International Expansion Challenges
- International business
- Currency exchange
International Expansion Requires A New Approach
European SMEs are highly specialised industry leaders, which oftentimes cater to very specific niche markets. Tailor-made products and services are the best prerequisite for an international expansion. However, international expansion comes with an entire set of new challenges, which require different approaches and tools.
International expansion challenges include:
- Local legal requirements and regulations
- Different local cultures
- Hiring abroad and opening offices abroad
- Currency risks
- Political risks
A thorough international expansion plan can avoid common pitfalls and obstacles.
Local Legal Requirements And Regulations
Most companies don’t have the internal capabilities to oversee local legal requirements and regulations of the new target market. These may range from local accounting practices and labour laws to specific tax regulations. As a result, due diligence is required at this stage. Most companies need to get in touch with local CPAs, lawyers or company setup consultants to get a first overview. Once this information is clear, the SME can make a decision regarding its international expansion plans.
Different Local Cultures
Similar to the legal environment, the local culture is also an equally difficult international expansion challenge. While European trade standards are similar across countries, this may not be true for the target market in question. We are not only talking about different buyer personas, but also social norms and trading standards. Engaging with local marketing agencies can be the first step to get a foothold into the new, untapped market.
Hiring Abroad And Opening Offices Abroad
When opening a business and hiring abroad you need to think about the company structure and culture and find the right people to enable your new business. This is not only difficult at home, but is one of the most demanding international expansion challenges. History is full of failed expansions due to a lack of knowledge in foreign labour laws, such as the BenQ Mobile scandal in the mid-2000s. Discuss your company structure, free zone options and labour requirements with local advisors.
While the previous points are clear to most organisations, the currency risks and related international expansion challenges hit a lot of companies by surprise. However, when managed wrongly, foreign exchange can become costly. We are not just talking about currency rate fluctuations, but how to navigate incoming and outgoing payments in multiple currencies. It usually requires setting up multiple bank accounts, which is a huge burden for the finance department. This is where amnis comes into play. amnis offers an international payment platform for SMEs to exchange currencies and to hedge against foreign exchange risks. Further, the free multi-currency IBAN account allows you to send and receive money in more than 20 currencies without setting up separate bank accounts.
Read our 5 tips to optimize foreign exchange for SMEs or get in touch with our fx experts to learn more about amnis!
When conducting your due diligence for your target market, political risk associated with uncertainty and instability need to be addressed as well, as this may affect your investments in the long run. While operational risks include terrorism or sabotage, asset risks can include asset nationalization and expropriation. Further, contractual risks include changes in previous arrangements due to legislative actions or a political change.
Most Risks Can Be Mitigated With the Right Preparation
These are just a few of many international expansion challenges that need to be factored in when making a decision to do business abroad. Even though you will face a lot of challenges on the way, you can mitigate most of the risks with the right preparation – due diligence is key. Make sure to get in touch with local partners to get the right support during your expansion and to communicate with your target audience.
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