Starting or moving a business abroad is no easy feat as there are many obstacles to overcome with a high level of risk. With the high risk; however, comes high reward. Foreign markets are very lucrative and consumers may be very receptive to the product/service you are offering.
Of course, you want to analyze the foreign market before taking the plunge, and a good way to analyze is by using a PESTEL analysis. PESTEL is an acronym for Political, Economical, Social, Technological, Environmental, and Legal. At its core, a PESTEL analysis serves an external analysis for the target location.
Political
How much will the government intervene in the economy and your industry? The type of political system in the target country can say a lot about what role the government plays. In the democratic leaning US for example, to government tends to be more hands-off than a country such as China who historically leans toward government control.
Other factors to consider include political stability, corruption, trade policies, tax policies, and currency stability.
Lastly, it’s always a good idea to see government relations between your home country and the target country as countries with a historically good relationship may offer favorable business terms.
In Thailand for example, every foreigner excluding US citizens can only own 49% of a business. Due to a treaty signed in 1966 called the “Treaty of Amity” US citizens have the privilege of owning 100% of a business in Thailand.
Some beneficial resources to use are the Transparency Index which measures corruption and websites run by the government of the country such as the embassy website.
In many cases, government websites indicate which industries are accessible by foreign investors. Lastly, read news sources in the target country to get a good understanding of politics happening now and what is planned for the future.
Economical
The current economic situation in a country can affect your business in a big way. Look for current and future economic trends and predictions for the overall economy and within your industry. Annual GDP growth, GDP per capita, inflation, interest rates, and exchange rates are all good indicators of the economy.
The best resources for all things economical are the World Bank website and the Wall Street Journal. The World Bank allows you to type in any financial criteria and it provides a time-series graph of the data.
The WSJ is the premier business news source and publishes every single day. It includes all the latest news stories as well as information about interest rates and stock market data.
If you have some financial knowledge you can also keep tabs on the yield curve and see if it is starting to invert which would indicate a recession is coming.
Social
Each culture has unique tastes and preferences that are always changing. Sometimes the tastes and preferences of one culture move at the same pace as others and sometimes they move in extremely different paces, but it’s always beneficial to recognize trends within your target market.
The coffee culture in America for example is very strong while Asian markets tend to have a stronger tea culture. With this in mind, you are taking on more risk by opening a coffee shop in Asia or a tea shop in America.
Other social factors include lifestyles, attitude towards the product/service you are offering, and demographics of the target market. The best way to learn about your target market is to spend time in the location. This can be costly if your target market is in a different country but well worth it.
A bootstrap method is to simply research online about the target market but experience interacting with the target market is far superior.
Technological
Value-added innovation has always been a big determinant in the development of economies. Countries that constantly innovate in new ways are always going to be global leaders in growth.
For your business, you want to make sure the technological infrastructure is adequate. You should analyze internet speeds, access to the internet, digital technology and platforms, mobile technology, and innovative research.
Countries, where technology is developed, provides new mediums for companies to work on meaning there is always opportunity. Locations, where technology isn’t as developed, require a more physical presence as the target market may not have easy access to the internet or the resources to innovate. Tech giants of the world include Taiwan, South Korea, China, and the United States.
Examining startups in your target location is always a good method of determining the technological landscape as startups tend to be the most innovative when compared to large corporations. Another good source is the Global Innovation Index which analyzes numerous factors within economies.
Environmental
Corporate Social Responsibility (CSR) has been a huge trend among corporations around the world. Certain countries may offer incentives for businesses that are environmentally friendly which can certainly be a positive for the bottom line.
On a social level, consumers tend to be responsive to companies who care about the environment which ultimately leads to more sales, consumer loyalty, and a strong reputation.
There are always trade-offs; however, when it comes to the environment. Some countries are growing rapidly and rather than being concerned with the environment they simply care about growth.
If you care solely about growth, a country such as China or those in South East Asia may be good fits. Don’t expect this to last forever, as the global trend for saving the environment is rapidly rising.
Legal
Law is extremely complicated because every single country has its own. Even in the United States laws differ from state to state and even county to county.
Wherever you set up a business it is absolutely imperative you understand the law.
One wrong move and your business can disappear in the snap of the fingers. I’m not trying to scare you, I am simply speaking the truth.
Most countries have restrictions on which industries foreigners can enter and many have ownership restrictions.
Thailand for example allows most foreigners to own only 49% of a business meaning you must find a Thai partner you can trust. Some countries take a very long time to get documents signed and go through the litigation process. India is a country where it can take years for the litigation process so if you are suing somebody, expect to wait a while.
There are places where you can operate illegally and simply pay off the authorities. Some corporations even account for bribery/corruption in their books because it is so common in some places.
My word of advice is to do everything by the book.
Anytime you go off the book there is absolutely no protection and you will lose every legal battle. It’s also important to note some countries will fault the foreigner even if the other party is in the wrong.
It’s good to browse all government websites pertaining to law, especially within your industry. Doing business abroad is beneficial but you must understand the legal process.
Think globally, but do your research first
I’ve always been a big believer in international business because it opens up so many opportunities. I’ve been living in the US my whole life and so many people never consider business from a global sense.
Having said that, you must be very careful about your approach because as the saying goes “You’re not in Kansas anymore.”
Don’t undervalue anything and take small steps. With a careful approach through a PESTEL analysis, you can begin to reap the rewards of international business.
