The world is finally getting back to ‘normal’. This means that businesses can reopen. It also means that business owners need to think about how to recover from the loss of revenue. One option is to push for expansion into new geographic areas. This can bring huge opportunities. It can, however, also bring huge challenges. Here are 3 key points to consider before taking any next steps.
By Team Savant
Image: Fernando @cferdo
How Far Can You Stretch Your Resources?
Expanding a business is very similar to starting one from scratch. The key point is that you need to be able to absorb the upfront costs before you can start to see any returns. What’s more, you have to stay aware of the possibility that there may not be any returns. In fact, you may even lose money.
The brutal reality is that success in one geographic area does not remotely guarantee success in another. Tesco, for example, is one of the UK’s most successful businesses. Its attempt to launch in the U.S. (as Fresh & Easy) lost it an estimated $1.8b over the course of about 6 years. Part of this was bad luck with timing, but the end effect is still the same.
If you do decide to expand, you’ll need to ensure that the expansion does not compromise your existing business. In particular, you’ll need to think about how to manage your existing customers if you find you need to relocate. Always remember that you’ll need to give them a reason to move with you, even if they just move from real-world shopping to online shopping.
Can You Handle Cultural Differences?
The practical challenges of delivering goods and services overseas can usually be met with enough effort. That said, it’s vital to check that your business activity is completely legal in the relevant location. Do this early and thoroughly because it can save you a lot of money and frustration later down the line.
Similarly, it’s usually fairly straightforward to solve language issues. Depending on your market you could stick to using English, use automated translators (like Unbabel), or hire proper translators.
Cultural issues, however, can bring down a business. When you move into a new area, you either need to fit in with established standards or give people an excellent reason to change them. Usually the former is much easier. Either way, you need to understand what they are. Even big companies like IKEA can struggle with this but it’s fundamental to success.
Is Investment Better Than Expansion?
The basic idea behind expanding into new territories is to gain access to new economies. This can act as a hedge against economic problems in your local area. If you choose to expand yourself, however, you take on all the work involved. By contrast, if you choose to invest, you can get the benefits of diversification with much less effort.
Of course, there’s a difference between less effort and no effort. Investing is a skill. The good news is that it’s a skill most people can learn. Generally, the best place to start is a trading online guide website. Once you’ve grasped the principles, you could then move on to a play-money account and then to real trading.