Maximize ROI during global expansion: Expert strategies

Expanding internationally can be the game-changer that lets you seize opportunities like tapping into new audiences, diversifying revenue streams and acquiring highly sought after talent—but it’s not without risk. Establishing an entity abroad can require a substantial upfront investment.  

To capitalize on global expansion you must clearly define how to measure ROI; get clear answers now from your leadership team to maximize ROI later. Which global markets will yield the highest returns? How will cultural differences between your home country and your expansion market impact purchase drivers? What product or service modifications might be required to cater to foreign audiences? What risks do you face?  

These questions will shape your global expansion strategy and drive your decisions. 

Assessing the opportunities of entering or expanding further into a foreign market is crucial to determining your potential ROI. A rising GDP and disposable income typically indicate robust purchasing power for businesses and consumers alike. Dig into what will motivate people to buy your product or service. What are their pain points and how can you solve them? Local market research into your target audience can be the difference between success and failure.  

German company HelloFresh became the top meal prep delivery service in the U.S. by responding to Americans’ wish for more time in the day. By eliminating grocery shopping and making meal planning fast and easy, it cornered 70% of the market.  

Unlike HelloFresh, U.S.-based Home Depot failed to grasp significant cultural nuances when it expanded to China. Its DIY approach wasn’t a good fit in a country where handymen and contractors are so affordable that consumers prefer hiring experts over tackling renovations on their own. Home Depot also missed an opportunity to hook Chinese consumers by offering insights into Western design trends, focusing instead on the mechanics of installing a new sink or ceiling fan—how-tos that the local clientele shrugged off.  

In evaluating a market’s potential ROI, you’ll also want to understand local laws concerning entity setup, taxes and employment, including any pending legislation, such as the ongoing legal debates around AI. More organizations are investing in AI to handle a range of business activities, including answering digital customer service queries and reviewing the resumes of prospective employees. If your new territory is within the European Union, the AI Act seeks to limit how you can use AI, and they consider the simple task of CV-scanning to be a high-risk application. If the AI Act passes, European companies who violate the law could face penalties of up to €30 million, with fines going even higher for large global organizations. 

Set yourself up for success by seeking out experts on the ground who understand the local culture and speak the local language fluently; they can provide valuable and hard-to-get insights such as how to adjust your approach to sales and customer service.  

When Walmart launched in Germany, it didn’t understand that smiling greeters, a hallmark of U.S. stores, would be off-putting to Germans; some men even mistakenly interpreted the friendly gesture as flirting. Nor did Walmart shoppers like having their groceries bagged by store employees, a no-no in Germany. Walmart faced internal issues as well; when it came to the morning motivational chant, employees hid in the bathrooms to avoid it. Recruiting locals for management roles and decision-making positions can help you avoid gaffes like these.  

Marketing and translations can also tank your ROI efforts. HSBC had to rebrand its entire global banking operations to replace the tagline, “Assume nothing,” which translated as “Do nothing” in numerous countries—a mistake that reportedly cost a whopping $10 million and dramatically derailed ROI. Hiring a local marketing team can help you avoid similar costly mistakes. 

Consulting on-the-ground HR professionals also helps you find the right people and ensures that you hire them compliantly, in accordance with local regulations. If your hiring practices or compensation packages aren’t compliant with local law, you could face serious penalties. Every country defines the role and the rights of an employee differently, and before you bring anyone on board, including freelancers, you’ll need to get up to speed on the numerous regulations that govern employment.  

One of the biggest considerations is whether a worker is an independent contractor or an employee. In Spain, contractors who derive more than 75% of their income from one client are legally considered employees and as such are entitled to paid time off and other benefits. It’s neither practical nor advisable to import all of your labor from home, plus hiring multicultural teams drives innovation, which is good for growth, but you have to ensure you’re compliant. 

Even if you consider someone to be a contractor and manage their work and compensation accordingly, if the law views them as an employee, you’re vulnerable to legal penalties such as fines, business stoppages and even jail time in certain circumstances. To avoid disastrous financial consequences, you must meet all applicable contractual obligations around compensation, holidays and retirement benefits. To be competitive as an employer, you’re also responsible for grasping cultural expectations that affect things like negotiations, communication styles and bonuses.  

Risk is inherent in any global expansion, but tolerance levels differ from one organization to the next. A startup with limited funding may need to show positive ROI sooner than a larger company with ample capital and a high risk tolerance. To evaluate your chances of nailing the returns you need in the right time frame, go beyond researching local consumer behavior and evaluate the following. 

Rising interest rates 

When interest rates rise, you might come up empty-handed if you plan to borrow to fund your international expansion. Even if you can find a lender, taking on debt will cost you more out of pocket. Fluctuating rates can prevent you from accurately forecasting expenses, cash flow and profits. Your customers, be they individuals or companies, are also likely to cut back on spending, which translates into fewer sales for you as well as a more sluggish economy in general.  

Inflation 

Inflation is a double-edged sword. It can justify charging higher prices, but your suppliers might do the same to you. Premium pricing can also send potential customers to less expensive competitors, making it difficult to secure a foothold in a new market. Either way, inflation can reduce your purchasing power and limit available investment capital as well as prompt consumers to rein in spending (although interestingly, Gen Z adults in the U.S. tend not to cut back even when older generations do). 

Geopolitical conflicts 

The world is unpredictable, even in relatively stable regions. If you’re considering a foreign market that’s more volatile than average, be aware that if conflict ignites, trade barriers, sanctions and other restrictions might prevent you from turning a profit or even conducting business. In extreme cases where conflict puts people in physical danger, your workers may not be able to get to work and basic necessities like power and water may be compromised. Geopolitical conflicts, or even threats, also dampen consumer spending and stifle innovation. 

Supply chain disruptions 

If you can’t get the raw materials you need, you can miss out on sales or alienate disappointed customers. Supply chain issues can also drive the price of materials up, and thus reduce profit margins or force you to adjust pricing. Profits can be further compromised by increased costs for both storage and shipping.  

Employment non-compliance 

The potential consequences of employment noncompliance include hefty fines, government sanctions and business suspensions. Noncompliance with labor, payroll and tax laws can also lead to intangible risks such as damaging the organization's reputation, losing high-performing talent, and hurting employee morale and satisfaction. Examples of noncompliance in the workplace include failure to pay the required wage, improper employee classification and violations of anti-discrimination laws. 

If you’re considering contractors as part of your expansion, don’t let misclassification derail your plans and negatively affect your ROI. Learn more about independent contractors vs employees to avoid misclassification and to protect your organization from risk 

What’s the next step for your organization’s growth? Ensuring your local HR team is agile and able to pivot toward opportunity wherever it leads is critical to long-term success. Learn more about building agility into your organization.