Knowing the Costs: Budgeting for International Expansion
If you’re serious about taking your brand global, there are many factors to consider. The most important one, however, is your budget. Can you afford to expand? What hidden costs should you examine? Although the true expense of going international will vary by industry, country of international expansion, supply chain considerations, and your revenue goals, this list of key factors should be carefully explored.
1. Research the Big Three
It can take years of study and planning to get a handle on the costs of doing business overseas, but knowing these three will help set your budget on a path to success:
- Exchange rate. This is the value of your currency against theirs, fees associated with money exchanges and costs for translation services.
- Interest rates. The new country will have its own economy, influenced by free-market trends, government regulations or a combination of both.
- Inflation rates. Just as businesses in the U.S. keep an eye on the increasing cost of business over time, they should also consider inflation factors for their new locale.
Understanding these can be a major first step in a healthy financial plan for your international expansion.
2. Know Your Physical Obligations
Some countries require you to set up a tangible office within their borders to do business there. Others aren’t as strict. Know the law, and start your search for accommodations at least nine months in advance. The hard costs of real estate, banking accounts and labor will add a substantial amount to your budget.
3. Comply With Legal Changes
Even countries with very similar cultures (such as the U.K.) have specific laws that will require you to revamp your processes. This approach toward digital privacy has already caused businesses operating in the U.S. to update website compliance terms before they ever consider expanding overseas. This is just one example of how foreign legal policy will change how things such as data, labor, product marketing and labeling are handled there. Consider getting a local consultant on board early in the planning stages to make sure you’re compliant, no matter the cost.
4. Expect to Pay More
A lifetime of budgeting for domestic operations can’t adequately prepare you for what it costs to do business elsewhere. Even if you’ve carefully researched the culture, legalities and production costs of your new location, mistakes are bound to be made, and new expenses will crop up as you go. Smart global businesses know to add some cushion in the budget for the growing pains associated with learning a new market.
5. Consider the Costs of Closure
Whether you plan your foreign endeavor to be a short-term project or you realize down the road that the expansion isn’t paying off, make sure to have the cost of an exit plan in mind before you even start your new global efforts. Some countries make it very difficult and expensive to close a business. These costs can influence where you initially test your business for global success. No one intends for their company to fail, but knowing the price of closure up front can help your budgeting.
Be Ready for Adjustments
Experts agree that cultural forces, government regulation, legal compliance and your unique business strategy will all need to be considered in very fine detail to get that final number for your budget. The process should start as soon as you determine you’re ready to expand and should be revisited as often as you can. As world economies change, your numbers will, too — proving that a global budget is an ever-changing plan that reflects the diversity and evolution of the international market.