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By: Elayne P. McClaine, Regional Director, NJ-SBDC at Rutgers New Brunswick
Global Expansion Offers Small Business a Pathway to Growth

Many established businesses contemplate a strategic plan for growth only after they have been faced with several warning signs about their existing revenue streams.  Challenges they face may include exhaustion of their domestic customer base reflected by slowing sales leads or the business may be growing through piecemeal efforts—rather than with a firm direction that is yielding a steady flow of revenue.  As small business owners begin to see a lower return on investment on their efforts, they realize it’s time to consider alternative ways for expansion.    

Expansion can take a number of forms: selling more products to different consumers or undertaking physical growth through multiple locations.  A bolder step may be to expand globally.  For any of these scenarios, having a strategic plan is critical, and it is particularly valuable when it identifies the underlying tactics necessary for success.

Global expansion is a very feasible option for small businesses—yet it sometimes seen as a daunting challenge or is simply overlooked. The facts are clear about the opportunities that global markets offer. Nearly 96% of the world’s consumers are outside of the United States.*

Small businesses are already successfully tapping into global markets. More than 300,000 small and medium-sized U.S. companies exported to at least one international market. Small to mid-sized businesses account for 30% of all global merchandise exports. Small businesses, classified as having fewer than 500 employees, account for 97.5% of all U.S. exporters.*

One trend bolstering export opportunities is rising growth in developing countries at a time when growth in developed countries is slowing. Almost half of the world’s GDP Growth between 2010 and 2015 will come from 440 cities in emerging markets. By 2025, 45% of businesses on Fortune’s Global 500 list  will be based in emerging markets compared to just 5% in 2000.*

Another key trend is that by 2025, more than half of the world’s population will have joined the consumer class. This is projected to drive annual consumption in emerging markets to $30 trillion**.

Lastly, cross-border e-commerce is predicted to triple by 2018.*** Since most small businesses already service a portion of their businesses through the internet, just one initial international sale moves a small local business into the global arena. 

If the domestic brand or business model is sound enough to attract interest globally, the critical first step is to develop an international business plan. A plan covers a range of factors that may impact a small business’ successful global expansion. It identifies the best countries to deal with and the ideal methods of entry.  A cultural analysis will determine if the firm’s offering will be readily acceptable to a particular international target market.  Not all products available here in the US are conducive to all foreign markets.  A plan also includes a thorough investigation of various social institutions such as: language, family roles, literacy, religion, political system, government stability, rule of law, race social classes, standard of living, sub cultures and business customs. 

In some countries there may not be an established consumer market.  An economic analysis would serve to clarify that and other factors such as the country’s GNP, per capita income, distribution of wealth, natural resources, mass communications, labor force, and their policy toward foreign direct investment.  An understanding of International trade and currency statistics is part of this and is essential.

Any business plan should involve a market analysis. For example, an analysis may reveal if consumers in a target market are currently purchasing some type of competitive product.  Is the small business introducing an entirely new product or a product that would be in competition with similar products in that country? Or products coming in more efficiently from a neighboring global market?  Being able to set competitive prices is the number one indicator as to whether or not one can have a business model that’s viable in other countries’ markets.

Companies should proceed with caution.  It is most important that focus on international opportunities does not diminish focus on their core domestic business. Before deploying costly human and financial resources, all relevant International business issues should be reviewed--political stability, trademark and intellectual property protection, hiring, firing, training and excessive taxation pitfalls. 

Doing business overseas can take the form of exporting, licensing, franchising, joint venture or direct manufacturing. Fulfilling orders directly via e-commerce is the simplest way to go global.  It offers the lowest risk, and the greatest control.

Often firms will utilize agents and distributors to manage their business and market development.  By using these local intermediaries, the domestic firm can access foreign consumers through local advertising and promotion. They will also report back any new opportunities or demand that may become a viable trend.  This method can be very efficient before committing to any further direct investment in the foreign country i.e. establishing a subsidiary.  There are many low-cost franchise opportunities that might be appealing, however, disclosure laws and local laws must be understood and taken into consideration. 

The pathway for a small business to initiate expansion via global activities may at first be daunting.  However, the proven success of other small businesses in a range of industries and countries suggests the challenge may be worth the rewards. This has been bolstered over the past few years by the greater attention being given by the Washington to increase US exports. Governmental agencies like the United States Department of Commerce and the Small Business Administration through their Small Business Development Centers have the expertise and educational programs to give to small business the critical help to navigate the path to global expansion.

 

*Fortunes Global 500

**McKinsey, 2012

***International Trade Administration