With an economy roughly the size of the USA’s, the EU is an obvious choice for new business ventures. Scott McCulloch reviews the pros and cons.
International expansion is not for the faint of heart.
Former US vice-president Joe Biden famously said that 95% of the world’s consumers live outside of the USA.
Was he on to something? Yes and no. Not all residents of the world are equal.
The vast majority of the world’s consumers are quite poor and not generally in the market for expensive products and services.
Determining how many global “customers” there might be for a given product is tricky.
Indeed, one estimate by the World Bank breaks down the world’s population into rich, middle class and poor.
The report estimates that, in 2000, 10.5% of the world’s population was rich and another 7.6% was middle class. A sizeable 82% were poor.
Let’s look at the EU. There are a thousand reasons for enterprising families to widen their horizons and establish a European base.
The EU, the world’s most integrated market, is a strong economic and political union of 28 member states with more than 500 million consumers.
Taken as a single entity, the bloc represents the world’s second-largest economy, generating a GDP of $19.1 trillion.
Setting up in the EU is one thing. Seeking international growth as an exporter is often a more prudent first step.
There are several reasons for this. By entering the global marketplace, a business can:
- Reduce dependence on its home markets.
- Offset seasonal fluctuations and demand cycles in domestic markets.
- Learn how to compete against foreign companies.
- Rejuvenate existing products and services in new markets.
Growing a business in North America is risky enough. But exporting is not without its challenges.
Multiple factors can make or break a business when attempting to go international. Before jumping in, international trade experts point out key questions that need to be asked:
- Will your product sell well in the targeted culture?
- Is the target market familiar your product or service?
- How’s the infrastructure? In other words, are your supplies guaranteed?
Importing, on the other hand, has helped countless enterprises access the best technologies, products and services on the planet.
The EU is a highly diverse market, replete with primary products, raw materials and energy, along with capital equipment, chemicals and consumer goods.
And it goes without saying that cheaper sourcing is often possible through global procurement strategies.
But there are downsides: imports create foreign exchange losses, discourage local manufacturing and contribute to inflation.
Exporting, however, can expose a family business to new ideas, management practices, marketing techniques, and new ways of competing.
All of which can help better position an enterprise, both at home and overseas, to increase its competitiveness.
Thinking of expanding? Look before you leap.