The Pros and Cons of International Expansion
Shippo Snippets:
- It’s estimated that there will be 2.05 billion global digital buyers in 2020
- Small business exports make up for nearly one-quarter of U.S. exports and support more than 6 million jobs
- To help decide whether global expansion is right for your business, a number of data points and research findings should be considered
- Updates to international shipping regulations, carrier charges, shipping times and other aspects are in effect due to the global impact of COVID-19
The Story:
Note: This article seeks to provide information and insights into some of the pros and cons of expanding into international markets. But in light of the COVID-19 outbreak, the landscape is obviously quite different at the moment, so please consider current events as you think about your company’s future moves.
About 95% of the World’s Consumers Reside Outside of the U.S.
Expanding your business into foreign markets is a strategic approach that may help you reach a much wider range of consumers and transform your company’s overall trajectory. It comes with a distinct set of advantages, challenges and operational changes, but in its best case scenario, extending your business reach allows you to tap into markets outside the U.S. where, according to the International Trade Administration, 95% of the world’s consumers are located.
And while the United States exports about $2 trillion worth of goods and services to foreign markets each year, there’s still a huge opportunity for growing merchants to claim their share of the global export pie.
In this piece, we’ll take a look at the current data on e-commerce and international expansion, the pros and cons of entering foreign markets, and steps independent businesses can take once they’ve made the decision to send services and products overseas.
Data On Global E-Commerce
- Retail e-commerce sales worldwide totaled $3.53 trillion in 2019, with revenues projected to grow to $6.54 trillion by 2022
- Shopify’s Global E-Commerce Guide anticipates a 276.9% increase in worldwide e-commerce sales over the most-recently tracked period
- It’s estimated that there will be 2.05 billion global digital buyers in 2020
- By 2023, retail e-commerce sales in Asia Pacific (APAC) are projected to be greater than the rest of the world combined
- Shopify studies show the average rate of online purchases from overseas retailers is 57%
Expansion is on the Rise
- The Institute for International Economics finds that not only do U.S. companies who export grow faster, they’re also 8.5% less likely to go out of business than non-exporting companies
- A 2019 U.S. Chamber of Commerce study found:
- Small business exports make up for nearly one-quarter of U.S. exports and support more than 6 million jobs
- 97.5% of the businesses that exported manufactured goods in 2017 were small businesses
- If small businesses had more access to foreign markets, it could increase their sales by 14.2% or more, raising U.S. GDP by $81 billion and adding 900,000 or more new jobs
- Small businesses’ export revenues increased by 20% from 2016-2018, with average revenues of exporting small businesses increasing by 24.3%, compared with a 14.1% increase for non-exporting businesses
- Small businesses that export overseas expanded from an average of seven countries in 2016 to 10 countries in 2018
Pros of Entering Foreign Markets
Potential benefits may include:
Increased Revenue
Exports have been a growing source of revenue for independent businesses for a few years now, rising, as mentioned, by 20% since 2016. Access to more markets means more money through more consumer channels.
Upfront Payments
International trade can bring along the added perk of upfront payments. It’s a commonplace practice for most international transactions to be paid in advance, so, unlike domestic purchases that might leave you waiting for cash to flow in, expanding overseas can help you secure a steady stream of revenue that’s reliable and prompt.
Maximizing Digital Tools
The use of digital tools presents a unique benefit to independent businesses who export. In fact, according to the U.S. Chamber of Commerce, 92% of exporting businesses use digital tools like online marketing and payment processing tools, productivity platforms and e-commerce websites. 61% of those businesses believe technology can help them overcome the top three foreseen barriers to exporting: regulations, payment collection and customs and tariff issues.
Currency Exchange Benefits
Riding the wave of currency fluctuations can provide a unique benefit to those who add international trade to their toolkit. For instance, when the U.S. dollar is down, customers can benefit from the favorable currency exchange rate and boost sales. Independent businesses can also gain from converting weaker currencies against a stronger dollar.
Enhanced Reputation and Brand Exposure
More markets means more visibility for your unique brand. Conducting business in other countries can boost your company’s reputation, spreading to surrounding areas and lifting up your profile in your target niche. This particular benefit is tough to quantify, but it’s an advantageous way to increase your credibility at home and abroad.
Potential Barriers to Expansion
Fear of the Unknown
International expansion can lead to concerns that are sometimes beyond control. When considering international shipments, many independent businesses are apprehensive about aspects such as goods getting stuck in customs, or whether of not their customers are legitimate buyers.
Foreign Regulations
Unique tax scenarios, data localization requirements, liability risks and global privacy rules are some of the foreign regulation issues an internationally expanding business might face.
Customs and Tariffs Procedures
Customs costs and procedures, tariffs and quotas are a few of the limitations that can be placed on potential exports.
Information Gaps
From locating and analyzing markets and customer profiles to sifting through data, identifying business opportunities and sales prospects abroad and prioritizing certain markets over others—a lack of international information can create a gap in an independent business’s ability to accurately assess the path to expansion.
