It has been strongly argued that in this age of digital transformation, moving your business into a global market makes a lot of sense. The power of the internet gives any business, big or small, the connectivity to reach a global market.
But a good case can also be made for the benefits of a local focus. How does this apparent paradox make any sense?
Let’s talk first about some of the challenges of taking your business globally.
Challenges of Going Global
- Travelling: the physical distance between offices is less of a handicap due to modern digital interconnectivity, but face-to-face proximity must still be maintained, especially in the early stages of establishing the business in a different country. If it’s confined to Europe, not so much of an issue, perhaps. But if the business is transcontinental, be prepared for some long and expensive commutes.
- Expenses: there are financial pros and cons of going global. Locally sourced labor, raw materials, rentals, etc. may be more or less expensive than at HQ, but expansion always comes at a price.
- Different languages and cultures: your product or service, and the way it is marketed and promoted locally, may be inappropriate for the global market or country you’ve set your sights on. It’s important to research your new customer base before committing to a foreign investment.
- Different rules: the regulatory framework may be rather different to what you’re used to. This will include legal and licensing requirements, tariffs, tax regimes, staffing and human resource practices and your ability to remit funds to and from your business.
- Where to locate your business: having an office in the Bahamas may be appealing, but is there a market there? Researching various markets and testing acceptance of your product or service will save a lot of headaches later. Note that this research will also cost time and money before you’ve made a cent in return.
Pressures to Downsize
When going from global to local, it typically takes a momentous event – for example a political crisis – for a large multinational company to think of withdrawing from all or part of their global market. Generally, we are not talking about this kind of scenario when we speak of going global to local, however. Companies may choose to focus on other global markets without withdrawing from their home market.
The decision to withdraw from an international market — selectively or completely — may be voluntary due to changes in the external environment, e.g., decreased foreign demand or increased local demand. Increased competition and resource costs, and changes in the exchange rate all lead to decreased price competitiveness.
The decision to withdraw may also be prompted by changes in the company’s overall foreign commitment or long-term goals. Firms may be dissatisfied with foreign activities, or their overall performance in a given market. Withdrawal may also be due to dwindling resources, problems with local business partners, or a foreign market’s low readiness for a particular product or service.
Particularly in unstable and emerging markets, a company may be forced to close operations by nationalization, expropriation, or economic boycotts. The overall political climate of the host country has a strong influence on the survival of foreign investment, and the World Economic Forum has previously raised the question of whether the threat of terrorism and general political instability imposes significant costs on business.
But for the most part, when we talk about going from a global to a local focus we are referring to SME-sized organizations that have decided to focus on local markets. Why do business owners opt to do this? Here are the most common reasons.
Better Customer Focus and Engagement
It doesn’t require much explanation to understand that a sharper local focus is better for a more concentrated and engaged marketing and promotional support program. The better you know and understand your customer, the more likely you are to tailor your marketing message to their needs.
Going local encourages relationship building, personalizing the marketing mix and investing in face-to-face promotional activities. This can be done globally, but customizing a generic message to a global market is costly in terms of knowledge and skill.
Using the Power of the Internet Differently
There is little chance of – or enthusiasm for – returning to the days of family-owned small retail outlets, but research shows that most shoppers do online research before going to a store to make a purchase. Although there has been a significant increase in online shopping, many shoppers still prefer to visit retailers when buying a product.
Currently, the majority of shoppers still make their purchases in stores. This allows for improved customer service, easier interaction with the product and store staff, and usually a better experience when returning items. A local focus also allows companies and their products to build community identity through promotions and sponsorship of local events.
Focusing on local versus going global with your business does not have to be an either/or decision and it will depend on a wide variety of local and international influences.
EU Business School’s wide range of study options in business management at the undergraduate and postgraduate level ensures that you are informed and equipped to make decisions on which markets are best suited to your business.