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15 mins read

Must-Know Dangers That Can Hurt Your Business When Expanding Internationally

Expanding a business internationally can bring many opportunities for growth and success, but it also comes with significant risks and challenges. When expanding into new markets, businesses face a variety of dangers that can hurt their operations, reputation, and bottom line. In this context, understanding the risks associated with international expansion is critical for businesses looking to expand globally and achieve long-term success.

Keep reading to learn about dangers that can hurt your business when expanding internationally and how to avoid them.

1. Financial risk

The process of moving abroad is expensive. Although expansion sounds fancy, you need to consider whether your business can afford it. Before considering expanding into foreign markets, a new company should prioritize promoting its core business within the territory. Many businesses jumped at the chance to open international offices, only to discover later that they only had enough money for initial investments and not enough for long-term expansion.

2. Competitive risk

This means that there may be a lot of competition in the market you are expanding into, either from businesses in the area or from companies from other countries. It is important to conduct thorough research on the competition and develop a unique selling proposition that can differentiate your business and attract customers.

3. Political risk

Your foreign investment may be affected significantly by a country’s political climate. Political stability and economic performance are closely correlated. Major political events such as elections, diplomatic agreements, policy changes, and labor strikes can have overwhelming impacts on the market. Looking at Hong Kong, who would have thought the Asian financial hub could become so turbulent overnight?

Retail and food service businesses have suffered a lot because of a series of large protests. Not to mention Brexit and the Sino-US trade war, the global political landscape is facing one of its toughest times. U.K. investors who have businesses abroad may find themselves caught in the political crossfire and suffer from unforeseeable losses.

4. Regulatory risk

Navigating the way through foreign laws and regulations can be another challenge for UK founders. From tax codes to licensing requirements to labor laws, regulatory rules differ by country. Even with the help of lawyers, a company may find it troublesome to switch their business models or accounting practices to comply with overseas requirements.

International accounting is a major concern for investors looking to explore foreign markets. The thought of complicated tax systems, rates, and exemptions may turn off investors who are inexperienced with accounting. The introduction of new laws can also be a setback to the operation of foreign businesses.

For example, in 2014, Airbnb was forced to pay a huge fine for a breach of local tourism laws in Barcelona following an unexpected crackdown on advertised rental properties.

5. Cross-cultural risk

Countries, particularly those in the East and West, can have drastically different business cultures. International business relationships can be impacted by cultural miscommunication. Companies from the UK that set up shop in another country will need to connect with foreign customers and hire local workers. You run the risk of accidentally offending a foreign coworker or business partner if you are unaware of the various cultural characteristics.

For instance, Americans and Brits work in different ways. According to recent research, self-promotion is regarded as boasting in the UK but not in the United States. As a result, the behavior of foreign competitors may occasionally irritate British investors. It is important to be aware of cultural differences when trying to build friendly and helpful working relationships.

6. How to mitigate these harmful risks

So, how does your business avoid those risks?

Here are some tips that can help you reduce the risks that come with going global and increase your chances of success.

6.1. Understand the market and competitors

Conduct thorough market research to understand the demand for your product or service in the target market, and identify potential competitors.

Develop a unique selling proposition that differentiates your business and gives you a competitive advantage.

Consider partnering with local businesses or hiring local employees who have a better understanding of the market and can help you adapt your business to local needs.

Seek legal advice to understand the regulatory environment and ensure compliance with local laws and regulations.

Conduct due diligence on potential business partners or suppliers to ensure they are operating legally and ethically.

Develop contingency plans to address any potential legal or regulatory challenges that may arise.

6.3. Research the cultural fit

Develop cross-cultural competence and sensitivity by studying the local culture and communication styles.

Hire local employees or consultants who can help navigate cultural differences and act as cultural liaisons.

Adapt your marketing and communication strategies to be culturally appropriate and appeal to local customers

7. Wrapping up

It is difficult to enter international markets. Numerous factors, including a lack of funding, political and economic unpredictability, complex regulations, and the local way of doing things, may restrict your company's ability to expand internationally.

However, we are not attempting to frighten you. While expanding internationally can be a life-altering move for your brand, there are risks as well as opportunities. If you believe you have a vision and the resources to support it, go ahead and take the leap when deciding whether or not to expand.

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