International Trade

International business: How to overcome the barriers

6 min read

06 June 2013

Trillions in extra revenue are waiting for businesses willing to expand internationally; so what's keeping you? Andreas Stendera points out some of the key barriers to international expansion.

UK Trade and Investment  (UKTI) estimates that SMEs expanding internationally are 11 per cent more likely to survive than those who don’t. 

The value of international expansion was highlighted by European Shopping Centre Trust (ESCT) figures, showing that 2012’s retail turnover in the EU increased by 3.7 per cent to €3tn. Of this, UK retail accounted for €377.6bn, meaning that retailers operating solely in the UK closed the door on potentially €2.6tn in extra revenue available across Europe. As a result, UKTI pledged to support and move 600 retail businesses into new markets by 2015. 

Despite the opportunities that international expansion presents, there are a number of hurdles SMEs must overcome. Many businesses underestimate the impact of cultural and legal differences. For instance, when Aurora Fashion began expansion into new markets it had to invest substantial resources into translating material into native languages.

Selecting the right location is critical as some geographies and regions present more challenges than others. For a business embarking on international expansion for the first time, the EU offers fewer challenges because the free market helps remove the trading barriers they might otherwise face. For example, Paul Smith was forced to pull out of China in 2007 due to heavy losses. This year, however, the designer identified Germany, Switzerland and Scandinavia as prime locations to open ten new stores.

Consider the branding and product ranges for different markets; what works in one geography doesn’t necessarily equate to success in another. For example, Tesco was forced to withdraw from America following the failure of its Fresh & Easy brand. Retailers not only need to research new markets, they need to act on the findings to ensure they create viable offerings that appeal to their target customers.

International payment processing is often overlooked by new markets

Compared to the UK, where Visa and Mastercard are most prominent, 24 commonly used local debit schemes exist in continental Europe. In Germany, 64 per cent of the population exclusively uses girocard or ELV local debit payment types. Retail businesses that don’t accept local payments will automatically be turning down sales from a large portion of their new markets.

It is also critical to consider the currency that they will use in the management of their electronic payments. To maintain clear finances, the best option is to receive settlement in a standardised currency across the business. This can, however, prove to be expensive. Some firms charge high fees to convert payment into various currencies.

An efficient and profitable business needs to monitor and analyse all of its transactions from a central location, regardless of the country that the transaction originates from. A disjointed technical infrastructure makes it difficult for “Server Message Blocks” to develop a centralised business reporting system. Trying to monitor the business without a standardised reporting system can be time consuming and expensive..

Whilst Europe’s payment system is an issue for SMEs looking to expand internationally, retailers can take measures to ensure the challenge doesn’t become a nightmare.

By engaging with the UK Card Association, it is possible to keep up-to-date with recent developments and emerging issues. Attending industry events and exhibitions will also enable retailers to stay ahead of changes in both the market and product trends. By taking these steps, retailers will be able to monitor competitors and product developments more closely. Finding the time to successfully run a business and stay up-to-date with the latest payment developments, however, can be simplified for retailers – if they carefully select an experienced international partner.

There are strategic solution providers that can help a retailer unify their business across numerous geographies and take care of all the technical payment requirements associated with international expansion.

Reaping the rewards

The number of differences that exist across Europe makes it difficult for SMEs to run a successful, unified international business. But there are many success stories of SMEs that got it right. One such example is Phase Eight, which expanded into Switzerland in 2012 and delivered a nine per cent growth in profits. This year, Phase Eight plans to open 30 new stores across Switzerland and Germany, as well as new stores in the UAE. Stories such as these prove that the opportunity is there for SMEs to take advantage of, providing they capitalise on it in the correct manner.

Andreas Stendera is the director of sales at B+S Card Service.