Expanding into foreign markets can have its share of benefits—like increasing your customer base or lowering your operating costs. It can also have its own set of unexpected challenges. If you're exploring an international expansion, don't go into it blind. Insights from others who've done it can help you identify opportunities and risks.
I asked two business leaders to share their international expansion experiences with me: Jennifer Labit and Dano Ybarra. Labit is the founder and CEO of Cotton Babies, the makers of cloth diaper line bumGenius. Ybarra is the vice president of international at Jive Communications, a leading VoIP provider and unified communications solutions. (Full disclosure: Labit manages a publication I've been featured in, and Ybarra is a former client of one of my clients.)
Here's what the pair had to say about pursuing global expansion.
Deciding on an International Expansion
For Labit, an international expansion required looking at business through two different lenses: as a manufacturer and a retailer. Cotton Babies not only sells baby products online and through a retail store in St. Louis, Missouri—it also designs, manufactures and distributes a few cloth diapering product lines.
Before expanding into foreign markets, Labit considered the pros and cons.
“We wanted to offer our products internationally and to distributors, but couldn't do so at U.S. manufacturing costs," she says.
For Cotton Babies, moving forward with an international expansion required a new way of production.
“We eventually decided to build a factory in a qualified industrial zone in Alexandria, Egypt, with the intent it would supplement our existing warehouse in Denver."
—Jennifer Labit, founder and CEO, Cotton Babies
Jive's decision to expand internationally was based on the company's growth plans.
“Jive was growing at a much higher rate than the industry in the United States," Ybarra says. “In order to accelerate the growth rate of the company, we looked to other geographies for expansion." In addition, as they gained recognition in the B2B space, offering their products to companies also experiencing high growth—both in and out of the US—meant expanding to accommodate offices overseas.
Benefits and Unforeseen Challenges
An international expansion can help open doors that are unavailable in your existing market.
“It took about six months before revenues really started to grow," Ybarra says, "but since then, revenues are growing at a faster rate than the U.S. market average."
However, success didn’t come without challenges. Ybarra says his team wasn’t fully prepared for the many regulatory and technological challenges they faced.
For example, many countries' telephone services are government controlled. And even those that have privatized services may not have updated regulations, which can prevent competitive technologies from entering the market.
Not only that, but the lack of reliable internet services in many areas—as well as different employment and tax laws—made it difficult to decide where Jive should open a foreign office.
“Networking and extensive research was crucial,” Ybarra says. “Don’t rush to choose an international headquarters based off of trends or general biases. Look at your industry within the country, where you will find great talent and the overall needs of your business. Then start small.
"Although it took us six months to see significant revenue," he continues, "we increased our rate of revenue growth by adding countries outside of the U.S. and increased our ability to solve global communication challenges, attracting larger enterprise customers in the U.S."
Cotton Babies' international expansion wasn't as successful. The company closed its Egypt factory and moved production back to the United States after three years.
“After taking into account product quality, quality control requirements, long lead times and travel, it became obvious that the ROI wasn't there," she explains.
Outside factors also had an impact.
“We were operating in Egypt when Arab Spring began," Labit says. "The protests and riots made it difficult for my team to travel there safely."
These unforeseen challenges led to Labit's decision to close the factory.
“For us, the issue wasn't about the labor—it was other factors that were harder to put a number on," Labit says.
Closing the Egypt facility was a difficult decision, but after evaluating the results, she couldn't justify keeping it open. She closed the factory and reevaluated the company's strategy.
In 2016, Cotton Babies opened a new facility in Fenton, Missouri. The new facility is great for Cotton Babies and the St. Louis economy. In addition to creating 50 new jobs, it is expected to drastically reduce the company's production time.
“In our St. Louis factory we're able to get products off the line in one to three business days for our customers, compared with our Denver location, where the turnaround rate is three to four weeks, and the overseas factory in Egypt, which took no less than four months."
Hard-Earned Advice on Pursuing an International Expansion
After their experiences, these execs have some advice for businesses considering an international expansion.
“Most people only look at the cost of manufacturing," Labit says. “I would recommend that anyone considering entering a foreign market know how to calculate how much time it takes to receive cash back from every dollar that you spend." Knowing how long it took to get a return from her investment helped Labit and the team at Cotton Babies quickly pivot when needed.
One of the biggest challenges Ybarra experienced was managing the legal and regulatory requirements.
With that in mind, “meet with multiple legal firms and accounting firms," he suggests. “You will be learning new perspectives from everyone you interview, and you will be able to select the firms you feel will best help you as you begin the journey of understanding local regulations, laws, taxes and business practices."
An international expansion can lead to exciting possibilities, but it can also come with its own share of challenges. If you're interested in doing business in a foreign market, do your research and make sure you understand the potential challenges and benefits.
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