The Benefits- and Pitfalls- of International Expansion
Globalization has become the mantra of retail businesses in the 21st century. The customer driven technological revolution has allowed all types of companies to expand their businesses to not only
industrialized nations, but developing ones as well. In fact, global expansion has become so popular as you would be hard pressed to find a large retailer that has remained domestic. Forbes cites that the four largest retailers in the world have grown to this status through such expansion- Walmart (466.1 Billion in 2012 sales), Carrefour ($112.6 Billion), Tesco ($96.8 Billion), and Metro ($90.5 Billion). Yet it’s not just leading companies such as these that have gone global and found success. Many small businesses have done so as well with the Wall Street Journal stating that in 2011, the Export-Import recorded 3,246 transactions with small businesses.
As suggested from the number above, there are many advantages for retailers who choose to expand globally. Mark Luppi, executive vice president and head of business banking for HSBC in New York touches upon these benefits explaining, “such activities can substantially increase annual revenues and diversify profit streams versus competitors that may remain domestically focused.” Increased revenues can be attributed to the opportunity expanding provides. Many retailers who have saturated domestic markets have no choice but to move abroad in order to maintain revenue growth. In several instances, retailers also experience larger sales and profits outside of their home country. Profit margin can prove to be greater abroad, especially in emerging countries where labor and building costs are cheaper amongst a market that, at the same time, is growing in buying power. Lastly, technology and reduced restrictions have also made international business much easier than ever before.
Although all these benefits may make it seem like international expansion is a necessity for all retailers and guarantees success, there are many disadvantages that come with expanding that a company must be weary of when deciding to make the jump into foreign markets. While trade regulations have decreased, an international company can still find themselves having difficulty performing their operations in foreign countries due to the local governmental laws and customs. The Wall Street Journal also makes the point to emphasize the need to be “culturally sensitive”. A lot of research and thought must go into entering a foreign market as the cultural differences may require a retailer to modify their product or virtually anything about their business. Lack of research can cause local rejection of the retailer and in turn failure in these markets.
Global expansion may be the latest trend in today’s retail business world but companies looking to go global should take the time to weigh both the advantages and disadvantages such expansion comes with.
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