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BGF explains: Is international expansion the best way to grow your business?

There comes a time in the life of many growing businesses where the question of expanding into an international market arises. International territories can represent untapped revenue, access to a new customer base, and the opportunity for significant growth.

An international expansion strategy is the method businesses use to take their operations overseas, but what do you need to assess before committing to international expansion and is it the right growth strategy for your business?

What is international expansion?

International expansion is the process of expanding a business from a domestic market into an international market or markets. In order to expand effectively, an appropriate international expansion strategy needs to take into account:

  • Location – The specific markets the business will expand to and whether there is enough potential value to make the expansion profitable.
  • Resources – Allocation of available resources required to expand operations internationally.
  • Positioning – An understanding of the market position the business will have in the new territory.
  • Model – The model that the business will follow once it has expanded to the new territory in order to guarantee longevity.

Considering these factors is vital to understanding whether international expansion is a feasible and effective strategy for the future of a business.

 

What are the benefits of international expansion?

Product life cycle

Products and services typically follow a life cycle within a market: initial launch, maturity and stabilisation, followed by an eventual decline at the end of its lifespan. Expanding to another international market allows for this cycle to be restarted and refined with lessons already learned.

International opportunities and security

Expanding a business into new markets allows for significant growth and investment potential with an effective strategy. Mergers and acquisitions that would otherwise be unavailable in domestic markets become a realistic possibility, providing opportunities for the future growth of a business. Expansion also diversified a business, giving it the security of another market to fall back on if its place in one falters due to internal or external factors.

Overseas demand

Certain products and services have widespread demand that is unrestricted by borders and culture. International expansion is a way to take advantage of this overseas demand. If the demand is high enough then the cost of expansion can be seen as a worthwhile investment.

 

Is international expansion right for your business?

While there are clear benefits related to expanding your business internationally, there are also considerable costs and challenges involved. Hiring adequate staff to facilitate growth into a new market can be difficult, as well as complying with the various regulatory factors like tax, tariffs and trading standards. There may also be supply chain risks when trying to build in a new territory. Can you source the right materials and inputs in the new territory? If not, how costly will it be to import them?

If the conditions aren’t right for your business to be confident of success in an overseas market, expansion may not be right for you. For businesses in this position, focus should turn to alternative growth strategies until the conditions are better for international expansion:

  • Investing more in domestic markets where demand remains strong can prove to be a more reliable path to growth.
  • Investing in more equipment or property bolsters the assets on your balance sheet.
  • Rethinking your organisational structures can yield increased profits through greater cost efficiencies.
  • Investing more in recruitment and training in domestic markets will raise the overall skills level of your workforce to drive commercial growth.

 

Business funding for growth and expansion

Whether you are looking to expand internationally or grow your business in domestic markets, finding the right form of funding is crucial to success. Having the right investor to help finance your expansion and growth can make the difference between failure and success.

At BGF, we believe in backing companies with ambitious plans for growth. We are always a minority investor, keeping you in control, and we’re proud to foster collaboration between the businesses we invest in and our Talent Network of business leaders and industry experts to ensure real, sustainable growth.

Many business have used BGF funding to help them reach international markets, including: clothing retailer Seasalt, which is expanding in North America with our support; digital consultancy Appnovation, which is expanding in Europe and elsewhere with BGF backing; and Inoapps, a global Oracle Platinum Partner, which has expanded in the US.

To find out how BGF can help your business realise its plans for growth, be they international or domestic, contact us today.

 

The information contained in this article is for general information and use. It does not constitute any form of advice and is not intended to be relied upon in making any investment decision. Independent advice should always be sought as to whether a particular transaction is suitable having regard to your personal and financial circumstances.

BGF Insights 05.09.2022
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