By Dr Bruce Johnstone, Bettany Centre for Entrepreneurship at Cranfield
Are you focussing on expanding internationally? If not, you may be missing the best opportunity for growth in the current economic climate. British firms doing well at the moment tend to be those that are doing business globally.
The big growth opportunity for many UK firms lies in finding an entry into the emerging economies and providing their consumers with the more sophisticated goods and services that they will increasingly demand.
International expansion is an attractive growth strategy because it allows companies to grow their business rapidly while continuing to concentrate on what they do best instead of trying to do something they know very little about. It can often make more sense to expand globally than to attempt to diversify in the local market and risk a loss of focus.
Business owners face a series of strategic choices as they consider global expansion. They must decide which markets to enter, and what mode of entry to employ in each of them. Will they deal directly with end users of their products and services? Or will they involve agents, distributors, partners or other intermediaries in foreign markets?
SMEs can use international distribution and fulfilment services to directly supply end users of their products, almost anywhere in the world. International customers can buy their offerings online or through an intermediary such as eBay or a television shopping network. A global SME might source goods from China using online services such as Alibaba.com, then sell them through its own website and on Ebay and then have the fulfilment managed by Amazon. The owners of successful automated global SMEs are making money while they sleep.
The key to making this sort of business model sustainable is to add something special along the way that customers will value, such as design flair or technical expertise. An example of this is a small jewellery designer in Derby that buys beads from China, and assembles them into attractive and unique jewellery to sell online.
Make and export
Any business that enjoys a product or service niche in its home market should investigate ways to exploit that niche globally. It could provide the opportunity to boost production and make much more profit from existing investment in factories, equipment and knowledge. For example, thirty moulding machines at Numatic International in Somerset work 24/7 to supply British-made vacuum cleaners to a global market. While exporting locally manufactured goods creates employment in Britain and brings a better return on investments in factory buildings and manufacturing expertise, the challenges of exporting British made goods include high transport costs, trade barriers and dealing with local agents.
Set up a subsidiary
Establishing a wholly-owned subsidiary in a foreign market enables a business to get close to its offshore markets, cut transport costs and engage in global strategic coordination. By retaining full control, technology and knowledge can be protected. The disadvantage of this approach is that it usually represents a large and risky investment in a foreign market.
Find a partner
Licensing and franchising enables firms to expand globally without the development costs and risks of expanding manufacturing. A joint venture provides an opportunity to share development costs and risks with a local partner. It can overcome political and economic barriers to market entry and in markets such as China is often the only option for a foreign firm.
The disadvantages of partnership approaches can include a loss of control over quality and the ability to coordinate manufacturing globally. The possible downside of shifting production offshore is the loss of ability to exploit economies of location and experience.
Firms with innovative technology are in demand in developing markets and should consider exporting their know-how in the form of a turn-key project. This is often an opportunity to enter markets where foreign direct investment is restricted. The downside of this approach is that there may be no long-term presence in that market, and the firm may have created an efficient international competitor.
Go global and grow.
Of course, deciding on a sound strategy for entering international markets is only the start. Global entrepreneurs still have to wrestle with international finance, accounting, HR and marketing. They must contend with the more complex cultural, political and economic issues that will affect their global business. It may not always be an easy road, but export-led growth could provide the road to recovery for the UK economy, and may be the path to future growth for your business.
If you want to find out more about how to develop and grow your business, come to Cranfield VentureDay 2012, and hear from experts about topics such as growing through franchising, innovative sources of funding, social media and Internet marketing, and making an impact through philanthropy. Visit www.ventureday.co.uk for more information and to book your place. An early bird registration (£90 instead of £120) is available for all bookings received by 9 March 2012.
Dr Bruce Johnstone, Lecturer in Entrepreneurship, works with fast growing businesses on the Business Growth Programme (BGP) at Cranfield School of Management and can be reached at email@example.com. For more information on the Bettany Centre please visit www.cranfield.ac.uk/som/bettany
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