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What are the challenges starting up a new business in a foreign country?

Liability of foreignness is the inherent disadvantage, such as additional costs, that foreign companies experience in host countries because of their non-native status. This might be caused by differences in formal and informal institutions that govern the rules of the game in different countries. Foreign firms would need to overcome the liability of foreignness in order to succeed in the new markets.  

 

Understanding the differences in informal institutions, for instance, cultural norms could be a challenge for foreign companies. These restraints are relatively more difficult to be noticed and understood by foreigners, but highly determine the success of a product or company. Recruiting local workforce that is familiar with the local environment might be a solution, but could potentially induce cultural differences in the company. This would create another challenge for the foreign company, which is to manage a group of employees with distinct beliefs and working styles. 

 

Another challenge is overcoming the formal institutions such as tax systems. Different countries would have their own political, tax and legal systems. It is important for foreign companies to be aware of the differences and know how these systems would restrain their behaviours in the countries. Since a foreign company might not necessarily have the expertise in these areas, additional skilled workers might be needed. This could increase the costs of the company and make the breakeven point higher. 

 

Choosing the appropriate market entry strategy might be a challenge. Companies need to decide carefully where, when and how to enter a foreign market to maximise their chance of success. They need to match their strategic goals with location and timing. Moreover, the most important issue with respect to the ‘how’ decision is which mode of entry is chosen. Companies would need to spend resources on change management, to monitor the process of its internationalisation and prevent disorganisation.  

  

To conclude, the key challenges in starting up a new business in a foreign country would be overcoming the differences in formal and informal institutions and deciding on the optimal market entry strategy. Companies would need to overcome these challenges in order to gain a position and succeed in a foreign market.

How to expand online business internationally?

First and foremost, research! Before you do any sort of expansion, you’ll need to research both your company’s capacities and the prospective market. You’ll need to know what your company’s strengths lie and how that would support your expansion in the new market. Also, you need to understand the demographics of the market to see if you need to make changes to your current business model. One key question you should ask is what constitutes your competitive advantages over your competitors. This would determine what mode of expansion you can have. If you are technologically superior to your opponents, then you would face very few difficulties in terms of expanding your services and you’ll have a lot of freedom in deciding the mode of expansion. You can choose either to naturally extend the coverage of your services or to seek partners. Whereas if you possess a commercial competitive advantage, then you’ll be a bit restricted as your model may not work in the overseas markets. So the next thing to do is to plan. You need to plan for your expansion. What is your goal in the first few years of expansion? What metrics are you using to evaluate if you are successful or failing in this expansion? What can you do if things don’t go according to plans? You’ll need to draft a well-thought and comprehensive plan for your expansion. And then, the final step is execution. You can execute your plan of expansion. All these three steps are crucial for expansion and there are different ways of doing them. If you are confident with your management and marketing divisions, you can probably do them in-house. But there are many companies out there that can help you do some of the stuff listed above, if not all. Our company, Bubufds Solutions, focuses specifically on helping clients to solve things like this. We provide a wide range of consulting and advisory services to help companies do international expansion.

How to grow start-up in Asia?

Asia has been the fastest growing market in the world and it has certainly attracted many companies to develop in that region. MNCs and start-ups alike, are now seeking various opportunities to grasp the market for a higher growth rate. However, there are fundamental differences between the mode of growth and expansion between these two types of companies. Since MNCs have significantly more resources and thus more bargaining power, it would be a lot easier for MNCs to develop into new markets. The local authorities would be very welcoming to the jobs they can provide, the technologies they can transfer, and ultimately the prosperity in the economy that introducing large foreign investments can provide. But it would be a completely different story for start-ups. You’ll need a different way, a more innovative way of expansion to do the same thing. Here are some examples of how you can do it:

 

  1. Seek Investments: it is very difficult for a start-up to develop in the very beginning, especially in the Asian market. Because of the high-growth property of this market, you would observe a huge amount of start-ups founding and closing every year. So the first thing you need to do is to make your start-up survive. You’ll need to find investments from Venture Capital (at the early stage) and Private Equity (at a later stage) to fuel your expansion, at least in the first few years, so that you can beat your competitor and grasp a significant amount of market share for your next expansion.
  2. Incubation: While investments from VCs and PEs would be very helpful to your business, you might ask how you can get investments from them. Alternatively, you might ask how you can start your business in the first place. The answer is incubation. There are different incubator programmes in Asia that provide you with the opportunity to trial your business idea before actually founding a company. The governments in Asia have been very generous and supportive for the development of high-tech industries. If you can demonstrate your potential to develop some really good products, chances are you’ll get funding from these programmes to at least start your business. You’ll probably get an office in one of their incubator park/zone with a relatively low price and professional consultation on what to do next. More importantly, they would help you find VCs and PEs that match your ambition. Of course, you’ll also need to worry about pitching, which is to make them confident enough to invest in you. You’ll probably be given some minutes of short presentation to illustrate your vision and potential. This is crucial to your investments so you might want to practise a bit more on this.

Which Asia country should I expand my business to?

If your company is in the labour-intensive manufacturing industry, the best destinations would be China and Vietnam. The reason why you should expand into China is obvious. China is the most populous country in the world, meaning that it has a large pool of cheap labour. The government has also been open to foreign direct investments in building factories and other manufacturing facilities. However, the risk of expanding into the Chinese market would be that it could be easily affected by the trade war between the US and China. With the intensifying conflicts between the two nations, there may be high tariffs imposed on your products if you try to export them to the US market. The alternative would be to set up your factories in Vietnam. Like its neighbour, the Vietnamese government has also taken a proactive attitude in welcoming the foreign investments, especially in the manufacturing industry. With the increase in the production costs in China, many of the multinational companies have decided to move their facilities to Vietnam to reduce their costs. Hence, Vietnam would also be a good place for you to expand your business. Some other options are Malaysia, India, Bangladesh, etc.

 

If your company is in the tech-intensive manufacturing industry, you might want to expand into China and South Korea as these two countries have been investing increasingly more in the high-tech sectors. 

This all depends on what your company does and how your company would like to expand. Our company (Bubufds Solution) focuses specifically on helping clients expand into overseas markets. We provide expert opinions and one-stop services on guiding you to expand internationally and wisely.

What’s particular about doing business in Asia?

  • Large Market: Asia is the largest continent in the world, both in size and population. While it has not been the largest market in terms of capital in many industries, it is still the fastest-growing market in the world. The sheer size of the market implies the enormous profit you can make when you expand into this market and that is why many MNCs and even SMEs have decided to expand into this market.
  • Diverse Culture: Asian is probably the most culturally diverse continent on this planet. With billions of people living on this piece of land, the issue of culture barrier becomes prominent. While one good may be the best-seller in one region, it might not be the same in a different region. One example would be zongzi, a traditional Chinese food. In some regions, people prefer salty zongzi whereas in some other regions people prefer sweet zongzi. This sort of cultural diversity would play a very important role in your business. You may have to customise your products with respect to different geographies and customs.

Lack of Respect for Patent/Copyright: While it has been improved in many countries over the last decade, it remains one of the most crucial problems when doing business in the Asian market. Many companies would actually “steal” your idea and make it their own. What is worse is that this sometimes even happens to big MNCs. One example would be the copyright lawsuits between New Balance and its “duplicate” in China, New Barlun. Fortunately enough, New Balance has finally won the lawsuit in Apr 2020. Nevertheless, if you do a business in the Asian market, you’ll need to be very careful with the copyrights of your logo, icon, etc.

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