many reasons for a company to expand internationally and it is important to clearly define them to increase its chances of success. The first is economic and results in sales growth and cost reduction. The second is marketing which will increase its customer base and knowledge and improve its brand image, and the third is human resources and open access to local talent or to gain market share from competitors and to compete on a first-come, first-served basis. Internationalization represents costs and risks, but with a good preparation and a formulated export strategy, foreign countries represent excellent growth opportunities.

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