It makes sense to assume that a global company is a company that does business all over the world, but in reality, there aren’t many companies in the world that can boast of having a business presence in every major country. Actually, they probably can be numbered on the fingers of both hands. The global company definition, therefore, should be a little more lenient to accommodate this fact, which would enable more companies to call themselves global companies.
Realistically, expanding to even just one additional country is a lot of work and is therefore a great achievement. To be a global company, you need to introduce not only your products or services but also your company to people who live in other countries. You need to conduct significant research to figure out which country is your best choice for expansion and how to introduce yourself.
The overriding reason to go global, of course, is to improve your potential for expansion and growth. Globalization has been a major development in the early 21st century, as companies are taking advantage of opportunities to grow beyond domestic borders. Despite challenges, including transportation and logistics, supplier costs, variable marketing strategies and cultural uncertainty, global companies have some significant advantages over local businesses. These include more diverse and cost-effective revenue streams, resources, suppliers and labour.
If you’re on the fence about taking your company global, consider these five benefits of international business expansion.
1. More Revenue Streams
A primary motive to become global is to gain access to new sources of revenue. Companies that have saturated their local markets and dried up growth opportunities close to home can turn to global expansion to grow their business. A company that operates in a single country has access to a market measured in the millions, while companies operating on a global scale can reach billions of potential customers.
Successful navigation in multiple national markets provides a much broader customer base from which you can generate business. Creating new revenue while minimizing costs is key to earning profits.
2. Cost efficiency
Global expansion is often more cost-efficient than local/national expansion: In some countries, the costs of labour and materials are much lower. For some businesses, this will make it beneficial to move a core operational function, such as manufacturing, customer service, or research and development (R&D) to another country. For other enterprises, it may be sensible to outsource a back-office function such as payroll, HR, or finance to another country. If making this move toward global expansion, it is crucial that enterprises consider the taxation consequences of the expansion overseas.
3. Tax and compliance benefits
Some overseas locations may have tax and compliance regimes that are more favourable to your company. This may include, for example, lower corporate tax rates, different rules about ‘permanent establishment’, or different rules about tax deductions:
For example, setting up an R&D company to receive the benefits of generous R&D tax credits, or setting up intellectual property (IP) holding company in a country with low effective taxes on IP gains. The well-known audit firm Grant Thornton created a very useful guide for relocation of business, that you can read, here.
4. Larger Talent Pool
While creating a robust global work culture is difficult, global companies have access to a much greater pool of talent. Many set up global work teams where marketing or human resources employees can collaborate with colleagues virtually throughout the company. Having diverse employees who can interact well with diverse populations and business partners is also an advantage.
5. Resilience
International expansion reduces the overall risk of a business. A downturn in sales in one country, for example, can be balanced with an upturn in revenue in another location.
Now, “Going Global” is no easy task.
If you’re a local entrepreneur, doing business around the world can seem a long way from doing business in your hometown. But each year countless small businesses make the trek. It is important to do your homework and set a solid base for your take-off
Here are six basic steps to help you on your way to success:
- Start your campaign to grow by international expansion by preparing an international business plan to evaluate your needs and set your goals. It’s essential to assess your readiness and commitment to grow internationally before you get started.
- Conduct foreign market research and identify international markets. Most countries offer free websites of their corresponding entities that regulate Commerce, Tourism and Trade which you can use as a valuable source of information on foreign markets.
- Evaluate and select methods of distributing your product abroad. You can choose from a variety of means for distributing your product, from opening company-owned foreign subsidiaries to working with agents, representatives and distributors and setting up joint ventures.
- Learn how to set prices, negotiate deals and navigate the legal morass of exporting. Cultural, social, legal and economic differences make exporting a challenge for business owners who have only in their own countries.
- Tap government and private sources of financing-and figure out ways to make sure you are getting paid. Financing is always an issue, but most governments’ interest in boosting exporting and financial innovation has made getting funding and getting paid easier than decades ago.
- Adapt your goods and services to each target market, making sure you present them in accordance with regulations in the market you are selling to. The globalization of transportation systems helps here, but regulations are still different everywhere you go.
Conclusion
Entrepreneurs must consider the benefits and risks of competing internationally when making decisions about whether to expand to other countries. It is vital to determine the likelihood that your company will succeed when they compete in international markets by examining demand conditions, factor conditions, related and supporting industries, and strategy, structure, and rivalry among its domestic competitors in the market.