The US may be the largest economy, but the 15 fastest growing economies are in Africa or Asia with Ethiopia topping the list with a projected GDP of 7.9% for 2019. For comparison, the US GDP was 2.2% in 2018. Access to these fast-growing markets is one of the primary drivers for international expansion. In today’s globalized business world, selling overseas helps companies keep up with the competition and spur growth when domestic markets are stagnant or saturated.
Although there are many benefits, doing business internationally is not without its risks. If you are thinking about going global or already do business in another country, here are three things you should be aware of in today’s climate.
1. Escalating Tensions
The current global trade conflict is said to be the greatest risk to global and regional growth. Brexit and the China-US trade war could significantly alter accepted global trade norms depending on how they unfold. The uncertainty surrounding these, and other global situations, present complex risks for business owners. Tensions may worsen before easing and companies much prepare for the possibility of lasting consequences that “may persist for decades.”
2. Evolving Consumer Habits
International M&A levels are forecasted to fall to $2.3 trillion in 2020 from $3.1 trillion at a CAGR of -14% according to a report from Baker McKenzie. Global trade growth is also expected to decrease and will only rebound if global trade tensions ease, according to the World Trade Organization. The WTO stated that tariffs and retaliatory measures were a major drawback on international trade growth. Switching suppliers is not a decision that companies take lightly. Companies and consumers purchasing habits may change to prefer domestic or alternative suppliers if the tensions remain in place. These habits could then also remain after trade tensions have passed. It is important to maintain strong relationships with current and potential customers to serve them properly.
3. Hidden Costs
Companies looking to expand internationally can take many steps to understand how the international trade climate directly affects them. Tariffs are impacting some sectors more than others. Due diligence into the value chain that the company operates in is essential because costs incurred through tariffs may be passed throughout the value chain. Increasing due diligence obviously increases the time taken for transactions and agreements to be completed, which isn’t ideal, but hidden costs could be much more damaging.
Tips for Success
If you’re looking to do business internationally make sure you are apprised of the latest developments in international trade, and in the specific markets you wish to enter. Fortunately, you don’t have to do this alone.
Consult the Experts
In-country experts who are familiar with your market and have contacts in the country can help you prepare for legal issues and put you in touch with the right businesses, regulators, and suppliers needed to conduct business in the specific country. In addition, you can leverage their understanding of the culture and language to conduct market research and gain insights on new consumer perceptions.
Find a Partner
Rather than entering a new market on your own, consider partnering with another company that already does business in your desired geographic market to help you navigate through some of the complexities of international business. There are many forms of partnership including licensing, joint ventures, strategic alliances, minority or majority investment, and acquisition. While each of these forms of market entry has their own advantages and disadvantages, partnering with an external organization generally accelerates the timeline for market entry because many of the pieces such as suppliers, operations, and customers are already in place.
While the uncertainty surrounding international trade these days is undoubtedly the hardest factor to prepare for, as with all business endeavors its impossible to reap the reward without taking some level of measured risk. Ensure you are educated by doing thorough research and consulting with the right experts to increase your chances for success so you can tap into global markets, especially rapid-growing ones, to strategically accelerate your company’s growth.