Expand or die?

Expand or die?

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Should I expand abroad? I am currently considering expanding my kids’ clothing business abroad, with a view to broadening my customer base. Can you possibly offer me some advice on how to go about determining whether this would be a feasible idea, and if there is profit to be made in foreign countries?

Expanding overseas is seen as a natural step in the growth of many businesses, but there are a number of things to take into account. Only after you feel you have covered all of these areas properly should you press ahead.

Domestic position

First take stock of your position in your home market. If you don’t yet command enough of a market share, you may want to reconsider whether now actually is the time to go abroad is.

Remember you are going somewhere where the regulations, economic outlook and customer behaviour can be totally different, so it is even more of a risk than your home market.

I often see entrepreneurs who have less than 5% of their home market trying to go abroad, which simply doesn’t make sense to me. To put it another way – if you haven’t yet cracked Cape Town, don’t go after California!

Understand the market

Every little detail about the trading environment you are going into needs to be understood. There are some huge, multinational firms that have ventured out of their country only to get a nasty surprise. Think about the manufacturing regulations, which is particularly important for your type of business.

 

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Also look at things like HR laws and tax requirements, and crucially, the relationship between currency and inflation rates. I once had a business in Turkey and my profits were being seriously reduced because of the due to unpredictable inflation and currency. I would say there needs to be around 6-12 months of solid research before you make that move abroad.

A more robust infrastructure

Lawyers, accountants, even translators – these will all be critical figures in ensuring your business copes within a new market. They make up the infrastructure of a business, and the stronger the infrastructure, the better you will be.

These people all need to be experts, and I don’t just mean being able to speak the language! They should know all about the business environment in that country, as well as general customer behaviour.

What types of garments are most popular? What times of the year are best from a clothing point of view? They will essentially be your guides who help you come to the correct strategic decisions.

Partnerships

I would strongly recommend finding an international partner. Don’t try and be a hero and go it alone. Working in conjunction with somebody who knows the industry and country will leave you less vulnerable.

You may have to share some equity with them, which a lot of entrepreneurs don’t like doing – but consider this. Would you rather own 60% of a business that has real value and growth prospects, or 100% of a failing business?

Remember the partner will also be able to introduce you to key contacts, which can increase your pipeline.

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James Caan
James Caan is founder and CEO of London-based private equity firm the Hamilton Bradshaw Group. He joined the panel of heavyweight investors for BBC’s Dragons' Den in 2007.