12 Risks of Global Business Expansion

Global Business Expansion

If one were to list & contemplate every plausible risk in expanding a business globally – no one would ever expand globally again.

When we provide advisory services to clients about Go Global plans, we use the this framework for risk analysis. For each list item, there’s homework to be done to properly identify the risks, understand their probability & impact, and building an effective mitigation plan:

Internal Risks (inside your company)

  1. Budget & Risk Appetite. On the continuum of market-expansion strategies, some are decidedly lower risk & investment than others. For instance, appointing a distributor versus setting up a legal entity and hiring a team. But often, there is a minimum viable level of investment to even test if your expansion strategy is going to work. The risk of under- or over-investing is substantial.
  2. Internal Readiness.There are potential failure points across all internal activities you conduct to execute your business model: from sales, to marketing, to logistics, to deployment, to engineering, to support, to HR, to finance. Especially to the extent you intend to make decisions & execute key operations from your home market in support of a global expansion. Distance, time zones, language and cultural barriers can easily expose scalability weaknesses in a team that otherwise seems to be doing pretty well. This risk isn’t just about succeeding or failing in a target market; it can have real ramifications on your performance in your home market if the team is over-stretched and under-focused.
  3. Proven Model.The Harvard Business Review published a great article about using Netflix as a case study. Their assessment is that Netflix started slowly, and as it became more competent at global expansion, and refined its model for doing so into a template, they rapidly accelerated. We agree – and the extent to which your business has past experiences to draw on from other global expansion projects has a significant impact on overall risk.
  4. Opportunity Cost Risk.The resources, capital, and attention required to go global could be applied to the status quo too… continuing to invest in your product/service, your marketing, and so on in your home market. Are you creating opportunities for your competitors at home by expanding globally? Of course, the flip side to this analysis is the risk of ceding international markets to competition.

External Risks (the target market)

  1. Geopolitical & Macroeconomic. All countries & economies go through ups & downs, sometimes dramatically, over a long enough time frame. Sometimes the writing is on the wall, while at other times there are few warnings signs. In our own experience in recent years, we’ve been caught out by these factors in Russia, Ukraine, Turkey, Iran, and the United States. These risks can range from extreme currency shifts, to political instability, to war, to trade disputes, to taxation changes, to extreme weather.
  2. Regulatory & Legislative Risk.Every go global expansion means implementing a business model in a new place. Sometimes that’s copy & paste from the business model in the country you’re expanding from, in other cases it’s been tailor-fit to the target expansion market, while in others there may be an entirely new business model that accompanies market entry. Every part of a business model is a risk factor, from the value proposition, to the target customers, to how you deliver your value proposition to those customers, to the mechanisms of revenue and cost that generate profits from the business model, to the activities and resources you need to operate the model. To take a well-known example, Uber’s business model in its home market is a “connector service” between drivers and passengers. When a country decides Uber is no longer simply a connector, and that it’s liable for its drivers as employees, it changes everything.
  3. Competition. You might be clobbering Competitor X in your home market, but if you’re a late entrant to a market, established competitors can be very difficult to dislodge having already established their brand name and market infrastructure.
  4. Security Risks. This one is more context-specific than the others, but is very real for some industries (e.g. oil & gas). It may or may not apply. Expanding your artisinal organic cookie business from France to Germany is probably a little less sketchy than evaluating a new mining operation in West Africa.

Mixed Internal-External Risks (your company, meets the market)

  1. Product-Market Fit.Very few markets in the world are so alike that they’ll support an identical business model with identical results. One of the most common failure point is simply from not having the right model for the target market. This includes having right product/service, but also delivering it in the right way for the right price, and with sufficient support.
  2. Cultural Risks. I always like to site Best Buy’s expansion to the UK as an example. Everything looked great in the board room PowerPoint, and they were set to dominate the consumer electronics market as they had done in the United States. But in the end, they retreated from their expansion, and wrote off billions of dollars in losses. It turns out, that their huge store formats meant they had to open in out-of-the-way locations, and the British simply don’t share the American car culture to support those mega-box formats.
  3. Partner Risks.Going global often means introducing new partners into your business model: be it service providers, distributors, financial institutions, or even joint-venture partners or franchisees. Each one is a key risk, especially if you lack a Plan B or exit strategy should they not work out.
  4. Decision Paralysis. To conclude my list, I’ll go back to where I started: there are an overwhelming number of things to consider for a global expansion strategy. You & your team could be spinning the hamster wheels of indecision indefinitely by overanalysing everything. It wouldn’t be hard to expand the above list tenfold. The risk of indecision, or of making stupid decisions, starts to increase if you don’t draw a line somewhere and say “here’s the things we need to figure out to be confident of our plans, and we’ll fix things incrementally from there.”

Sibyl Entertainment offers Go Global advisory services to business internationally.