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Expanding into international markets: What are the main barriers for SMEs?

Expanding into international markets: What are the main barriers for SMEs?

Posted: Tue 29th Aug 2023

There are a number of barriers that businesses face when it comes to engaging in international trade. These challenges can hinder the process of selling products overseas and expanding into foreign markets.

From complex customs regulations and logistical challenges to cultural differences and the need for detailed market research, navigating the complexities of international trade requires careful consideration and planning and a strong business strategy.

In this blog, we explore some of the main barriers to international trade and provide insights into how businesses can overcome these obstacles to successfully sell their products overseas.

The main barriers to selling overseas

Customs rules

Understanding and complying with customs regulations, import rules and the necessary paperwork involved in international shipping is crucial for successful cross-border trade.

Failing to follow customs rules can have a number of consequences. One of the main consequences is delays with shipments. If you send a shipment that does not meet the customs regulations of the country you're exporting to, customs may hold your goods for inspection or clearance.

As a result, your overseas customers don't receive the shipment at the time they expected, which can harm your reputation as a trustworthy and reliable seller. When you leave customers dissatisfied and frustrated, they're likely to complain, return goods or even cancel future orders.

They're less likely to become repeat buyers or provide positive word-of-mouth referrals, potentially affecting future sales and opportunities for growth.

How to overcome this barrier

You must fully understand the customs regulations and import rules of your target market. You should complete all the necessary paperwork accurately and on time.

Partnering with experienced freight forwarders or customs brokers can be beneficial here, as those professionals can provide guidance and expertise in navigating the complex world of international shipping and customs regulations.

 

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Registration and compliance

When expanding into overseas markets, SMEs often face difficulties with registration and compliance. Each country has its own set of regulations, licensing requirements and bureaucracy, making it complicated for businesses to navigate them smoothly.

Foreign business laws can vary greatly from one country to another, with some nations having more stringent requirements than others. Meeting these standards can be time-consuming and costly, as you may need to adapt your operations to make sure you're complying with local trading standards and regulations.

Registering a business in a foreign country can be challenging due to the processes involved. Your business may encounter delays, complications with paperwork, and unfamiliar procedures. There might also be additional costs to think about.

How to overcome this barrier

Seek professional help and guidance. Hiring a lawyer who's familiar with foreign business laws can simplify the registration process and make sure you're keeping to all the necessary regulations.

At the same time, getting advice from professionals who specialise in international expansion can provide valuable insight and assistance in navigating through the complexities of compliance.

It's also very important to lay out an achievable timetable for expanding into your chosen country. Consider how much time the registration and compliance processes will take, factor in any possible delays, and set realistic expectations for the full process.

 

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Taxes and tariffs

Expanding a business into overseas markets means knowing what taxes, fees and tariffs apply – and making sure they're paid! Different countries have different (and intricate) tax regulations, so it can be tough to know what to pay, and avoid unnecessary penalties.

One significant challenge is the variation in value added tax (VAT) rates across different countries. VAT is a tax levied on goods and services. By understanding the local VAT rates that apply in each target market, you can accurately calculate prices and account for tax obligations.

For instance, while one country may have a standard VAT rate of 20%, another country may have a rate of 25%. These differences can significantly affect how you price products or services in international markets in order to generate profits.

How to overcome this barrier

You should seek expertise and local tax advice from professionals such as accountants and tax consultants. They can explain the specific tax laws and regulations in the relevant international markets and help you meet your obligations.

Language barriers

The language barrier is undeniably one of the main barriers to international expansion. If you can't speak the main language of your target country, it can severely limit your operations and stop you selling successfully to that foreign market.

Operating in a country where you don't know the native language can pose significant challenges. Being able to set up your operations efficiently means relying on local regulations, licences, and a good understanding of the business landscape. Recruiting staff becomes harder too, as language proficiency is often a key requirement for certain roles.

Attracting customers also becomes highly challenging without effective communication. If you can't communicate in the local language, it can lead to important information being misunderstood, misinterpreted and even misrepresented. All that can deter potential foreign customers from buying from you.

How to overcome this barrier

You might consider hiring native consultants in your target country. They have a deep understanding of local customs, culture and the language, which helps facilitate effective communication and allows you to build strong relationships with local business partners and customers.

Another way to overcome the language barrier is to have a team member (or members) in the UK who speak the language of the target market. They can make communication much simpler and smoother, and act as a liaison between your business and its foreign customers, partners and suppliers.

Having marketing copy, product information, shop signs and packaging professionally translated is crucial in ensuring clear and accurate communication. Poorly translated content can prevent people from fully understanding what you're offering, and harm your brand in the process. Investing in professional translation services will make you more credible and allow your marketing to reach the target audience without issue.

Finally, if you have employees, you may think about offering them cultural sensitivity training. This can help those staff members appreciate the cultural differences in your foreign market, avoid cultural faux pas, and build stronger relationships with foreign customers and partners.

 

Watch this webinar to learn more about the new customs rules and the main things to know when importing or exporting:

 

Cultural differences

Understanding and navigating cultural nuances is another key challenge. Every culture has its own unique set of values, traditions and practices, which can greatly influence consumer behaviour. Failing to consider these nuances can cause potential customers to misunderstand what you're doing and give them a negative perception of your brand.

How to overcome this barrier

To avoid these pitfalls, conducting customer research and focus groups is crucial. Understanding the target audience's preferences, tastes and sensitivities can help you tailor your marketing strategies effectively.

This involves adapting messaging, imagery and even product names to align with the cultural values and preferences of the local market.

By carrying out this important market research, your business can gain valuable insights into how your international marketing and branding initiatives will be received in different markets. This not only helps prevent potential missteps but also allows you to develop strategies that resonate with the target audience, driving sales and brand loyalty.

Supply chain issues

Logistics services pose another challenge for SMEs. Delivering products to overseas markets efficiently and on time, and managing supply chains, can be complicated and costly.

Your business may lack the resources, connections or knowledge needed to handle these aspects effectively, leading to delays and difficulties in meeting customer demands.

Several factors contribute to delays and higher operating costs in the supply chain. Imports and exports, for example, may be subject to customs inspections or trade regulations, leading to delays.

Shipping and logistics can also be complex, especially when dealing with several countries at a time and a number of different modes of transport. Consequently, having a strong supply chain strategy in place is vital.

How to overcome this barrier

Maintaining a buffer stock of inventory is one way to limit the impact of supply chain hiccups. This means having a surplus of products or raw materials on hand to address any unforeseen delays or disruptions.

That way, you can ensure a continuous supply of goods to meet customer demand, even when your supply chain or usual logistics services are disrupted.

Having a contingency plan is also essential. By having alternative suppliers or manufacturing facilities in different locations, you reduce the risk of disruptions caused by events such as natural disasters, political instability, or trade disputes.

Staffing issues

Any business that tries to enter a foreign market might encounter staffing problems. The language barriers and cultural differences mentioned above, and the need for specialised knowledge, can make communication difficult. This can affect teamwork, productivity and overall morale.

When your business expands overseas, you may need to hire local staff who have specific knowledge of the target market. That can make recruitment and training more complex.

How to overcome this barrier

Overcoming staffing problems requires careful planning, cultural sensitivity, and effective communication. With the right approach, you can build and develop a cohesive and productive international workforce.

 

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