The global marketplace may seem like an immensely complicated entity, but it isn’t! While operating in the global marketplace is vastly different from the local, it can open up opportunities that wouldn’t otherwise exist. Despite its many risks, the rewards more than make up for it. Unfortunately, many companies fail to understand that tackling the global marketplace is a long-term endeavor that bears fruit in time. In today’s economy, companies that fail to go global often perish under intense competition. However, before you can conquer the global marketplace, you must first understand it.
Exploring the global marketplace is a challenging task, so it is essential to determine what the global marketplace is and how you can take advantage of it. You also need to choose where to expand closely. Finally, the company must formulate a market entry strategy.
So, let’s begin by defining the global marketplace. After that, we will look at the pros and cons of global expansion and provide a few tips on how to expand globally.
What is the Global Marketplace?
The global marketplace allows companies and organizations to conduct operations regardless of distance. Think of the global marketplace as all the potential customers for your product or service. When participating in the global marketplace, location is not a barrier.
Global marketplaces are rarely singular. Usually, the global marketplace is the sum of all the markets for your product. However, there is indeed a singular global marketplace in rare cases such as the shipping industry.
The global marketplace does not just relate to customers either. For example, a clothing company may source its raw materials from India, have factories in Vietnam, and retail in the UK. So this company is also a part of the global marketplace.
Similarly, companies with offices in different countries are also tapping into the global marketplace. Some great examples would be accounting firms such as Deloitte and banks such as Barclays.
Understanding Global Markets
Global markets are never consistent. They are constantly changing due to political factors, social factors, or competitive strategies. Therefore, whenever your competitors notice an opportunity in the global marketplace, they will try to capitalize on it as soon as possible. It is extremely important to immediately act on the opportunities that you see in the global marketplace.
While global markets are constantly changing, the underlying principles usually stay the same. As such, there are key factors that organizations must be aware of when expanding globally.
Regardless of where your business may be expanding, It is possible to understand the global marketplace. Knowing what to analyze and how to go about globalization can give your organization a considerable advantage and make the internalization process more efficient.
Global Marketplaces and Business Centers
Business centers are the backbone of global marketplaces. You may be selling a product or a service across the country, but you will almost certainly be operating through a business center. As a result, business centers can link your global ambitions and your localized strategy.
A business center is a key place in a country or a region through which most of the business is conducted. For example, there may be several business centers in a country as large as the United States. However, this isn’t true for most countries. For example, London is the largest city in the UK, and it can easily be considered the country’s key business center.
Sometimes, a business center may not only unlock access to a certain area but an entire region. The best example of this is Hong Kong. The vast majority of conglomerates must have an office in Hong Kong because it can be used to reach mainland China, Vietnam, Taiwan, Indonesia, and Malaysia.
Types of Business Centers
Different business centers may be known for other things. If we take the example of the US, New York City is considered the country’s financial hub. Almost all financial companies exist in or around the Manhattan area. On the other hand, Silicon Valley is known for its tech companies and its startup culture.
Knowing the primary purpose of a business center is crucial before setting up your base of operations. Remember that your business center will be imperative for setting partnerships, hiring, and procedures. Operating out of an incompatible business center can seriously hinder your global expansion.
Imagine you are a European semiconductor company. When expanding into Asia, Taiwan would be an ideal business center. On the other hand, Hong Kong won’t be as suitable because some of the largest foundries and chip makers are in Taiwan. They would make it easier for you to get up and running compared to Hong Kong. Conversely, a financial services company would prefer Hong Kong.
Why You Should Enter the Global Marketplace
Companies usually enter the global marketplace to reach more potential customers, expand their business and increase profits. There are three significant ways companies use to achieve efficient globalization:
· Increasing the customer base for products or services.
· Finding a cheaper way to source raw materials.
· Utilizing cheap labor.
Usually, large companies are formed in developed economies, such as the US (or more recently parts of China), before expanding overseas. However, this is not always true. Sometimes, companies formed in underdeveloped countries manage to make a product that they can export globally. For example, Paytm, the Indian digital payments platform has recently expanded into Canada and Japan.
There are many benefits of expanding globally. Let’s look at some of the major ones:
In many cases, expansion to other regions is the only way for a company to meet its growth targets. A great example of this is the software solutions space. Once a company has tapped into its target market in its home country, it has two options. First, it can offer new products and solutions. Then, failing that, it can offer its existing portfolio to a new market.
When expanding, the most critical question to ask yourself is where you should expand to. The nature of your business should help you come up with the answer. For example, a firm producing commodities may want to target developed countries because it could more easily undercut competitors. However, a tech company may want to focus on emerging economies where competition is low.
Expanding globally reduces your exposure to a singular market. Nowhere did this become more apparent than during COVID-19. Many places managed to recover earlier from the pandemic (such as New Zealand and China). As such, normal business activity was able to resume earlier over there, making sure that companies operating in these countries had a huge advantage over those that were not.
On top of this, the global expansion also reduces your risk to political factors. For example, Saudi Arabia banned VoIP in 2013. This meant that companies such as WhatsApp and Skype were unable to operate in the country. Being in the global marketplace allowed them to manage their risk and subdue losses. While the government lifted the ban in 2017, the example still stands.
