Once a SME is established in its home market, international expansion should be a no-brainer. But I’m always surprised by how many business owners don’t think it’s something they can do, or don’t think about all the advantages and opportunities.
1. International Expansion increases sales
That has an immediate impact on revenues and profits.
Every country tries to encourage its businesses to export more, but most rely on finding agents and distributors to sell their products and services. Companies that set up their own international subsidiaries deliver far better results.
2. International Expansion creates insurance.
Insurance against localised recessions and currency volatility
As a rule, countries that are resilient when others are suffering recession not only maintain their local markets, but their currency increases in value. US and UK companies that had operations in Australia benefited massively during the 2008–2010 recession — purchasing power was maintained, and the Australian dollar rose dramatically. As a result, sales volume increases of 10% translated to revenue increases (when expressed in USD or GBP) of over 50%. Many companies that had expanded internationally survived when they might otherwise have sunk, and some even grew their global revenues and profits.
3. International Expansion increases profitability
Transferring work abroad reduces business costs and increases profitability.
Creating a Shared Service Centre in a lower cost economy, typically to process accounts or manage HR or IT, is easy to do. Even companies that have nothing to export, but a reasonably sized headcount, can expand abroad. Many companies think they are too small, or have unfounded fears of complications, and may dabble in the water by going to Outsourcing. However, if it’s big enough to outsource, it’s probably big enough to set up one’s own subsidiary to do the job — and doing that will not only give the company proper control, but typically be 30–40% cheaper.
4. International Expansion can cut labour costs
Expanding to add in more highly skilled R&D or engineering and design work can take advantage of skilled labour that can be difficult to recruit and retain back home.
Such staff often prove far more enthusiastic for the company than domestic recruits, and deliver much higher productivity.
5. International Expansion multiplies the value of your company
Whatever the original reason for international expansion, turning a domestic business into a multi-national, however small, massively increases the valuation of the company for M&A purposes.
The fact that a business is international, as opposed to being in a single country, demonstrates the vision and capabilities of the owners.
It also opens up interest from other potential purchasers who may be attracted by seeing the company as a fast track route to new markets that they don’t already have covered. In my experience, that really pushes up multiples of EBITDA, on which most valuations are made. And in most cases the EBITDA will be higher anyway, because of the increased sales and reduced costs coming from the international operations.
So why are there so many companies that remain obstinately insular? Some think the costs will be too high, some doubt they have resources to cope, some still are even scared by different languages and cultures. All of those beliefs are wrong. Businesses should grasp the nettle — international expansion can be easy.
Oliver Dowson and associates offer complimentary advice on all aspects of international expansion to growinternational.org subscribers – just get in touch via our contact page
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