SMEs: Should you go international?

Just Falafel has 52 restaurants in 18 countries and development agreements for some 700 outlets. It is one of the UAE’s biggest SME success stories. Overseas expansion has been key in the company’s growth, and that of many other SMEs. But exactly how do you decide if international expansion is the right thing for your business and how do you determine when to venture overseas?

According to business strategy consultants, there is no specific point at which any business should expand into an international market. It really depends on what opportunities exist overseas and in some cases, if there is a lack of opportunities locally. Going international could also reduce your business risk through diversification into different geographies. For example, several Dubai construction companies that had struggled during the economic crisis of 2009, found opportunities in Saudi Arabia, at the same time spreading their exposure over more than just one market.

If you are now considering expanding abroad, one of the first things you will need to ask yourself is whether you have a proven concept that can be exported. If you do not already have an established business model that works in your own market, you could fail in uncharted territory.

Preparation is key and the first thing SMEs should do is conduct a feasibility study of the foreign market they plan to expand into. This should cover a number of areas including a study of the business environment, your competitors, all the laws relevant to your industry, the costs of establishment, tax laws and consumer profiles. You should invest the time to understand who your target customers are, how you can reach them, who you will have to compete with, how much it will cost you to set up in the market and then start to formulate an expansion strategy.

Knowing how to exit a market if it all goes wrong is also important. Despite the potential opportunities, there is no guarantee that going abroad will be the right step for your business. You may find for example, that your costs are too high or that capturing market share from your primary competitors is a major challenge due to their size and brand strength as compared to yours. Your business could also fail due to factors outside of your control. For example, many UAE based SMEs that expanded into Egypt, Tunisia and Libya before the Arab Spring, had to close shop as a result of the political instability that unfolded there. Perhaps a sensible approach would be to test the market in the initial stages. Start with a small operation and make sure you keep it lean and cost efficient. This way, if it doesn’t succeed, you can quickly scale back. Do your homework and make sure you are aware of all the risks involved in a particular country.

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