Challenges Experienced when Expanding Business to a Foreign Market

Introduction 

Expanding any business comes with many challenges and is even more complicated when you want to expand to a foreign market. Before you make the decision to extend your business to another country, you need to do much analysis on the country’s consumer market. You need to know the expenses which your business is likely to incur and whether the profits are worth the risk. Targeting a foreign market is one risky move since you will be entering an unfamiliar territory. An international economy also affects the pricing of commodities and the capability of the citizens to purchase your products. If the country has great competitors, you need to know how to do better than them before you step in the competition. The level of consumer income is also likely to affect your profits since it determines how much you sell. According to Luo and Tung (2007), there is need to ensure that you have done enough research and come up with enough strategies before you step into a foreign market. 

Challenges of expanding a business overseas 

Martin and Salomon (2003) believe there are countless benefits when you expand your business across international borders. Some of these advantages include streamlining efficiencies, tax incentives, faster growth and international partnerships. However, as attractive as the benefits are, there are many challenges that one experiences. The problems can only be avoided through careful planning and selection. First of all, the transition period is likely to be hectic as the business tries to adjust to the expansion. The personnel in the organization must be ready to cope with the heavy load of work that comes with the changes. When beginning a business in a foreign land, you must try as much as possible to learn everything about the place before you expand. Whether you choose to open an office or create the company’s headquarters, begin a data center or a manufacturing site, you are going to encounter new laws and regulations. To have a better chance of expansion, you should look for countries that have programs for assisting foreign investors. 

Finding the right professional workers is another challenge that is inevitable. You need to carry some workers from your native country to the other country so that the workforce can be a combination of both foreign and local employees. Communication is also another problem that you should add to your list. Given that the people in the foreign country speak a different language, it is possible that there will be miscommunications and misunderstandings as people try to converse. Even though English is taught in almost every part of the world, there might be challenges in accents and pronunciation of different words as asserted by Guillen (2002). Selling to the new market will be very hard. The foreign culture may at times not be for your business, and this is likely to result in small profits. 

For the Automatic Data Processing Inc. (ADP), moving into the Chinese market would be a great move since China has a vast population. The population itself guarantees a great chance for prosperity. A large number of people provide more opportunities to sell than a small one. A large population means that many individuals could buy the services. Going for countries with a small population puts you in a tight competition with competitors, and non-pricing strategies may not be as effective. You may be pushed to set lower prices than those of your competitors so as to obtain a portion of the market. The fact that you will be introducing a new product in the market is likely to pose more challenges. So, with a large number of people in China, the Automatic Data Processing Inc. is likely to do well ( Martin and Salomon, 2003). 

China's economy has been doing great over the past years. The growth of China’s economy over the past few decades has been astonishing. The growth has been so good that it has placed China as the country with the second largest economy in the entire world. When China began to put in place economic reforms back in 1978, the country was the ninth in the ranking of nominal GDP. The country had a GDP of USD 214 billion back then. Thirty-five years later, the GDP jumped to USD 9.2 trillion placing the nation in second place. The introduction of economic reforms saw China become a manufacturing hub, producing most of the technology being used all over the world. The construction industry made the highest contribution to the GDP of around forty-five percent. 

China handled the worldwide economic crisis in a much better way than other countries. In 2008, the council of the state produced USD 585 billion to protect the country from the adverse effects of economic crisis. The rescue program which involved large investment projects supported economic growth tremendously. However, the massive investments raised questions about whether the nation was overinvesting. The government held firm to its decision, and the country has been stable economically since then. China recorded a growth of more than nine percent at the end of the financial crisis. That shows that the economy in China is likely to do well in the coming years putting into mind that it survived such as shakedown very well. China has been experiencing low inflation as well as a fantastic fiscal position ( Rhee and Cheng, 2002). 

Even though China registers a high GDP annually, the consumer income may be low since the taxes are very high. The tax rate of personal income goes as high as 45%, while the rate for corporate tax is around 25%. The general tax adds to 19.4% of all the income after other taxes like value added tax (VAT) have been added . China has been peaceful politically over the years (Guillén, 2002). When a country experiences political stability, businesses are likely to do well since the environment is conducive. Going to the International Monetary Fund (IMF) reports, China has the fastest growing economy in the whole world. It comes after the United States in purchasing power parity. Judging by the high number of exports that the country registers, you can say that China feeds the world. The following table shows the economic data of China between 2011 and 2015. 

China’s Economic data

Going by the data showed on the table, the economy is likely to become better. China’s population has been increasing over the years, thereby, increasing the consumer market. The high population also translates to a large labor force. Getting people to work there will not be a problem at all. China’s level of education is very high. Most of the adult population is educated and well skilled in various sectors. Teenagers start working at an early age, and almost everyone above fourteen is productive. The annual Gross Domestic Product (GDP) per capital has also been increasing from year to year. 

To boost China’s economy , the central bank makes it possible for citizens to borrow loans. By loosening the rules on cash reserves for banks, cheaper loans become available to the public. The loans will, in turn, give the citizens power to expand their businesses, thereby, increasing the country’s output. China has been experiencing a mixed economy since the adoption of the planned economy as asserted by Guillén, (2002). A planned economy allows the government to dictate how resources are being distributed and used. For nations with a pure economy, the government is not involved in the affairs of the economy. The level of industrialization, which has seen China produce almost anything from matches to satellites, has played a significant role in influencing the shape of the economy. The exchange rate in China is highly influenced by the demand and market supply ( Rhee and Cheng, 2002). The rate is determined by the authorities depending on the international and domestic financial developments. In normal circumstances, the exchange rate remains constant. The only time it changed drastically was during the economic crisis in 2009. 

Due to the experience, the company’s managers have gained over the years; it should not be difficult to counter any competition that arises. For many years, the company has dominated the American market and using the same strategies; it is possible to control the foreign market. Expanding the business to China is a great move since the firm has a chance to perform well there. Most of the conditions there favor the success of the organization as stated by García ‐ Canal and Guillén (2008). The size of the consumer market is good, and the policies do not affect the company negatively. If the expansion is carefully planned , it would be a great move. 

References 

García ‐ Canal, E., & Guillén, M. F. (2008). Risk and the strategy of foreign location choice in regulated industries.    Strategic Management Journal ,    29 (10), 1097-1115. 

Guillén, M. F. (2002). Structural inertia, imitation, and foreign expansion: South Korean firms and business groups in China, 1987–1995.    Academy of Management Journal ,    45 (3), 509-525. 

Luo, Y., & Tung, R. L. (2007). International expansion of emerging market enterprises: A springboard perspective.    Journal of international business studies ,    38 (4), 481-498. 

Martin, X., & Salomon, R. (2003). Tacitness, learning, and international expansion: A study of foreign direct investment in a knowledge-intensive industry.    Organization Science ,    14 (3), 297-311. 

Rhee, J. H., & Cheng, J. L. (2002). Foreign market uncertainty and incremental international expansion: The moderating effect of firm, industry, and host country factors.    MIR: Management International Review , 419-439.