The advent of high-speed internet and social media has closely-knit countries across the globe together. Businesses, people, and governments can easily communicate, transact business and lend aid irrespective of distance.
This lack of barrier causes most entrepreneurs to assume that since the world has become one giant homogenous market, they can simply grow their business internationally. This is however a far cry from the truth. Despite the seeming homogenous market, small, medium, and large enterprises fail in their attempt to scale their business internationally because they fail to address the risk factors involved. Here are the risk factors to consider before scaling your business to a global level.
#1 Exchange rate fluctuations
The first risk factor in global business is the exchange rate. The exchange rate between currencies is constantly changing and thus poses a risk. The gains by businesses in a foreign land are tied to changes in the exchange value between the home currency of businesses and the currency of the foreign country. For instance, if a U.S company does business in Ghana, and the Ghanaian Cedi weakens against the U.S Dollar which is typically the case, profits will be worth less when the U.S company exchanges the Ghanaian Cedi back to the U.S Dollar.
#2 Local demand verses foreign demand
Demand for your product/service is another risk factor to consider in international business. The success of your company in your home country may not translate into business success in a foreign country.
In other words, the fact that your products are met with high demand in your country does not mean they will be in high demand in another country. Demand for your business offering may be non-existent in the foreign market, or may have been met to a large extent. So, thorough market research is necessary to ensure your product/service viability.
#3 Local versus foreign competition
Before heading to a foreign land to establish your brand, it is important to understand that a local brand that offers probably the same or similar product exists, and being that it is their home country, they have a considerable portion of the market share. With you trying to enter the market, it is not going to be an easy task to persuade the locals to trust your brand.
Also, local brands have a better grasp of market information. Without a proper understanding of the market and your competitors’ strategies, it will be difficult to penetrate the market.
#4 Differences in culture
Culture is another risk factor to consider in international business. Culture plays an integral part in business scaling as every country has its own business, socio-eceonomic and political culture. Cultural misunderstandings can affect international business relationships.
When a Ghanaian company sets up a business in a foreign country, it will have to establish connections with foreign clients and hire local employees. If the Ghanaian company does not have a good grasp of the cultural dynamics in the foreign land, an offense may accidentally occur against the culture of the foreign client or employee which may tarnish your brand’s identity.
#5 Political climate
Political climate and economic performance are closely correlated. Political climate such as elections, diplomatic agreements, policy changes, and even civil wars can have overwhelming impacts on the market. A stable political atmosphere bodes well for your business but an unstable political atmosphere can destroy your brand before it even leaps.
#6 Local laws and basic infrastructure
Laws vary from country to country as such it is important to understand the laws that exist in the native country you wish to transact business. Laws such as tax and labour laws have the potential to shape your business.
Moreover, the cost of doing business in any market is dependent on such infrastructure as local transportation, energy, water supply, technology, and financial services. All of which have the potential of changing your business model.