Key factors to consider when expanding globally
Many South African entrepreneurs are increasingly realising the opportunities presented by global markets and are considering expanding their footprint to the rest of the continent, China and India, in order to grow their customer base and increase revenue.
According to Zak Sivalingum, Head of Global Business Banking for FNB Business, positive case studies from companies that have been able to diversify and take advantage of emerging markets are encouraging more businesses to incorporate global expansion into their long-term growth plans.
“Local businesses are no longer just interested in exploring Africa only, but China and India as well, as these countries continue to strengthen trade ties with South Africa through investment and joint business ventures,” adds Sivalingum.
Despite the vast opportunities presented by global expansion through access to new markets, increased sales and a competitive edge, global expansion continues to be risky.
“Entrepreneurs should avoid aggressively venturing into foreign destinations without adequate knowledge of the markets and its challenges,” cautions Sivalingum as he shares important factors to consider when businesses expand globally.
- Risk management planning – before companies expand into foreign markets a thorough risk management plan with practical guidelines of how risks will be addressed should be developed. This plan should be updated regularly as business conditions change. For example, China currently presents investors and businesses with a completely new set of challenges compared to five years ago when the economy was performing well.
- Lack of knowledge – knowledge sharing and understanding local market conditions is essential for businesses to succeed.
Universal knowledge sharing platforms where banking experts, entrepreneurs, corporate advisory firms, professional legal and audit firms, as well as private equity firms share and discuss global business strategies and opportunities, can add value to any business.
- Partnerships and joint ventures – this is the most comprehensive way of entering into new and unknown markets. Collaborating with local stakeholders that have experience, insights and links on the ground is a less riskier approach.
- Regulation – keeping abreast of changing legislation, getting the best advice and fully complying with in-country laws and requirements can give businesses peace of mind. Litigation issues can have a severe impact of the reputation and bottom line of businesses.
- Understanding the target market – failing to understand the target market and tailoring business’ products and services accordingly is one of the biggest mistakes that entrepreneurs can make. Replicating a business model will not guarantee success as each country is unique.
- Limited infrastructure – although significant investment in infrastructure has been made in Africa, this remains one of the biggest hurdles for businesses expanding into the continent. Therefore, businesses considering expanding into the rest of the continent should make provision for infrastructure challenges in their business plans.
- Skills shortages – depending on the sector in which the business operates, it may be difficult to source the right skills in certain countries. In this instance, businesses may be required to bring their own employees or up skill locally.
- Long-term investment – companies expanding globally will only succeed if entrepreneurs make a long-term commitment to the country, local markets and communities in which the business operates.
“The global business environment is continuously evolving, presenting businesses with a lot of opportunities, lessons and challenges. Only those entrepreneurs that are resilient enough, prepared to learn and work with local stakeholders, re-invent themselves and think out of the box will survive,” concludes Sivalingum.