The tendency for globalisation is not a new phenomenon for the contemporary world. It is a well known fact that expanding overseas a business has an excellent chance to widen the range of its resources, provide the growth of customer base, earn better reputation and become more influential. Global and international companies tend to be the strongest competitors with the highest revenues and the strongest brand image.
This way it seems that business expansion overseas is a highly beneficial strategy and a necessary step for major success. Yet, this is not completely true. A critical look at the process of overseas expansion and what it entails makes it clear that this strategy as risky as it is beneficial. Overseas expansion carries a range of difficulties and disadvantages. This is why, before this strategy is implemented it needs to be carefully weighted and all of its costs and benefits have to be compared and evaluated. This paper explores the ups and downs of overseas expansions and focuses on such aspects as technology, culture, risks and benefits, and the ways to manage the ups and downs of overseas expansion.
Overseas Expansion
In the world of business, overseas expansion is a profitable growth strategy that offers increasing profit opportunities. Overseas expansion is currently an accelerating trend which was made possible due to the technological progress that facilitated the development of communication tools, means of transportation and industrialisation tendencies (Global Expansion, 2015). International expansion is equally beneficial for business to business and business to consumer companies.
Besides, the expansion makes it possible for the smaller businesses to compete along with the larger corporations. For a variety of large global businesses, the income that comes from abroad starts to exceed the domestic revenues very quickly. Among the most significant benefits of the international expansion there are the increase of a company’s global market share, growth of profits and sales, greater independence of a company from the existing markets, better competitiveness on the domestic market, better opportunities for selling the excess production, enhanced sales potential of the company’s products, and lesser dependence on the market fluctuations caused by the change of seasons.
Among the main disadvantages a business is likely to face expanding overseas there are the greater need for the new staff and for more complex hiring strategy, the gap between the launch of new branches and the appearance of the long-term gains, the modification of packaging or the product itself, more complex system of communications between the branches, the need for travelling employees, the need for new means of promotion and overseas advertising campaigns, and higher costs of administrative strategies in general. Expanding overseas a business is to be prepared for deal with technological and cultural problems that always occur within a business process operating on an international level. The following parts of this paper will elaborate on these aspects.
Technological Aspect
The contemporary world is very tech-savvy. The situation changed drastically within the last couple of decades. To see the change one could compare the level of technological development today and before the beginning of the 2000s. Some twenty years ago the main means for communication on the international level were fax machines and landline phones. The documents were typed with the help of typewriters and stored in huge archive rooms. A search for one file could take hours or even days. Communication was rather slow and often its quality was insufficient for a proper conversation.
The situation changed quite a lot with the development of computer technologies and the internet. In the beginning of the 2000s the internet facilitated online communication, yet its coverage was a challenge since not many had access to it. Today, the situation is completely different. The internet access is ubiquitous, the problem of data storage is solved by the cloud technology, and connecting two people located in different corners of the world takes seconds and is affordable.
Compared to what was the case twenty or even fifteen years ago, modern business makers have excellent opportunities to expand their companies and manage their business globally. In terms of technology this process is supported in a variety of ways. Yet, new possibilities come with a set of new challenges. Connection, communication, and data storage are not a problem, but their form is. This means that to provide a flexible system to manage a company operating on a global level requires suitable software answering the needs of a particular business. The choice and maintenance of software these days is the biggest challenge global business face in terms of technologies.
First of all, the software needs to be easy to use and understandable for all the branches located in different countries. Secondly, it needs to be properly managed, which means that it requires maintenance professionals who are not always available since the IT field has been experiencing a huge skills shortage over the last several years. Finally, the technological development is still rather rapid which means that the software and strategies used by a company need to be changed frequently in order to match the latest trends and keep the business as a strong competitor.
Cultural Side
Culture is another aspect that plays a vital and fundamental role in the business expansion overseas. Launching new branches in foreign countries means operating in their settings in reference to language, ethics, finances, and legal practices. Each of these areas is a potential source of challenges and barriers. In other words, what works for a business at home might not work abroad. This is the reality for the businesses of all kinds. Even the largest, most powerful and influential corporations have to face this challenge.
For example, today such states as China and India are considered excellent targets for business expansion due to their large customer potential and growing economies. At the same time, the cultures of these two countries are very different from the ones of the West. As a result, many global corporations from the West face challenges expanding to these states. For instance, both KFC and McDonald’s expanded their franchise to China, but the success of these expansions was very different.
While KFC has been experience rapid growth of popularity, McDonald’s has been dealing with one challenge after another. Even though both of the corporations have opened a large number of outlets in China, the population clearly preferred KFC to McDonald’s (Shen & Xiao, 2013). Analysing such inconsistency in popularity of the two fast food brands on must ay attention to the fact that KFC has made cultural adjustment to their menu in China adding more culturally-appropriate items that do not exist in their American restaurants; among such foods there are Peking duck sauce, Dragon Twister, and tofu chicken rice, which are prepared according to the national recipes of various provinces of China (Mellor, 2011).
Apart from traditions and habits the business makers looking to expand their companies overseas are to consider manners, language barriers, laws and policies, currency differences and taxes. Each of the cultures of the world has its own special features, for example in Dubai foreign businesses do not pay taxes, in Russia one is not expected to smile and tell jokes at a business negotiations meeting, in Japan criticism in all forms is unacceptable and rude, even two business makers from English speaking countries such as the United Kingdom and the USA may face misunderstandings based on different expressions applied to the same actions (Maltby, 2010).
