Whether you are a small startup or an established corporation, the prospect of international expansion is an exciting opportunity. It poses an attractive strategy to  extend your market reach, reduce your risk through diversification, and access a global talent pool. But the benefits of going global come with challenges that companies must be aware of in order to avoid failures.

Airbnb's struggles in China, Facebook's failure in Japan, and Starbuck's misstep in Australia. These are all cautionary tales, showing that prior in-depth research and a robust strategy are paramount for business success. 

In this article, we delve into the key challenges of venturing into international expansion so that you can avoid them.

Key Challenges When Expanding Internationally

There are a variety of challenges that businesses typically face when entering foreign markets. From cultural to political and financial challenges, as well as operational and technological challenges. The degree of these difficulties can vary depending on your target market and industry. This article will dive into the most crucial obstacles, whose neglect frequently is the cause for international expansion failures.

Language and Culture

The immediate and pressing challenges that businesses face while trying to enter a foreign market are language barriers and unknown cultural norms. While language might pose a barrier to communicating with customers, employees, or business partners, cultural missteps risk alienating local target audiences and prevent brand trust.

From consumer preferences to marketing effectiveness, cultural norms can vary along numerous dimensions, even extending to workplace expectations. Misjudgment of these norms is very risky.

For instance, Starbucks faced difficulties in the Australian market because of its failure to understand the cultural integration of coffee within the country. The people of Australia were accustomed to their boutique coffee shop offering personalized experiences, and Starbucks' standardized offering didn’t resonate with them. As a result of this fact, it had to shut down most stores in the country. Similarly, early KFC in China faced failure due to a mistranslation of its slogan into a message quite off-putting: "Eat your fingers off."

Another aspect is cultural differences in the workplace. Management styles and expectations of employees are very different in each region. A more hierarchical managerial style might work well for Asian markets, but lead to  resistance in Scandinavian countries with their traditionally flat organizational structure.

To address these issues, some companies invest in cultural sensitivity training, involve local business experts, and hire local talent familiar with the cultural nuances. This helps to adapt products and modify marketing strategies to ensure they are appealing to the local people. 

Customer Behavior and Preferences

Another challenge with international expansion involves understanding and aligning oneself with local customers' behaviors and preferences. Consumer tastes, buying habits, and expectations are heavily influenced by regional cultural, economic, and social settings. A businesses’ inability to adapt to these can lead to low product acceptance and financial losses.

Take for example Airbnb: its homes-sharing model quickly gained large acceptance in the West in general, but failed in China due to cultural attitudes. Chinese consumers are assurance-seeking and look for services that provide verification and guarantees, which Airbnb did not attend to. Its local competitors such as Tujia, who were aware of local customer expectations, outperformed Airbnb by catering to trust and security.

Equally, P&G failed to grasp the local circumstances and customer preferences when they first entered Japan in 1973. Their laundry detergent Cheers initially didn’t resonate with Japanese customers due to different local washing habits that P&G had failed to recognize: The fact that Japanese used to generally wash their laundry in cold water, and the trend of using fabric softeners at the time. As a result, the claim of washing well in all water temperatures was irrelevant to Japanese customers. And as Cheers in addition  didn’t wash well when combined with fabric softeners, the product was unpopular in Japan.

Comprehensive market research and involvement of local experts are indispensable for understanding relevant circumstances as well as customer preferences and expectations. 

Communication Issues

Issues in international business communication span beyond simple language barriers. Companies have to find their way through different time zones, ways of doing business, and even the rate of technological adoption. Poor communication leads to misunderstandings, inefficiencies, and strained relationships among global teams and stakeholders.

Time zone differences can especially be challenging when different continents are involved. A team working in New York with a partner based in Tokyo would share very few working hours, which prolongs information sharing and decision-making processes. Problems with language further add to this burden, as nuances in communication can be conveyed even less in online communication. Misunderstandings can lead to costly mistakes in business negotiations, product launches, or marketing campaigns.

Furthermore, diversity of business etiquette adds to the complexity. For example, people in Japan generally avoid conflict communication and try to find consensus outside of meetings, instead of openly debating as is common for western counterparts. American business culture on the other hand prefers direct  communication. Such differences, if not understood and respected, can result in frictions in negotiations and collaborations.

To minimize issues resulting from communication, businesses should invest in robust technology platforms for real-time collaboration, such as Slack, Microsoft Teams, or Zoom. Clear communication protocols should be set up and shared project management tools used to keep everyone aligned despite different time zones. Cultural training of employees ensures smoother interactions with international counterparts.

