Risks of Expanding a Business
One solution to your staffing problems is to hire part-time workers and/or freelancers. Sometimes there are no full-time qualified options available, so you may want to consider other options. On the other hand, not all companies and positions are suitable for self-employment/part-time. Expansion may include adding employees and franchises, increasing your marketing efforts, forming an alliance, offering new products or services, merging or acquiring another business, or expanding online. There may also be benefits to developing business abroad. Expansion can also give the impression of greater financial viability of the business. Financial institutions often view large companies as more credible and stable than their smaller competitors. Note: Investors typically want shares, such as shares of your company in exchange for your money, an important consideration when weighing the pros and cons of expanding a business. Taking advantage of global opportunities is a must for most growth-oriented companies. A successful global expansion strategy must include insightful planning that serves as the foundation for building the support and infrastructure needed to successfully navigate the global journey. To help shape your thinking on this topic and help you determine if it`s the right time for your business, we look at what globalization might look like, as well as specific opportunities and risks. When there are drastic changes in the market/technology and you are in the process of growing your business, you have less flexibility in responding. Proven model.
The Harvard Business Review published an excellent article on using Netflix as a case study. Their assessment is that Netflix started slowly, and as it became more proficient in global expansion and refined its model for it into a model, they quickly accelerated. We agree and the extent to which your company has experience in other global expansion projects has a significant impact on overall risk. Your own financial data can show you the pros and cons of expanding a business. The following data-driven indicators suggest that your business is on a path to sustainable growth and that «now» is the right time to reap the rewards of expanding a business: For many U.S.-based mid-market companies expanding into new countries, this can seem daunting – there`s complexity, unforeseen risks and other factors to consider. However, with proper management, the rewards can be great and should not be ignored. In other words, if your product turns out to be a failure due to your larger size, you would lose a lot more than if you hadn`t grown your business. If your payroll growth doesn`t match your profit growth, you`re forced to offer a lower payout. Not only will this make it even harder to find the right people, but it can also encourage your best employees to leave and attract employees without whom you are much better.
It may not kill your business overnight, but the end will definitely be on the way. Your product/service is taking the domestic market by storm. It seems reasonable for foreign customers to react in the same way once you expand your business into new territories. Unless your new target market is at a different stage in the economic cycle of your home market. Vulnerabilities. This one is more context-specific than the others, but very real for certain industries (e.g., oil and gas). This may or may not be true. Expanding your artificial organic biscuit business from France to Germany is probably a little less sketchy than adding value to a new mining operation in West Africa. Geopolitics and macroeconomics. All countries and economies experience ups and downs, sometimes dramatically, over a sufficiently long period of time. Sometimes the writing is on the wall, while at other times there are few warning signs.
From our own experience in recent years, we have been caught up in these factors in Russia, Ukraine, Turkey, Iran and the United States. These risks can range from extreme currency changes to political instability, war, trade disputes, tax changes and extreme weather. Going global is not a one-size-fits-all strategy. Depending on your stage of growth or business model, global expansion can take many possible forms, including: Sometimes it can be cheaper to keep employees on the payroll and pay them not to do much for months than to fire them and pay all the compensation required by law. It may seem illogical, but if you only have a short-term downtime (a few months) and then hope business picks up, this approach is the lesser of two evils. The question is what process can provide proactive measures to address and minimize all these risks. Business expansion can be triggered for many reasons, although it usually happens when your business is looking for additional options to make more profits. You may be considering expansion to overcome issues, such as the ability to meet growing competition. Or you can see the benefits of expanding a business because of its success and therefore have the money and profits to support its growth. Or you may want to study the benefits of expanding a company`s international business. For many companies, growth is a sign of success.
It creates new opportunities, attracts more customers and generates higher profits. However, expanding your business is not without risks. As you grow your business, it becomes harder to hire the right people because you need more. If you are fortunate enough to grow your business during periods when most companies are downsizing, you may not be facing this problem. Overall, the benefits of expanding a business include reducing external risks (e.g., related to competition, market, or technological change). Expansion can also reinforce the impression of greater financial viability: large companies often seem more attractive to investors and lenders. If you`re planning to expand to a new location, chances are your competitors will do the same. There are too many businesses that have closed because their managers/owners did not understand the risks involved in growing a business. The list of risks involved in growing a business is quite long, and while no two companies face the same risks, there are some that all growing businesses face. It`s important to understand that growth can be a disruptive force. This can affect every aspect of your business and put pressure on your people, resources, and finances. That`s why you need to plan carefully and ask yourself the key question: Is my business ready to grow? Partner Risks.
Going global often means introducing new partners into your business model: whether they are service providers, distributors, financial institutions, or even joint venture partners or franchisees. Everyone is a major risk, especially if you don`t have a plan B or exit strategy in case they don`t work. Training and hiring become increasingly important as companies grow, as many employees` skills don`t grow with the organization, Edward D. explained. Hess, professor of economics at the University of Virginia, in an interview with Bloomberg Businessweek in August 2010. After studying 54 companies in 23 states, Hess cited hiring errors as a likely result of rapid growth. For example, it took some companies two to five attempts to find the right CFO. Failure to properly evaluate new employees increases staff turnover while creating loyalty and morale issues. But despite the risks, businesses around the world are constantly expanding. If done right, the extra work for overseas expansion is worth it. But don`t look for a magic algorithmic method to solve the complex problems of globalization.
Challenges are constantly evolving and are at the core a product of social interaction, economic development and political dynamics. It will always require smart entrepreneurs armed with the latest knowledge and modern analytical tools to minimize risk and maximize opportunities.