Setting up a business abroad : 5 common mistakes and how to avoid them
Choosing the right location is crucial when you’re growing your business internationally. To maximize your chances of choosing the right location and avoiding the risks of setting up your business abroad, you need a methodical approach.
And yet for many companies, the process bogs down or even fails completely—usually because they’ve made one or more common mistakes.
Want to make your search faster and more efficient? Want to avoid choosing the wrong site?
In this article, we’ll examine 5 common mistakes when setting up a business abroad and how to avoid them.
Mistake #1 Underestimating the importance of qualitative site selection criteria
Mistake #2 Going it alone
Mistake #3 Getting swept up in big promises
Mistake #4 Failing to document your project clearly
Mistake #5 Getting too many people involved in the decision
Mistake #1: Underestimating the importance of qualitative location selection criteria
Many companies have tried to expand into international markets, but failed because they didn’t analyze the full range of business location selection criteria.
In general, choosing the right business location means applying a broad range of criteria to your candidate regions.
Early in the process, your project team should gather and document data from local governments, economic development agencies and partners on the ground.
Analyzing this data gives you an overview of the opportunities and risks presented by each candidate region.
But to make your analysis meaningful and complete, be sure to identify the type of information you’ll need to make an informed decision.
For many companies, financial criteria are the top priority. So they gather information on:
- Wage levels
- Real estate costs
- Cost of utilities
- Cost of logistics
- Assistance and incentive programs
Based on these criteria, they produce financial projections to estimate the profitability of their new site.
But this approach has a major limitation: it fails to take qualitative criteria into account, effectively concealing many risk factors that can jeopardize your project and/or your new facility’s business performance. These include:
- Overall environment in the host region/country
- Business ecosystem & innovation
- Quality of life
- Openness to the world
The only way to include all of the essentials and make an informed decision is to analyze the full range of financial and qualitative criteria. To help you get that done efficiently, download our business location analysis template!
Mistake #2: Going it alone
If you don’t build a team of local partners with in-depth knowledge of the host region and its unique characteristics, you may misinterpret some of your data.
Setting up a business abroad means diving into a new culture that’s outside your comfort zone. To make the right choice, you need to understand the local environment and master the subtleties of dealing with the host country authorities.
For example, employer contributions are calculated differently from one country to another. Under some systems, contributions may be lower, but you’re required to buy private insurance. So when you look at the numbers, be sure you understand exactly what’s included.
Overlooking this type of information can lead you to misjudge the candidates on your list.
And qualitative criteria can be hard to evaluate in a region where you don’t have a presence on the ground. For example, getting up-to-date, reliable data on the local labor pool can be well-nigh impossible from the outside.
Save time by getting support from local partners. An economic development agency can gather information for you, providing a comprehensive dataset that you can use to make your decision.
Mistake #3: Getting swept up in big promises
Regions compete fiercely to attract investors, and it isn’t unusual for local authorities to get into an incentive bidding war to attract investment.
Be skeptical. If it sounds too good to be true, it probably is.
In many countries, government incentives are tightly regulated. In the European
Union, for example, payments must meet a number of conditions and criteria, with limits on amounts and percentages.
Bottom line: check the terms for any incentives before you commit. Otherwise, local regulations may prevent you from getting everything you were promised.
Mistake #4: Failing to document your project, starting with clearly drafted specifications
Building a team of local partners gives your location selection project a powerful advantage—but finding the right partners is only the first step. To make the most of these relationships, you need a clear, accurate summary of your goals, your needs, and your constraints.
If you don’t shar e your expectations with your partners, they won’t be able to steer you to the ideal site. Your search will take longer, and you’ll visit sites that should never have been on your list at all.
In short, you’ll waste time and money, and you could even end up with the wrong site.
To avoid these pitfalls, spell out your needs clearly in a set of business location selection specifications—a concise document that you can share with your partners.
Your specifications paint a picture of your ideal site, with detailed information for each criterion.
They serve as an informal contract between you and your partners, steering their search in the right direction.
Transparency can speed up the process too. If you share your preliminary timeline with your partners, they’ll be able to jump right into your business location selection process and tailor their strategy to your needs.
Mistake #5: Getting too many people involved in the decision
Your new business location will have a major impact on your company—but don’t let the high stakes paralyze you.
Very often, project leaders expand their company’s selection team because they’re afraid of making the wrong choice. That’s perfectly natural. But if you try to add cover or make the decision “by committee,” you can easily end up with too many people involved.
When this happens, the obvious result is loss of agility. If your team is too big, you’ll spend more time reaching internal consensus than actually moving your project forward.
The best way to avoid bogging down is to have a clear business selection methodology. By taking it one step at time, you’ll rule out the bad choices, one after another, as you move towards your final decision.
Begin with a financial and qualitative analysis of your candidate regions, and use it to compile a shortlist of destinations. Then draft your business location selection specifications and work with your local partners to find the ideal site.
By applying this method, you’ll make your search process faster and more efficient, and you’ll be ready to explain your decisions to your leadership or coworkers if you need to.
The 5 mistakes we’ve discussed here can have a wide range of consequences:
- wasting time
- wasting resources
- hitting a dead end
- choosing the wrong site—which can hurt your bottom line and even your image
When you take a methodical approach, it really isn’t hard to avoid these pitfalls.
Want to give your project more structure? We’ve created a comprehensive guide, with practical advice based on our site selection experience.