Easier access to labor and raw materials can reduce your business costs. There are countless examples of this. From clothing giants like Calvin Klein to tech companies like Samsung, the global marketplace has allowed organizations to save billions of dollars a year.
The one thing to watch out for when reducing costs is the shifting economy. While China was previously a source of cheap labor, it no longer is. Developments in the country have led to an increase in labor costs. As such, companies are now finding cheap labor in countries like Bangladesh. Even China is outsourcing some of its labor to nations such as Nigeria and Kenya.
Enriched and Culturally Diverse Workforce
Operating in the global marketplace allows companies to have access to skilled labor in multiple regions. Millions of people work remotely in the US, which has only increased in the last year. Research suggests that remote work allows companies and employees to save money. Companies can also avoid costs such as fuel allowances, making the employees more productive by cutting the commute times.
Remote labor can be found anywhere. As such, it allows companies to save money by hiring in places where labor is cheap. Unskilled labor is not the only advantage of tapping into the global marketplace. Skilled labor can also be hired for cheap. According to Daxx, the average salary of a software developer in Finland was $49,203 in 2021. This is less than half of what is offered in the US ($110,638). This was in Finland, a developed country. The savings can be much more significant if the software developer is located in an underdeveloped country.
Lastly, expanding globally also allows companies to expose themselves to different cultures, discovering new best practices for conducting business.
Easier Access to New Opportunities
Having access to the global marketplace allows companies to see opportunities that they otherwise won’t. This is especially true for emerging markets as companies can find a lot of gaps to fill there.
Entering the global markets also encourages further globalization. For example, once a US country expands its operations to France, expanding to the rest of Europe will be easier. The resources already in place in France could be leveraged to expand to nearby countries.
The Risks of the Global Marketplace
Entering into the global marketplace also comes with a lot of risks. Most of the risks are unique to the place that you are expanding to. However, particular areas of risk stay consistent during expansion. Having a partner with prior experience in expansion can be a huge help in this regard. Here are a select few:
Regulation and Legality
The legal framework of each country is different. As such, it may be necessary to refine your operating practices when expanding.
It is extremely important to determine how the accounting and labor laws differ in the country you are expanding to. You may be required to disclose additional information in countries with high regulation and government oversight. Most companies tend to hire local law firms or administrative partners that can assist with the legal aspects of their expansion.
Global marketing is a tricky subject. The internet is littered with examples of companies failing to grasp cultural norms adequately. This almost always leads to failure with their marketing campaigns. Companies that have a global audience must also be careful. Decisions made in one market could have a global impact. A cultural advisor can help in this regard.
Making a culturally tone-deaf decision can significantly backfire in terms of PR. For example, Liberty Media faced immense backlash when they signed ARAMCO as sponsors of Formula 1. This was mainly due to Saudi Arabia’s terrible track record when it comes to human rights. As a company that considered equality to be its core value, fans were disappointed in the decision.
Expanding to a new country or region is a costly endeavor. As such, it is essential to make sure that your company can afford the upfront and fixed costs before entering the global marketplace.
It is a good idea to form best and worst-case projections of costs with an experienced consultant. They could help you determine if you went ahead with the expansion or not.
Managing in the Global Marketplace
By now, you should be aware of the pros and cons of the global marketplace. Keeping them in mind, it is possible to establish a list of best practices for global marketplace management.
Of course, each company is unique. The decisions that you make will depend on your company’s unique position at the time. However, here are a few points to keep in mind:
· Global marketing is hugely different from local marketing. It is important to keep a consistent general message across markets. Just make sure to adjust it slightly per the local customs and culture.
· When expanding to another country, it is best to hire natives. They will understand the local business landscape much better than you. Therefore, they will be able to provide valuable insights. Insights that will prevent you from making mistakes.
· Staying on top of data is key. While you can find many economic data online for free, paid insights about the countries you operate in can be beneficial. They can help you decide whether you should invest more, pivot your focus, or even completely divest out of the market.
· Make sure you have a cohesive strategy. The strategy for each region you operate in will be very different. However, it should all merge into one long-term strategy that allows you to pursue sustainable growth.
· Find an experienced partner that allows you to outsource administrative activities. Competing in the global marketplace is extremely difficult. It is best to find a partner that specializes in global expansion. A partner that can take care of all the administrative work on the backend would be ideal. This way, you can focus on the important stuff.
Conclusion: The Right Partnership Can Drive Global Expansion
We just went through the definition of the global marketplace, its pros and cons, and how to manage a globally expanding company correctly. After all this, it should be obvious that finding a company specializing in entering the global markets is the best way to take your business abroad.
Xinergy Global has extensive experience operating in the global marketplace. We can help make sure that your business achieves global expansion in a hassle-free manner. We offer services such as:
· Market entry strategies
· Product localization
· Public relations management
· Sales and marketing
As a company that has worked across multiple industries with numerous high-profile clients, we use what we have learned to ensure that your expansion is as smooth as possible. So contact us right now to set up a consultation and inquire about our tailor-made solutions.