Legal and Regulatory Compliance

Among the most daunting tasks to be undertaken in the course of the international expansion process is how to establish the company within the legal and regulatory environment of a new country. Within each country, regulations regarding taxation, labor laws, product standards, intellectual property, trade policies and so on vary. Non-compliance can take the form of significant financial penalties, operational disruptions, and even discontinuation of company operations.

For example, Uber had to face a major setback in Europe in the form of lawsuits, particularly in Germany and France. These concerned local labor and transport policies, as these were against their business module. Bans and restrictions were the after effect of such disputes. Such actions by the European Commission made Uber rethink their plans for those regions. Likewise, Google has been fined billions of Euros by the European Union due to antitrust violation charges.

Regulations are sometimes modified and therefore not only require in-depth understanding but also continuous update. Among these, taxation policies are very varied among countries and can end up largely impacting profit margins if not studied carefully.

Companies can address such challenges by retaining local legal counsel or compliance consultants. These can ensure a high degree of understanding of the regulatory environment and support in periodic compliance audits to ascertain that local laws are being followed.

Talent Management

Finding, training, and retaining talent in a foreign market is one of the most underestimated challenges of international expansion. Quite simply, labor laws, cultural expectations, and workforce dynamics will vary greatly from nation to nation, often making it difficult for companies to establish and maintain a cohesive workforce.

Skill gaps in the local labor market or inability to compete with established employers can create recruitment challenges. International companies entering India, for example, often find it tough to attract the best tech talent as these are in high demand by local giants like Infosys and Tata Consultancy Services.

Other concerns include retention. The expectations of employees regarding work-life balance, benefits, and management styles can vary significantly from region to region. For instance, employees in Japan might appreciate longtime employment and hierarchical structures, while in Scandinavian countries, flexible working conditions and egalitarian working cultures are common.

Developing a localized HR strategy will help navigate these issues. Partnerships with local recruitment agencies are a way to increase efficiency and quality in the hiring process. In addition, training programs aimed at upskilling employees and bridging cultural divides can create a more integrated and productive workforce.

Local Competition

When entering an unknown foreign market, one of the key challenges is to compete with well-settled local players. They have good market insight, an established customer base, and existing networks within the market that a newcomer will have to maneuver.

The case of Amazon in India bears testimony to this challenge. Despite its leading edge in the world and heavy investments in the Indian market, the e-commerce giant has struggled to outpace Flipkart, a homegrown e-commerce company. Flipkart has managed to stay ahead of the curve because of their deep understanding of the needs of local customers and due to offering region-specific solutions, such as cash-on-delivery payment options.

Local competition can take the form of government-subsidized businesses that receive favorable treatment owing to some factors of nationalistic sentiments. For example, foreign companies who attempt to succeed in China often encounter severe opposition from local companies that are beneficiaries of incentives and policies provided by the local government.

When entering a new market, companies may seek to develop partnerships with local firms in order to gain direct insight and access the competitive landscape more easily. At the same time, international businesses can stand out by emphasizing superior product features or services, or finding unique marketing strategies.

Technology and Infrastructure Adaptation

For businesses looking to expand into different parts of the world, it is important to be aware of disparities in technology and infrastructure. Access to and speed of the internet, commonly used platforms, technological requirements and transportation logistics are some of the aspects that have the potential to impede operations.

For instance, in the case of Africa or Southeast Asia, a company may find undependable power grids or poor internet penetration. These can pose limitations to the utilization and access to digital tools and platforms that are integral to a modern business. Similarly, underdeveloped transportation networks can cause delays in supply chain activities and inflate costs at the expense of operating efficiency.

Differences in technology adoption may compel a business to modify its offering. For example, payment options have to be designed based on local preferences. In countries such as India, with its large labor force, cash-on-delivery is the main form of payment. Hence, this feature has to be incorporated into electronic commerce websites as per local demand. In Japan on the other hand, various electronic payment options such as PayPay or transportation cards, as well as convenience store payments are common and expected.

In order to avoid failures at an advanced stage of international expansion, it is paramount to assess technology and infrastructure related challenges at the planning phase of the investment. This can be further supported by partnering with local providers who can provide crucial insights and bridge logistical and technological gaps.

Get Support from a Global Expansion Expert

International expansion involves a long list of complexities that requires expertise and tailored solutions. At GlobalDeal, we are specialized in such international expansion challenges. 

through consultation services as well as technology tools. Whether connecting one with industry experts or finding the right resources, GlobalDeal will provide whatever is needed to ensure enterprise success across borders. Apart from consultation and hands-on support with various tasks, GlobalDeal also provides useful technology solutions: Our tools help you connect with experts worldwide, find opportunities to connect with relevant companies, as well as acquire various resources tailored to your needs. Contact us for a free consultation and take the first step towards successful global expansion!