COVID-19 Introduced a Backdrop of Uncertainty, But Also Opportunity: How Businesses Can Navigate International Expansion
The global pandemic has reminded us all of how inter-connected the world is. As countries emerge from the global health crisis, and economies show steady signs of recovery, companies with global exposure are increasingly optimistic about opportunities outside their home markets, despite a number of headwinds. Expanding a business beyond one’s domestic market requires long-term planning, utilization of complex global supply chains, managing risk exposures and being nimble enough to flexibly respond to changing market conditions.
The results of J.P. Morgan’s 2021 Business Leaders Outlook (BLO) survey highlight how leaders are adjusting to this new environment—and finding opportunities to grow globally despite the current challenges.
In the survey, most midsize U.S. businesses are optimistic, even as they plan for continued unpredictability. Having learned in 2020 how to manage well remotely and deal with disrupted supply chains, U.S. business leaders are staying the course; global expansion plans remain at the same levels from pre-pandemic years. Most project continued steady sales growth outside their home market. This indicates the confidence they have gained from pivoting throughout the year, including accelerating technology adoption, increased digitization of core processes and managing global ventures with much less in-person travel.
Ultimately, the rollouts of COVID-19 vaccines continue to be a core component impacting the global growth outlook for businesses. In addition, geopolitical events, new trade and investment policies and continuously changing business regulations will continue to challenge business leaders seeking sustained profitable international growth.
Why Expand Globally in This Climate?
With issues such as labor shortages, severe bottlenecks in global supply chains and evolving customer expectations, it can be discouraging to consider international expansion at this time. However, according to the survey, executives remain optimistic. Those surveyed cited access to new customers/markets (72%), better opportunities to serve domestic customers with global operations (37%) and access to suppliers/materials (34%) as key reasons for expansion.
The pandemic will not deglobalize the business landscape. Business leaders have tried-and-tested remote workforces, seen governments become more flexible with business applications, and they have been leveraging new approaches and technologies to keep their business moving forward. In short, they have experience under their belt, have a long-term vision and see opportunity in international expansion—and are not letting the pandemic stand in the way. After all, adapting is what business is all about – and recognizing that extraordinary environments demand tailored strategies based on an accurate reading of market opportunities.
The World Has Changed: Three Key Strategies For Navigating International Expansion
1. Developing Strategic Partnerships & Understanding Trade Policy
Trade barriers and tariffs were cited as the top international business concern for globally-active middle-market companies in the 2021 Business Leaders Outlook survey. Complying with local regulations and the intricate differences in policy between nations can be overwhelming and time-intensive. Any little error may lead to wasted time or resources, complications, and added expenses. Developing strategic partnerships with businesses, banks, and vendors—those who already have the local intel—goes a long way in effective global expansion.
The many cultural nuances and varying consumer preferences by country also benefit from local expertise. Furthermore, the insight around local competition and market opportunities is more easily obtained through these kinds of partnerships, especially when acting quickly is critical to success.
Increasing global political changes in recent years that are challenging the status quo require extra diligence in this environment. Additionally, the economic reforms underway in many developing countries are impacting both the volume and direction of foreign investment. We especially see this in China, India, Southeast Asia, Latin America and parts of Europe. For businesses navigating expansion in countries experiencing political and economic reform, it’s important to consider the impact these governments will have on fiscal, monetary, regulatory and foreign policy—and how significantly or quickly this may affect foreign investment opportunities.
As a positive example for businesses in North America, the United States-Mexico-Canada Agreement (USMCA) brought timely improvements to trade relationships in today’s volatile landscape. The USMCA has the potential to offer more certainty and a stronger safety net for trade and investment by promoting fairer trade and robust economic growth.
2. Investing in Technology & Digitization
Trade finance is the nucleus of the day-to-day global economy. It supports every stage of the global supply chain and ensures that buyers receive their goods and that sellers receive their payments. Yet the world faces a massive and persistent trade finance gap. The World Trade Organization estimated between 80% to 90% of global trade relies on trade finance, yet there was a $1.5 trillion gap between the market demand and supply before the pandemic. That gap has only increased since 2020.
COVID-19 accelerated a transformative period for trade finance, primarily through digitization. The global challenge with trade finance centers around inflexible business models, paper-based and tedious processes, regulatory constraints, and outdated legacy systems.
Technology can help bring down operational costs while also increasing efficiencies, encouraging new revenue opportunities, optimizing resources, enhancing the recruiting process…the list goes on. Businesses are investing heavily in digital transformation, with cloud-enabled technology becoming the new standard of operation. This brings immense advantages, including the immediate ability to access data and machine learning (ML) with virtually unlimited computing power, in a split second. The value of AI and ML can clearly be seen across business functions including trading, risk management, marketing and operations. It enhances outcomes by streamlining processes and increasing overall efficiency.
Additionally, blockchain—a highly secure, decentralized digital record of transactions—offers a multitude of international trade-related applications, bringing high security, automation and traceability to important finance functions.
3. Streamlining Supply Chains
More than ever, managing global supply chains has become a critical skill for companies expanding internationally. Surging demand with various bottlenecks has disrupted global goods transportation and logistics. Gaining visibility over cross-border supply chains, while meeting profitability goals and evolving needs of customers, is an ongoing obstacle for most business leaders. Streamlining the global supply chain and focusing on visibility can lead to increased efficiencies throughout the entire production/solution life cycle. It entails optimizing processes by improving the accuracy of demand forecasts and schedules and improving production lines to reduce costs. This can help make businesses more agile and profitable. Secure data integration is also critical, so information can be shared across channels swiftly and seamlessly.
While concerns around tariffs and trade barriers again led the list of business leaders’ global concerns in the 2021 survey, managing global supply chains overtook currency risk for the second spot. Instead of focusing on the next crisis scenario—whether it be a pandemic, natural disaster, or cyber attack—business leaders must continue their focus on making global supply chains more resilient for future disruptions.
The Road Ahead: Global Outlook Optimistic for Well-Prepared Business Leaders
The overall global business outlook is optimistic, with 66% of leaders in the 2021 survey expecting their international sales to increase in the next five years. U.S. midsized, multinational businesses know that sustained growth requires access to new customers in new markets. That won’t change. However, today’s increasingly complex landscape will require greater investments in digitized products and processes, more customized local solutions in widely different international markets, and leveraging the expertise of reliable partners to understand the nuances of operating in challenging foreign markets. At the top of the list is having effective market entry and supply chain strategies, supported by a strong understanding of trade and investment policy to help shape your global market expansion.
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