Global business expansion can be immensely lucrative for companies looking to grow their reach and increase their profits.
However, it is not without its risks. There are several common mistakes that businesses make when expanding globally, but with the right knowledge and preparation, these pitfalls can be avoided.
In this article, we will explore the top four global business expansion mistakes and provide actionable tips on how to steer clear of them.
Mistake #1: Disregarding Cultural Nuances
No doubt you do your general market research when expanding abroad. You know your target consumers, market conditions, laws, and regulations, but do you look into cultural nuances?
According to Forbes, when you step into a new country, it’s surprising how many tiny nuances in culture and customers can vary. Each country has its unique customs, traditions, and beliefs that can greatly impact how a business is received. Ignoring the cultural nuances of your target market can lead to costly mistakes, misunderstandings, offense, and ultimately the failure of your expansion.
A notable example is Home Depot’s entry into the Chinese market in 2006. They saw potential in China’s growing middle-class and homeownership rates for their DIY brand but underestimated the unique shopping habits and motivations behind property purchases, and the lack of widespread DIY culture.
But that’s not the only failure. Starbucks in Israel serves as another example of a US brand that couldn’t thrive in the market. In the 2000s, Israel lacked a coffee-to-go culture, preferring a coffee experience centered around socializing in independent cafes within the cities. Moreover, local coffee was much more affordable compared to Starbucks, making it challenging for the brand to gain traction in the price-sensitive Israeli market.
To avoid these mistakes, businesses need to invest time and effort in grasping the cultural aspects of their target market. This includes studying local customs, traditions, and social norms.
Moreover, cultural nuances can significantly impact how products or services are marketed. For example, colors may hold diverse meanings in different cultures. While white signifies purity and innocence in Western cultures, it is associated with mourning and death in many Asian cultures. Hence, businesses must be cautious about the color schemes used in their marketing materials to avoid unintentional messages.
Understanding and respecting cultural nuances isn’t just about avoiding misunderstandings; it’s also crucial for building trust and credibility with the target market.
Mistake #2: Failure to Research Local Competition
Another common mistake when it comes to international expansion is the failure to research and understand the local competition. Entering a new country increases your overall business risks, and many companies fail. Oftentimes this happens because of the lack of market research.
Take an example of eBay’s, the popular American online marketplace, expansion to Japan in 2000. They struggled to understand the local competition, especially Yahoo! Auctions, which already had a dominant position in Japan’s online auction market. Despite significant investments, eBay was unable to compete effectively, and sold their operations to Yahoo! Auctions.
The European Commission suggests that intense local competition can cause possible operational difficulties. Therefore, it’s crucial to analyze competition in the target market by:
- Determining your main competitors;
- Examining their economic progress and sales performance in the past three years;
- Identifying their unique characteristics, such as pricing, distribution channels, market growth stage, financial stability, and any planned expansion strategies.
Thoroughly studying your competitors enables you to shape your business strategies accordingly. Don’t anticipate immediate local customer adoption upon launch. Develop effective marketing and sales approaches to introduce your brand, emphasize its unique benefits, and stand out from existing competitors.
Mistake #3: Wrong Timing
Timing is everything in business, especially when it comes to global expansion. Is your target market ready for you? Is the economy booming or slowing down? Is the target market saturated with similar products or services? These are some of the questions you should be addressing early on.
After all, launching a new venture in a foreign market at the wrong time can have devastating consequences. Here’s a list of factors that can influence the timing of a global expansion:
- Economic conditions
- Political stability
- Market saturation
- Cultural considerations
- The legal and regulatory environment
- Infrastructure and logistics.
Therefore, taking a global plunge involves deep macro and microeconomic research. You want to cover all of your bases before you take a leap. However, if going all in is too risky, you can always start with a small pilot project. This allows you to test the waters, gather data, and assess the viability of your offerings before making a larger commitment.
But, above all, it is crucial to be patient and wait for the right opportunity rather than rushing into a new market prematurely. Remember, timing can make all the difference between a successful expansion and a costly mistake.
Mistake #4: Ineffective Localization
Localization is the process of adapting a product or service to meet the specific needs and preferences of a particular target market. A critical assumption some companies make is that mere translation of the product basics equates to successful localization, often overlooking essential factors.
Consider McDonald’s in Bolivia, where the global giant struggled to gain traction amidst the country’s strong culinary traditions and local food preferences. Despite efforts to localize the menu with items like empanadas and local sauces like llajwa, McDonald’s couldn’t make a significant impact in the Bolivian market and was forced to withdraw its restaurants.
Proper localization can make or break your global business success. Therefore, companies must ensure that their products or services are not only translated into the local language but also tailored to suit the cultural preferences and expectations of the target market. This includes adapting marketing messages, packaging, pricing, and even product features to align with local tastes and preferences.
Additionally, businesses should consider partnering with local distributors or retailers who have an established network and understanding of the market. This can help facilitate the localization process and increase the chances of success in the new market.
The Bottom Line
Global business expansion holds great potential for companies, but it is essential to avoid the most common mistakes that come with it. Do thorough research and learn from past mistakes of some of the biggest organizations in the world. In this article we’ve touched upon a few of the biggest mistakes with real examples to help your business avoid making the same mistakes.
One way to avoid overseas expansion mistakes is to choose the right international business expansion partner. Filuet is a leading contract logistics and BPO solutions provider that has helped hundreds of businesses to grow internationally. Follow us on LinkedIn to learn more.