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New market expansion. Opportunitites & Risks

Robert Rynd
Robert Rynd
Head of Corporates & Govt, Market Development in Strategy/Business Development

There are clear opportunities and risks of international expansion. With 70% of the global GDP growth predicted to come from emerging markets in 2025 and around 3.2 billion people accessing internet devices in 2015, global audiences are becoming much more accessible to your organization.The reasons to go global sometimes seem obvious, but deciding how and when to capitalize on the opportunities presented involves more complex analysis and depends on being able to find the trusted answers you need to move forward.

We recently surveyed 250 C-suite executives across many industries, from multinationals to growing mid-size firms, to get their views on the opportunities and risks they face when expanding into new markets.

Keeping pace with competitors

When asked about the reasons senior execs considered going global, 23% of corporate leaders said keeping pace with competitors was the most compelling reason to pursue an international strategy.  The pursuit of cost efficiencies was also a driving factor behind international expansion.

The survey also highlighted specific areas of opportunity that seemed to drive the appetite for international activity.

By 2025, our data shows that 72% of the world’s consuming class will live in the developing world. 

Therefore it makes sense that both the intensity of competition and the scale of new market entrants are very high in these economies. Emerging markets are also hotbeds of innovation: 40% of all patent applications are now registered outside the developed world, while 46 of the top 100 most innovative companies are based in Asia.

Barriers — infrastructure, taxation and political stability?

“However, many of the emerging markets remain underexploited due to a multitude of unanswered questions around infrastructure, taxation and political stability. For all organizations, entry into a new international market can only be successful if a full assessment is undertaken and a range of factors are considered,” said Robert Rynd.

It must also be noted that going global does not mean just focusing on the emerging world.  In this survey, most C-suite executives tipped the UK and US to be their most important trading partners, over any other country, by 2025.

going-global-infographic
Going global infographic

External partnerships drive innovation

Innovation was also seen to be a key factor in exploring new markets with a leading Chief Strategy Officer in the chemicals industry commenting, “at the end of the day, if a company fails to innovate, it fails”.

In today’s fast-paced, high-tech, knowledge-based era, it is no longer possible for companies to rely on their own R&D teams to keep up with customer demands. Therefore they search for untapped sources of expertise from around the world. This sentiment was supported by 90% of respondents to the Going Global survey, who said external partnerships were increasingly powerful drivers of innovation.

Renminbi emerging currency

C-suite leaders currently view the Euro and the US dollar as their most important trading currencies but there is ongoing discourse of China’s currency, the Renminbi (RMB).  It is surprising that the survey did not highlight this emerging currency as more significant, as HSBC expects more than half of all bilateral trade with China to be completed by 2020, up from 25% in 2014.

3 key ways to go global according to the 38% of C-suite executives surveyed:

  1. M&A
  2. direct investment
  3. joint ventures or a strategic alliance

However, Leon Saunders Calvert, Global Head of Capital Markets and Advisory warns that breaking into a new market is:

“. . . probably one of the largest strategic undertakings any company will ever undertake”. Cultural barriers, legal hurdles, political and economic uncertainty can undermine even the most carefully well-laid plan.”

In order to achieve their goals and visions for the future, organizations must ensure there is seamless connectivity and clarity between information, people and systems across target markets.

We offer the intelligence, technology and human expertise you need to make the decisions that matter most when expanding your organization into new international markets.

Discover Corporate Strategy and Development: Our suite of solutions can help you to better understand the competition, identify new markets, and weigh up potential mergers and acquisitions