Skip to main content

How to Protect Your Company from Costly Expansion Missteps

When it comes to expanding globally, the importance of making smart market selection decisions cannot be overstated. Not only does a wrong choice expose your company to potential financial losses, but it can also damage your brand reputation and make investors wary.
Did you do the research in advance so you can make sure data is driving your market selection decisions? Do you have a proper strategy in place?
To protect yourself from costly expansion missteps, you need to become aware of the risks involved in entering a new market or expanding into an unfamiliar market.

Here are 8 key risks to be mindful of:

1. Language Barriers:
One of the most common missteps is failing to do enough research on target markets before launching a new venture. It’s important to determine whether the market has enough growth potential and whether customers are willing to pay for your products or services. Without this information, you may be setting yourself up for failure. Conducting thorough market research will help you uncover potential trends that could impact your success in any given country. Never rely on “gut instincts” alone.
2. Inadequate Resources:
Launching a new operation in another part of the world means budgeting properly, investing in human resources, building infrastructure, and providing necessary supplies. Without the proper financial and human resources, you may find yourself struggling to get off the ground.
3. Volatile Economic Conditions:
It’s essential to consider the economic health of any potential new markets before deciding to move forward with an expansion plan. While a market might seem promising on paper, if there is an economic downturn, it could severely impact your ability to generate revenue or even make back any investments you make in the area. While some countries may look attractive in terms of their population size or GDP per capita, you must also take into account factors like currency exchange rates, inflation, unemployment levels, and capital flows when assessing a new market’s economic stability.
4. Political Uncertainty:
Even if you choose a country where you have the right to do business, political and regulatory climates can change quickly. If you rely on a single country to drive sales, being aware of emerging political issues before committing resources to expand into that region is critical. Be mindful not only of the market but of the region as a whole. If the market you are seeking to expand to neighbors an unstable country, their leadership could eventually impact the politics in that country too.
5. Legal and Regulatory Risks:

Every country has its own unique legal systems and regulations that can impact how you do business. Whether you are entering a new market or operating in a country where you have a presence, it is crucial to understand the local regulatory environment which could affect your operations in terms of how you collect, manage, store, transfer and protect data. To get your operations off on the right foot, it is important to build your awareness and take steps to address regulatory risks prior to entering a new market. 

Ensure that you are aware of any differences in labor laws, tax laws, intellectual property laws, and other relevant areas from your home market before proceeding with any kind of international expansion strategy. It is common practice to enter a market through partnerships or PEO services. Make sure you understand at which point you are creating risk of permanent establishment so that you can avoid costly fees and legal issues.

6. Reputational Risk:

It is important to stay abreast of developments in the country of interest and to make sure you have an accurate understanding of the local market and its business culture. Your reputation is at stake. Our long-term experience has taught us that a reputation for excellence requires a deep understanding of both the legal requirements and the social dynamics of the business environment in which you operate, as well as meticulous attention to detail. If your entry the first time is a failure, people in the market will not easily forget the damage you caused to your company and brand the first time. Read about how Starbucks failed in Australia.

7. Social/Cultural Factors:

Cultural differences may affect how well your product or service is accepted in a new market. Though it can be difficult to quantify, it is important that you take cultural factors into consideration when trying to expand your operations internationally. You should do some research on the local culture, including language, customs, values, and beliefs. Start by conducting an environmental scan of the country or region in which you intend to do business.

Take the often mentioned story of the Chevrolet Nova in Latin America. Some say Chevy failed to realize that the name of their vehicle – “Nova” – or “no va” in Spanish translates as “no go.” Some say it’s just an urban myth, but regardless, it’s a reminder of the importance of conducting a thorough language analysis before entering a new market to avoid confusion.

8. Language Barriers:

As you begin to expand into a new territory, it’s likely you will come across language barriers in written and verbal communication. These can lead to misunderstandings, lost opportunities, and finger-pointing when things go wrong.

The best way to handle this is to make sure everyone on your team has the same level of understanding of the messages being sent by using clear, unambiguous language, and employing interpreters who can help you manage local negotiations and dealmaking.

So where do you go from here?

Once you’ve identified a target market, it’s important to make sure your company is properly prepared for success in this new environment. This means having the necessary resources such as marketing materials, customer support staff and operations personnel who are familiar with local laws. It also means ensuring that your product or service meets local requirements for safety and quality standards. Having a strong team of professionals who understand the nuances of each particular market is key to ensure smooth operations when entering new markets.

Having reliable partners on the ground in each target country can also be invaluable in helping you navigate any unexpected hurdles while expanding globally. It’s important to build relationships with local governments and businesses before entering a new market so you can get a better understanding of how things work there. This will help protect your company from costly missteps or legal issues that could arise from not properly understanding the local environment.

Finally, once you have established your presence in a new market, it’s important to continuously monitor performance metrics such as customer satisfaction levels, sales figures, return rates and churn rates — this will help ensure that your expansion strategy is working as intended. Regularly assessing performance data will also provide insight into where improvements need to be made or what areas require additional resources or attention moving forward.

Schedule a free meeting with us today to discuss your market research needs and global expansion plans. Allow us to help you avoid these (and other) costly risks to your business.

April 27, 2023