Considering global growth? Try domestic expansion first
Your business is booming and you’re confident you may be ready to leverage your core strengths by launching into new markets. Should you start overseas or dive deeper into domestic markets first?
Experts suggest the latter course. “The research is fairly clear that, generally speaking, companies do much better by expanding nationally than trying to go into an unknown market in the first instance,” said Robert Eberhardt, assistant professor of management at Santa Clara University’s Leavey School of Business. “Companies should first build their products and knowledge of domestic markets.”
Robert Salomon, associate professor of management and organizations at New York University’s Stern School of Business, agreed. “Foreign markets present an extra layer of complexity,” he said. “They differ culturally, economically, politically, and from legal and regulatory perspectives.”
Expanding domestically keeps you on familiar ground: there’s no need to cultivate new resources, suppliers, or logistics. And cultural differences, for the most part, don’t apply. Even so, you’ll need extensive prep work assessing cost, risk, and demand before taking such a significant step. Investing in market analysis, selection, and entry methods will help build a solid foundation for success.
Here are some important questions to ask:
Should you grow?
Some businesses don’t aspire to be national or global brands—bright patterned surfing shorts may sell gangbusters in California and Florida but not in Kansas. Businesses selling to other businesses should assess the health of the industry in which their customers operate. Is it poised for steady growth or showing signs of leveling off? You will need to determine the direction it’s taking before deciding whether—or how best—to move ahead.
What kind of growth does your company need?
Once you’re sure expanding is right for your company, you should refine your goals further. How do you want to grow? Would it be better to add to your product line or enter new markets instead? Perhaps both? Does your company have the resources to handle expansion? Now is the time to carefully define your objective and identify the demands it will place on your organization.
Clarify your business goals, too. Are you looking for growth in net profits or topline sales? Do you want to expand production or your product base? The answers to such questions will help to determine the best path ahead.
Data can also help to clarify the way forward. Because analytics can increase forecasting accuracy, it is a particularly useful tool for companies venturing into new markets. Companies of all sizes now have timely access to aggregated data and information that previously was available only to larger operators. Numerous companies offer cloud analytics. A recommendation from a trusted source, preferably one that knows your business well, can help you find the service that’s right for you.
Consider all routes to expansion. Companies can grow in many ways—by moving to another location, for example. You might consider licensing your product, or diversifying by selling complementary products or services. Now is the time to conduct focused research. Business experts suggest taking a close look at your target customers. Commission or acquire market research on regions that interest you. This material should include a wide range of economic and strategic concerns, such as market growth rates and forecast demand. Identify the strengths and weaknesses of regional competitors, and evaluate possible barriers to entry.
Should you partner for growth?
For an enterprise considering expansion into new domestic regions, working with a trusted partner could prove invaluable, helping you achieve growth while retaining your peace of mind. Consider forming an alliance with a complementary business in the same industry. A product manufacturer, for example, might partner with a distributor to reach new domestic markets with less investment and risk.
Third-party logistics providers can help companies ease their entry into new markets by providing services such as infrastructure and staffing, storing and managing inventory and optimizing the supply chain. They can also handle such key functions as warehousing, transportation, and distribution. Some of the larger logistics partners can even take over order and payment processing, as well as customer service.
Companies with global ambitions should bear in mind that expanding domestically doesn’t preclude entering foreign markets later on. Indeed, building a larger domestic presence is an excellent way to prepare for eventual worldwide expansion. Think of it as dipping a toe into unknown waters before diving right in. “Generally speaking, companies should build their products and knowledge domestically before they expand abroad,” Santa Clara University’s professor Eberhardt added. “You’re better going into foreign markets as a strong company domestically because then you have the resources to do it.”
Ready to expand into new markets? Learn how UPS is ready to take your company where you choose to grow, near or far.
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