Advances in technology and logistics allow businesses to expand across borders more easily, but understanding and overcoming the psychological barriers to expansion abroad is crucial to giving your global growth plans a head-start.
From gaining global market share to increasing sales and profits, expanding abroad offers businesses significant rewards. The digital economy and modern transport links have made it easier and cheaper for companies to go global, so why are some businesses reluctant to set foot beyond their own borders?
“The fear of failure, a prevailing culture of being error averse and a lack of education in risk literacy are just some of the psychological impediments that prevent businesses from taking the leap abroad,” according to Professor Gird Gigerenzer, Director at the Max Planck Institute for Human Development and author of ‘Risk Savvy: How To Make Good Decisions’.
However, some businesses clearly have a natural tendency to overcome these psychological barriers – forthcoming research from Grant Thornton’s International Business Report reveals that half of business leaders cite ‘gut instinct’ as a key driver behind their choice of overseas location.
Taking a deep breath
The decision to expand abroad can be a daunting one for all types of businesses, not least those in the mid-market.
“At the beginning, business owners are overwhelmed because they think international expansion is something for bigger firms,” says Stefan DiBitonto, senior manager, Investor Consulting, at Germany Trade and Invest (GTAI). “But soon after, they realise that with the right help they can overcome obstacles and expand to overseas markets successfully.”
German businesses are particularly active in growing beyond borders: 40% of those in the German mid-market are export-oriented, according to the GTAI.
But expanding overseas is rarely a snap decision and many businesses admit to nerves getting in the way of taking the next big step. James Taylor, co-founder of UK business AngelBerry Frozen Yoghurt, made his first move overseas through franchising after opening just three stores in the UK. He handed the reins of his business to a local franchisee in Mauritius.
“I was really nervous about training him,” says Taylor. “Given the short time frame, I had to quickly transfer all my tacit business knowledge to him so that he could set up and run our business successfully abroad.”
Since starting out with just one small store in Bristol in the south west of England in 2011, AngelBerry has now expanded into four markets, setting up 12 stores worldwide. Taylor adds: “We overcame those initial fears and it’s worked out really well.”
Barriers in the mind
However, not all business leaders have the confidence or experience to take their growth plans forward. Defensive decision-making is one psychological barrier that can hold them back.
Dynamic business owners often have a natural instinct for international growth but the risks associated with it might make them hesitate, and conducting business operations in foreign countries can take them outside their comfort zone. If the growth strategy is unsuccessful the responsibility for failure falls on the decision-maker’s shoulders. “Defensive decision-making protects the manager but hurts the company,” says Gigerenzer.
Organisations need to do more to promote a culture where people can take risks, without fear of failure.
“If you don’t move abroad as a result of fear of failure and stay in your home market, you run the risk of missing out on opportunities,” says Gigerenzer.
He points out that some cultures have a higher ‘fear of failure’ barrier than others. In Germany, such failure is frowned upon, whereas in the US it is part of business culture – the more risks you take, whether they pay off or not, the more you are perceived as an experienced business manager.
“Education in risk literacy is as important as the ability to read and write in the 20th century,” says Gigerenzer. Organisations must encourage business decision-makers to become risk-savvy to enable them to be courageous so that they can face uncertain situations. “We have to learn to live with uncertainty,” he stresses.
Perfect on paper?
While risks can never be completely eradicated, companies can take steps to mitigate them. Engaging with experienced business experts becomes critical for dynamic organisations that want to unlock their full potential and excel beyond borders.
For AngelBerry, the idea of expanding to India was perfect on paper – with its warm climate and national love of yoghurt. But it was only after Taylor met local business managers that he discovered it was impossible to find a price point low enough to sell to the mass market and still generate a profit. “It was a costly mistake,” says Taylor, “but it’s hard to research things like that on the internet.”
Louis Barnett, founder of the UK-based Louis Barnett Chocolates, says: “If you want to grow your business and learn about exports you need to research as much as you can online, pay for seminars, and speak to local government agencies and industry bodies such as local Chambers of Commerce. Talk to people and learn about foreign expansion before you make your move.”
But there is help out there for businesses, including peer networks, government agencies and business advisors. In Germany, the GTAI is on hand to inform and advise international businesses setting up companies there. DiBitonto says: “We offer a service package for businesses – we can give them very field-specific information, including where exactly they should be located when to make their move.”
Other organisations such as Austrade, the local trade, investment and education promotion agency in Australia, have set up an International Readiness Indicator to help small and medium-sized businesses take their first steps towards exporting. Businesses can find out what it takes to be export-ready and compete successfully in overseas markets.
For dynamic businesses that have ambition and drive, there are numerous opportunities out there: do your homework, get specialist advice and be brave.
Look out for the next in this series of Going Beyond Borders, where we explore how rational and psychological factors influence the decision to grow globally.