When your company is preparing for international expansion, one of the weightiest decisions on the journey ahead is whether to go it alone in pastures new or enter into a joint venture to get sales up and running in unfamiliar territory.
As an adviser helping fast-growth software and SaaS companies open up new markets, territories and partnerships, I’ve seen every model at work.
Here, I examine the pros and cons of each route to market.
When everything points to the time being right for your company to expand internationally or into new territories, with it comes a number of challenges and variables which need to be managed.
The biggest decision is around the structure of a new international operation and how to quickly move from a standing start to generating significant revenue.
Often when organisations launch operations in a new region, they choose to do it entirely under their own steam.
With the reins firmly in hand, they take it upon themselves to carve out brand new relationships in previously uncharted territories, building up a regional workforce, top down from scratch and pushing on independently.
Yet others go down an alternative route, finding a partner with essential business expertise about the region in question and an existing network there, to support them through initial setup and sales.
The best route to take when expanding internationally depends largely on your organisation’s needs, budgets, goals and objectives. However, it’s worth taking a moment to clarify the main pros and cons of each strategy.
That way, you can take your next – global – step with confidence and eyes wide open.
Let’s start with the most obvious choice; remaining a wholly owned company.
The advantages of staying wholly owned
Plain and simple. Keeping the business set up as is means you’re not sharing out control over your organisation, so you’ll still get 100% of the rewards when your international operation flourishes.
2. Your staff are your own
With workforce intrinsically linked to a company’s success, having quality staff to your name – and your name only – represents huge value. It also allows you agility in terms of people management and the ability to build company culture.
The disadvantages of staying wholly owned
1. High setup costs
To build a base for your company in an area of the world where you have no prior assets is a resource — and cost — heavy endeavour.
2. No existing network in region
One of the biggest challenges you’ll face when going it alone is making fresh inroads in terms of business relationships and building a local workforce if you have limited connections in the region you’re setting up in.
3. Slow speed to market
Perhaps the most significant disadvantage of remaining wholly owned when you set your sights on regions further afield is that there’s no revenue coming in all the while you’re establishing operations in your new territory. It is also a huge distraction for other parts of the business especially when it goes wrong.
As we’ll go over in a moment, this is where tapping into a partner’s existing resources can be extremely beneficial in terms of getting your offer to market, fast.
4. Unfamiliar employment law
Another practical challenge that can prove time consuming is having to get to grips with unfamiliar employment law requirements, terminology and common practices. Depending on where you’re establishing operations, there may be a whole new landscape in terms of employment/labour laws to take into account when recruiting and managing a team.
5. Personnel issues
It inevitably follows from the last point that there may be personnel issues to deal with. On top of this you may need to dispatch existing members of your team to the new overseas operation either permanently or on a regular, ad-hoc basis to fire fight. On a personal level, this represents a giant change and you may encounter personnel challenges if staff struggle to adapt to the new culture or find out they’ve taken on too much.
The advantages of a joint sales venture
1. Shared risk
By entering into a relationship with a partner who has a vested interest in making your international expansion a success, even if the worst happens and your plans do come tumbling down, you’ll take far less of a hit than if you’d kept all the risk in-house.
2. An established network
Going down the joint sales venture route invariably gives you access to valuable contacts, recruitment channels, business leads and everything else you need to kickstart your international operations, fast. Being able to tap into a network almost immediately gives you an advantage not just in terms of recruitment and building the sales operation, but also technology, infrastructure and marketing partners.
3. Fast speed to market
With said network at your disposal and a sales-driven team ready to go from day one, a joint sales venture allows you to start building revenue almost immediately. It is entirely possible and desirable to rapidly grow revenue at the same time the operation is being built.
4. Employment law expertise on your side
Following this approach, any partner will have a sharp working knowledge of the legal and regulatory landscape in the territories you expand into that you can rely on through the often turbulent period during international setup.
The disadvantages of a joint sales venture
1. Shared reward
If your joint sales venture goes as planned, you’ll have a booming international operation on your hands. Success all round, but sharing out the profits can be a bittersweet pill to swallow.
2. Workforce out of your hands
It’s always sensible to keep your hands on the steering wheel of your organisation as far as possible, so handing over the management of your international sales operations can feel disconcerting.
There is no one-size-fits-all strategy for international expansion.
The two approaches we’ve run through here cover the most common choice as well as an alternative route where you join forces with a specialist expansion partner to build a joint venture or partner managed business.
The latter is an increasingly popular choice as more people recognise its advantages, but the strategy you choose should depend entirely on the approach that matches your unique situation best.
For a snapshot overview of the points we’ve just covered, take a look at the table.
If you’re looking to expand your organisation globally and would like to chat further through your options or get some feedback on your planned approach, get in touch today.