Advantages of Overseas Expansion
Generally, when a business expands overseas it becomes more exposed. It acquires a larger client base, has a chance to market its services or products to a wider variety of consumers, which increases its revenues and makes it more recognised at the world’s business arena. Better recognition leads to stronger brand image and reputation, which in turn, serves to attract even more customers and retain already existing clients.
Besides, the improved reputation makes a company a magnet not only for the consumers, but also for the potential employees who are a necessary part of the expansion. Establishing new branches and departments, a business will likely to need new workers. Expansion leads to larger human resource bases and better hiring opportunities, especially in the professional spheres with skills shortages.
For example, the United Kingdom is currently dealing with skills shortage in the field of the IT, engineering and science (UK Shortage Occupations List, 2015). This occurs due to the low popularity of these career fields among the younger generation on the territory of the country. Yet, abroad the situation may be different, so the positions that cannot be filled by the employees from the UK may be given to the professionals of the country a business is expanding to.
Moreover, financing opportunities are one of the main advantages of the overseas business expansion. There opportunities come from the increased market share and investments and provide a company with monetary resources necessary for the further growth. Finally, accompany that covers a variety of different geographical areas not only domestically but also globally has an excellent opportunity of business relocation (Johnson, 2015). In other words, a business operating internationally has a chance to move to the area with the most favourable tax incentives and policies that will provide the company with additional funds.
Disadvantages of Overseas Expansion
Interestingly, all of the positive sides of overseas expansion in business come along with their drawbacks. First of all, larger customer base that assumes higher sales rates comes along with the decrease of the product quality. Logically, since the company requires more production to fulfill the needs of their expanded customer base, this directly affects the required speed of production.
As a result, the typical dilemma of quantity versus quality occurs and often the companies choose to produce and distribute more products of reduced quality. Secondly, the growth of a company on the international level leads to the expansion of human resources which has one rather significant drawback – hiring errors. Unfortunately, hiring and training foreign employees is a large challenge. International corporations are in need of many new workers, so their hiring campaigns may be very big.
A huge number of candidates are evaluated over a short period of time, most of the candidates come from foreign cultures which makes the management of staffing practices extremely challenging (Heibutzki, 2015). As a result, insufficient staffing leads to high employee turnover. Finally, financial opportunities of the expanding businesses come along with a number of disadvantages mainly due to the fact that business expansion requires massive financial investments into administration, production, planning, staffing, and training of new employees among others. In addition, business expansion overseas leads to loss of control over the development of the business and often results in the displacement of chief executives and overall changes in the ways a company operates.
Control of Ups and Downs of the Overseas Expansion
The business makers planning to expand their companies overseas need to know how to mange the potential risks, this will help them to control the potential threats and opportunities for the future. In order to manage the risk properly, the executives are to identify the most important spheres threatened by the expansion. Among them there are the hiring and compensation strategies, regulations an training for the new workers, maintenance of corporate values, management of competition, customer service and product quality, management of finances, brand reputation, the threat of mergers and loss of control (Business briefing series: 20 issues for business expanding internationally, 2010).
The executives of a globally expanding business need to have a clear plan concerning each of these aspects in order to be prepared for the challenges. Besides, learning the development of competitors and their experiences during expansion also may be valuable information for risk control. Moreover, before penetrating a foreign market, the company managers are to thoroughly study the cultural side of it to be able to address possible language barriers, behavioural differences, customs, traditions and ethical rules related to the products or services provided by the company and the business process in general. Technological side is a part of administrative adjustments a company will have to go through expanding their business and maintaining foreign branches.
Professional approach towards technologies and administration will minimise the rates of unexpected risks and inconveniences, while ignorance towards this aspect will most likely result in unnecessary costs for the company and a slowdown of the business development. In addition, multiple business risks lie within the legal sphere of business, so knowing the policies and regulations of the area a company is planning to expand to will protect it from unexpected problems, inconveniences and conflicts with the law of the foreign state.
Conclusion
In conclusion, overseas expansion of business is a process that brings a large number of benefits, yet each of these befit has a significant negative side. This means that to address all of the potential risks, business executives are to evaluate the advantages and disadvantages their company might face expanding abroad and be prepared to address potential risks and invest into the thorough planning and maintenance of the expansion which will take a long time, but if properly managed, will result in all sorts of favourable outcomes such as increased revenues, stronger brand image, wider customer base, and new hiring opportunities.
Reference List
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Global Expansion. (2015). MyOwnBusiness. Web.
Heibutzki, R. (2015). The Disadvantages of Expanding a Business. Web.
Johnson, J. (2015). The Advantages of Expanding Business. Web.
Maltby, E. (2010). Expanding Abroad? Avoid Cultural Gaffes. Web.
Mellor, W. (2011). McDonald’s No Match for KFC in China as Colonel Rules Fast Food. Web.
Shen, Q., & Xiao, P. (2013). McDonald’s and KFC in China: Competitors or Companions? Marketing Science, Articles in Advance, 1–21.
UK Shortage Occupations List. (2015). VisaBureau. Web.