Expanding into New Markets: Opportunities and Challenges for SMEs
The last couple of years has seen even more small-to-medium enterprises (SMEs) expanding an business into international markets. Of course breaking into an international marketplace isn’t without its pitfalls and never more so than for the SME. However, the rewards more than justify any potential risks for the right type of business. Here, we explain the benefits of expanding your business and how to do so with minimum risk.
The challenge worth overcoming
It’s a bit like starting your business all over again when you expand into a new country. There is a need to raise awareness of your brand, develop a new customer base and then there is the culture and the market which can be completely different from anything you have previously experienced. Yet, when you have the right tools, plans and commitment to what you are doing it is possible to adapt to these new markets. Just make sure to research the market thoroughly and pan your expansion accordingly.
Research
As with setting up a completely new business, research is vital. You will need to look at the demographics of the area you are looking at targeting so that you can tailor the business strategy you opt for most effectively.
One reason many SME’s want to expand in this way is to help extend the life cycle of any current products that they have, particularly if they feel they have saturated the home market. This doesn’t mean however that you should avoid doing thorough research and due diligence. Your product may not hold the same value in another country as it does at home , or the market may already be saturated with similar products.
Plan
Plan, plan, plan – before you even think about entering a new market you need to put a lot of work into your plans. You should also undergo an extensive audit of your business and carry out market analysis whilst considering your strengths, weaknesses, opportunities and threats (SWOT). Taking time over this initial stage will reap you better rewards in the long run.
Navigate the complicated process of expanding your business
Setting up subsidiaries in each country would be the traditional step, but this is expensive, lengthy, and requires the set up of things like payroll and human resources, which requires local knowledge. This can be stressful and opting to work with an Employer of Record (EOR) can be a wise move. They can help you grow by managing many of the complexities for your business expansion.
An alternative to a subsidiary is to move an experienced team temporarily to the new country to test the market before fully committing. With the ease of digital/virtual communications, ready access to book co-working premises and home-from-home serviced apartments for your employees, you may find this a more attractive and less risky proposition.

Whatever route you choose you will need to consider cultural, legal, operational, financial and strategic issues. Let’s take a closer look:
Cultural Challenges
- Language Barriers: Communicating effectively with local employees, customers, and partners can be difficult.
- Cultural Differences: Understanding local customs, values, and consumer behavior is critical to avoiding missteps and tailoring offerings appropriately.
- Workplace Norms: Variances in attitudes towards work hours, hierarchy, and decision-making can impact operations.
Legal and Regulatory Issues
- Compliance with Local Laws: Every country has unique regulations for taxation, labor, data privacy, and business operations.
- Intellectual Property Protection: Safeguarding trademarks, copyrights, and patents may require navigating a different legal system.
- Licensing and Permits: Securing the right permits to operate in a foreign country can be a time-intensive process.
- Trade and Tariffs: Import/export regulations or trade restrictions might complicate logistics and pricing.
Operational Challenges
- Supply Chain Complexity: Establishing a reliable supply chain in a new country involves identifying trustworthy suppliers and understanding local logistics infrastructure.
- Hiring and Training Local Talent: Recruiting skilled workers and acclimating them to your company culture can be a hurdle.
- Infrastructure and Technology Gaps: Some markets may lack the necessary infrastructure, such as reliable internet or transportation networks, to support operations.
Financial Risks
- Currency Exchange Fluctuations: Changes in exchange rates can impact profitability and pricing.
- Cost Overruns: Unexpected expenses, such as higher-than-anticipated tariffs or legal fees, can strain budgets.
- Access to Financing: Local funding options might be limited or expensive for foreign businesses.
- Economic Instability: Economic downturns or inflation in the target country could negatively affect business performance.
Strategic and Competitive Challenges
- Market Research Uncertainty: Misjudging the size, demand, or preferences of the new market can lead to failed product launches.
- Local Competition: Established domestic competitors might have better insights and customer loyalty.
- Brand Adaptation: Ensuring that your brand resonates with the local audience may require significant modifications, including new marketing strategies.
Political and Social Risks
- Political Instability: War, corruption, or frequent regulatory changes can threaten the viability of operations.
- Social Tensions: Issues such as nationalism or resistance to foreign businesses might lead to pushback from locals.
Time Zone and Communication Issues
- Coordinating with headquarters in a different time zone can slow decision-making and disrupt workflows.
- Miscommunication due to differences in language, culture, or business practices can lead to errors.
Mitigating Strategies
- Local Partnerships: Collaborating with local businesses or distributors to navigate the market.
- Hiring Experts: Engaging legal, cultural, and financial consultants with expertise in the target country.
- Pilot Programs: Testing the waters with a small-scale entry before committing large resources.
- Cultural Training: Preparing your team with knowledge of local customs and expectations.
Expanding internationally is a significant endeavor, but with proper planning, research, and adaptability, these challenges can be mitigated effectively.
Keep your business on track
As with any new business it is really important to keep your expansion on track, this may be harder when you are further away, but short term goals and regular check in’s will really help as will having a good team in place.