The ability to penetrate foreign markets can validate a small business. It can provide a sense of accomplishment and achievement, suggesting that the business has “arrived” as a player on the global scene. After all, it takes a company with truly special products or services to pique the interest of overseas customers.
Although companies that have piqued the interest of foreign customers are to be congratulated, managers should keep in mind that it is incredibly risky to expand globally. And unfortunately, managers often overlook those risks. They too often focus on the opportunities for revenue growth while failing to fully appreciate the idiosyncrasies of the markets to which they intend to expand. In short, they overestimate the benefits of globalization and underestimate its costs. In so doing, they make dangerous assumptions about how to do business overseas, and as a result, often attempt to conduct business in overseas markets as they do at home.
Managers get so caught up with the potential rewards and the promise of globalization that they forget the risk side of the equation. And as the financial maxim goes: There is no reward without risk. I hear this complaint all the time from managers of business small and large. They share stories about how they learn important lessons about risk in their attempts to expand globally.
The reality of globalization is that doing business in foreign markets entails doing business in countries that differ, often markedly, from the home country. Foreign countries differ from the home country economically, politically, and culturally. It is these economic, political, and cultural differences between countries that ultimately determine whether companies will succeed or fail in global markets.
It is therefore critical for managers of businesses small and large to do exhaustive research on the political, economic, and cultural institutions in those countries in which they intend to do business. They should understand the political, economic, and cultural history of those countries and the impact that political, economic, and cultural differences between their intended host and home countries will have on their business.
Take Uber, for example. Uber has had a tremendously difficult time in China (losing $1 billion per year) and Europe (where it’s encountered protests and has been banned from various cities). Uber’s fatal mistake in these markets has been its failure to understand how politically, economically, and culturally different Asia and Europe are from the United States, and to adjust accordingly.
In my book Global Vision: How Companies Can Overcome the Pitfalls of Globalization, I explain how political, economic, and cultural differences create additional costs to doing business in global markets. I also explain how companies can deal with those differences and account for the risks they present. It is critical for managers to understand the political, economic, and cultural realities in foreign countries; to account for the impact political, economic, and cultural differences are likely to have on their businesses; and to adapt their business models to the political, economic, and cultural realities in those foreign countries. These are the keys to successful global expansion.