Product Development and Distribution Issues
Developing products for foreign markets requires adaptation to local standards and specifications, oftentimes challenging independent businesses to meet stringent shipping requirements and deliver after-sales services. On the distribution side, foreign channels can create complexities or barriers to access, while reliable foreign representation can be challenging to obtain or control. Furthermore, exporting procedures and paperwork might be unfamiliar to independent businesses with little trade experience.
Payment Collection Processes
On the flip side of the cashflow coin, the time needed to complete export sales can be lengthy. Additionally, a lack of compatible payment methods can create a layer of inconvenience. And resources to resolve disputes and enforce contracts might not be as cut and dry as they are at home.
Risk and Infrastructure Issues
The inherent risks to international expansion can range from bribery and corruption concerns, to insufficient IP protocols and protection, lacking or subpar infrastructure for e-commerce, instability in the foreign country’s political system and disputes and retaliation against U.S. exports.
International Shipping Changes and Restrictions Due to COVID-19
Due to the impact of COVID-19, for the foreseeable future, certain international shipping regulations, customs requirements, and other aspects will continue to evolve. Carriers are updating information frequently, so it’s important to stay tuned to new shipping protocols as they become available. (For instance, USPS has recently updated that it will not allow the shipment of hand sanitizers and disinfecting wipes overseas.)
Major carriers each have an established set of international shipping rules and regulations, and during these current times, may make adjustments to their policies based on the changing landscape:
Also, several carriers have instituted surcharges on international shipping for the time being, due to limitations associated with the COVID-19 outbreak. So as you look at various aspects associated with expansion, be sure to take this aspect into account. For example, effective April 6, 2020, FedEx will start charging as much as an additional 0.45 cents per pound on shipments to and from China.
Steps Your Business Can Take to Streamline Global Growth
In a normal business climate, if you decide that international expansion is the right course for your business, there are a few steps you can take to help roll things out smoothly and ship products more seamlessly:
- Learn About the Market
Leverage export statistics from the U.S. Census Bureau to assess global markets and learn exactly where strong growth has been seen in recent years. You can also enlist some assistance here on the ground by contacting one of the 21 existing U.S. Export Assistance Centers. These experts can help you understand whether your products are a good fit for your desired markets. From there, think about whether you’re willing to ship to those markets and what that might entail.
- Connect to Sales Channels
Another milestone in your exporting strategy is deciding whether indirect or direct-to-consumer selling makes the more sense for your business. Direct selling holds you accountable for identifying international buyers through channels such as trade shows, advertising and an array of other marketing tactics. With indirect selling, you might enlist an intermediary like an export management company to crack into a new foreign market.
- Understand Customer Expectations
Proactively managing the customer’s expectations involves estimating how long of a lead time you’ll need to complete the entire transaction. From initial purchase to packaging, shipping, tracking and delivering, ensuring the customer experience is engaging and clear from soup to nuts should be a key component of the business process.
- Calculate Landing and Other Shipping Costs
Your landed cost—or the total cost of shipping including insurance, duties, taxes and carrier fees—should be calculated up front and in advance of sending the product, so you can clarify whether the customer or your business will cover or split the costs. Unlike shipping directly to a consumer or into a business-to-consumer environment, there are ways to defer import tax or value added tax if you’re shipping directly to another business.
- Keep it Clear For Customs
The clearer your communication about exactly what your shipping needs are, the easier it will be to avoid a customs-related holdup. In order for customs officials to correctly classify your shipment, a series of declaration forms must be completed and various conditions may apply. Failing to be accurate and descriptive on these forms could lead to delays in the shipping process, increased shipping costs and even returned goods.
Companies Who Catapulted Into International Expansion
Many of today’s top and emerging businesses started small and are seeing marked success from early overseas expansion:
EarthQuaker Devices, the 2019 U.S. Small Business Administration (SBA) Exporter of the Year, grew itself from a small home office to a 15,000-square-foot building by using increased profits from exporting.
Surely you’ve heard of Yankee Candle. What began as a 16-year-old teen’s home-candle-making operation (using Crayon wax, to boot) in 1969 grew into a small brick-and-mortar retail shop which now sells more than 2 million candles per year around the world.
Popular undergarment supplier Spanx started as a one-woman-shipping-show in 1998 and garnered enough global success to seal in CEO Sara Blakely’s seat as Forbes youngest self-made female billionaire.
Burt’s Bees began humbly in the home of a married Maine couple, bringing in $20,000 in sales their first year. But the global buzz the beeswax-based beauty line has drummed up as of 2018, has sent sales up to $240 million.
With access to a wide selection of digital tools and technologies, your business is never far from a solution throughout the expansion process. From researching foreign markets to finding the right forms and delivering your unique product or service, there’s never been an easier time to think about going global. Shippo offers a global network of carriers and resources to help build your international shipping strategy while co-navigating customs, and more.
