What is Global Extension?
Global Extension can be defined as the step that that a business organization or company takes in order to in order to extend its activities into different regions throughout the world. It has to do with maintaining a business presence in these various countries that you are willing to expand to.
Global extension is very important because it creates more room for growth and business opportunities for various companies. Take for example, the Coca-Cola brand is present in almost all the countries in the world and they have a business presence in these countries too which has led to more profit, opportunities and room for further expansion.
Global extension can also be referred to as international trade and it is very important for small businesses as well. And when dealing in the international trade, you are either a buyer or a seller and it is relevant whether you are a business to consumer or a business to business firm. A boost in business operations beyond the border of Nigeria is key to the sustainability of your business. As a buyer, you will want to import goods for your use and as a seller, your aim is to establish your market or product beyond borders
WHY IS GLOBAL EXPANSION IMPORTANT
Global extension is important because of the following reasons
- It increases your business sales and profits
Global extension or international trade will allow your business to expand its horizon beyond the border of where the business operations started. Expanding your business to further countries will bring about more sales of goods or individuals patronizing your services which will in turn lead to increased profits in the business organization
- It increases your domestic competitiveness
When you employ global extension for your business service or product, it will favor you in the competition against domestic products because individuals or consumers would patronize global products.
- It brings about a global market share
Global extension is key to your business because it expands your products and it allows you to gain a global market share. Gaining a global market share for your business will lead to increased profit and good reputation for your business organization
- Reduction of the dependence on existing markets
Global extension will also bring about a reduction of your business dependence on the existing markets because you now have access to new markets in the international trade
- Leverage on the use of international trade technology
It also allows your business organization to leverage on the international trade tools or technology that are available. Such tools consist of tracking tools that will enable you track how your growth since the emergence in the international trade, other tools are also available that will allow you leverage on the use of international trade technology
- It prolongs the sales potential of existing products
It also extends the sales potential of your product. Global extension will increase the chances of your products being sold in the international market
- It increases the potential for expansion of your business
Global extension will also bring about an increase in the potential of your business because you will have more access to more markets and countries. It will also make your business have a rigid business presence
- It aids in the sales of excess production capacity
In the case where a particular product was manufactured in excess and they want to disburse them off, the best way to do this is to implement the global extension system that will bring about more markets for the sale of your excess products
- It aids in stabilizing seasonal market fluctuations
Global expansion will also aid your business organization in stabilizing your seasonal market fluctuations. It balances them
You may also like Winding up processes in Companies and Insolvency Proceeding in Nigeria
SOME DISADVANTAGES OF GLOBAL EXTENSION THAT YOU SHOULD TAKE NOTE OF
- Waiting for long term gains
The important this you should know about global expansion is that the profits don’t start rolling in fast once you have adopted a system. You might have to wait for more than 6 months before you start making gains because it is a gradual process
- Hiring staffs
Hiring staffs for launching into another space in the international trade will also lead to more costs or expenses for the business organization
- Modifying your product or packaging
You will need to improve on your product or the packaging if you want to launch into the international trade in order to make it appealing to consumers. Modifying your products or packaging will lead to mire expenses
- Applying for additional financing
The international trade is a very large space that will require a large capital. Business organizations that cannot bear the costs on their own will have to resort to applying for loans and other means of financing their global extension
- Dedicate staffs for travelling
Global extension will also bring about allowing some staffs to take over some new market places or space that you have acquired. This may lead to the reduction of your organization’s staff strength
- Administrative costs and promotional material costs
Global expansion will bring about incurring administrative costs and promotional material costs that will help in advertising your products or services
- Special licenses and regulations
Launching into the international trade space will also bring about rules and regulations that are guiding various countries and the special licenses that one will acquire in these countries. These regulations may not be favorable most times and the special licenses can be expensive too
INTERNATIONAL FRANCHISING AND GLOBAL EXPANSION
According to Investopedia, A franchise is a type of license that a party (franchisee) acquires to allow them to have access to a business’s (franchisor) proprietary knowledge, processes, and trademarks in order to allow the party to sell a product or provide a service under the business’s name. In exchange for gaining the franchise, the franchisee usually pays the franchisor an initial start-up and annual licensing fees.
Franchisors expand their businesses and they have been doing it for decades. This is why they build and maintain their reputation worldwide through ensuring that they deliver the appropriate quality of goods or services. Example of franchises in Nigeria includes Ozone cinemas, NNPC, Sweet Sensation, Domino Pizzas etc.
COMMON MISTAKES MADE BY THOSE WHO HAVE ADOPTED GLOBAL EXPANSION OR INTERNATIONAL TRADING
- Failure to research, obtain counselling and formulate an international marketing plan before entering into the international trade
The first common mistake people make is that they don’t seek counselling of business experts and consultants that will help guide them in the proper international trade process, the issue of restructuring the business and ensuring compliance with the rules and regulations that are guiding various countries on international trade, that your legal documents are structured correctly, and to advise you on a broad range of compliance issues before the sale, during the sale, and after the sale. An international marketing plan is also very instrumental to the growth of your business
- Not committing to the financial requirements of the international trade
Not committing to the financial requirements of the international trade will make the business crumble while expanding the horizons of its reach
- Failure to have a solid agent and or distributor’s agreement
Organizations that will want to venture into international trade will need the services of a distributor or an agent. The key legal distinctions between an agent and distributor are:
- A distributor takes title to the goods and accepts the risk of loss.
- A distributor makes profits by reselling the goods.
- Distributors cannot contractually bind the company producing the goods.
- Distributors establish the price and sales terms of the goods.
The first and most important consideration when drafting an agreement is to ensure that the agreement clearly states whether there is an agent or a distributor relationship.
- Not taking note of Intellectual Property Rights
Intellectual Property Rights (IPR) is a legal system that brings about protection of trademarks, copyrights etc. it is very important for you to take into notice if Intellectual Property Rights (IPR) are being protected in the country that you want to expand your services or products to
- Blindly chasing orders around the world
Most individuals might place orders for your goods or services and the request may not be authentic. This is why you must ensure that you make thorough research on the individual that wants to purchase your products or you will chasing a tunnel end without any gains
- Failure to understand the relationship between the risks involved in global expansion and the probability of getting additional financing
Most individuals fail to understand that if the risks of expanding into a certain country is very high, the prospective financing from investors and from banks may not come through because of the high risk that is involved.
- Not paying attention to your products adaptation and preparation
When going into the international trade, there are certain preparation and modification that will need to be made on your products. Some of these preparation may include using a universal language on the packaging of your product since you want to expand your sales to other countries. You will need to be aware of the unique characteristics of the market that you are targeting. Some of the relevant consideration includes the following:
- Product adaptation to standard requirements
There are certain product standard that must be followed and implemented before you start operating on an international basis. These product standards are different for specific criteria of products
- Product engineering and redesign
This consists of the cultural considerations and customs that may affect product’s packaging, branding, labeling which is specific to different countries. One must take note of this as this is very important before you start selling in the borders of another country. Cultural considerations and customs may influence branding, labeling and package considerations. They include questions like:
- Are certain colors used on labels and packages attractive or offensive?
- Do labels have to be in the local language?
- Must each item be labelled individually?
- Are name brands important?
Another important element of product preparation is to ensure that the product can be easily installed in the foreign location. Importers and exporters need to know they may also consider providing training or providing manuals that have been translated into the local language along with the product
You may have to use warranties on your products depending on the type of product that you are selling in order to compete with competitors in the market
Foreign consumers want to know whether they can access spare parts, technicians who can service the product, and distributors of the products in their countries. This has to do with products like phones, cars, tools, and other machinery
- Not obtaining legal advice
This can be detrimental to the activities of your business organization because it may lead to you spending all your profit on penalties and fines. It is relevant for you to obtain legal advice pertaining to each country that you are expanding to
- Failure to understand the export licensing requirements
Failure to understand that the international trade or global expansion has to do with acquiring lots of licenses in the countries that you are willing to expand to. Working without these licenses will lead to you paying fines and fees. They also include taxes, legal registrations and other relevant licenses
You may also like Employees Compensation Act 2010
GLOBAL EXPANSION STRATEGIES THAT YOU CAN EMPLOY
The following are the global expansion strategies that you can employ for your business organization
- Exporting and Licensing
Exporting goods from your home country to other nations worldwide is also an essential in global expansion. This will allow you to introduce your products to new grounds
Licensing agreements allow foreign companies to sell or represent your brands in their home markets, achieving the same kind of product introduction that exporting provides, but with a different set of risks. Exporting and licensing can open doors around the world for your business organization
- Strategic Partnerships
This allows companies to have an advantage of expertise and experience of their existing organization into the international trade. A strategic partnership or international joint venture involves a greater direct investment than exporting, making it a logical next step in global expansion. An international strategic partnership presents the challenge of splitting managerial control between two companies. In general
- Wholly-Owned Subsidiaries
Instead of having to partner with foreign companies, you can decide to purchase new companies outright and keep your existing management or structure in place. Although this strategy is more risky than having an international partnership but it is worth every penny because it has a greater reward
- Multinational Expansion
In addition to acquiring subsidiaries, companies can decide to build their own facilities around the world, serving customers directly with their existing brands. Multinationals give up the concept of a home country in favour of a truly global outlook on management, production and marketing.
Being a global company means that you have reach has been extended to at least all the major continents in the world. In order to achieve this, you must have implemented the use of global extension. In order to expand beyond your home country, you will have to follow the rules and regulations guiding a country, acquire licenses, acquire businesses and partnerships etc. This are the only means at which your organization can ascertain global expansion
About the author
Onamakinde Dare Daniel is a highly motivated accountant with knowledge in Accounting, Taxation, Management, Audit, Costing and Research. He is keen on tax matters due to its ever dynamic nature.