What are the key points in clarifying the purpose of overseas expansion?

Unintended overseas expansion will not succeed.
Purpose 1: Market development and expansion of sales channels
Purpose 2: Moving Production Sites
Purpose 3: Ease of securing parts and materials
Purpose 4: Securing talented human resources
Summary

Unintended overseas expansion will not succeed.

More and more companies are deciding to expand overseas. Not only large companies, but also small and medium companies, venture companies, and start-up companies are aiming for a growing overseas market.

However, there are many companies that do not seriously consider the purpose or vision when expanding overseas. If a company has decided to go abroad ambiguously, for example, let’s go overseas first, or it can’t be helped because it was proposed by a client, we need to be careful.

Overseas expansion has a completely different risk from domestic expansion. If you start with an ambiguous goal, you are more likely to make mistakes in dealing with problems when they occur.

Thinking about expanding overseas with a purpose makes it easier to plan to get there. Also, it is easy to judge success or failure, and if there is a problem in business management, we can decide early withdrawal to reduce the damage.

The reluctance to withdraw from the business may result in an increase in the deficit and adversely affect the management of the domestic headquarters. It is strange to think about withdrawal from the beginning, but it is necessary to clarify the purpose in order to make a decision in an emergency.

Purpose 1: Market development and expansion of sales channels

Many companies cite market development and expansion of sales channels as an opportunity to consider expanding overseas. There are still countless business opportunities in the world.

However, there are some points to be noted for companies that consider expanding overseas to develop markets and expand sales channels. Companies that steadily increase their market share in Japan and look to overseas markets as the next step also need to be careful.

Common failures include the same feeling as in Japan, and the same business plan. Successful business models in Japan do not necessarily work overseas. Also, entry barriers may be high if local companies already exist.

In order to develop markets and expand sales channels, it is necessary to investigate and analyze whether your business and merchandise will be accepted overseas and which areas are suitable for your business. If we anticipate that we will not be able to capture a share of the global market, we will have to abandon our plans to expand overseas, or develop new products or leverage existing products.

Purpose 2: Moving Production Sites

Some companies are looking to lower production costs by moving production overseas. Since around the time of Japan’s rapid economic growth, we have moved production bases overseas, mainly in the manufacturing industry, to Asia and other regions.

Production in Japan was extremely expensive due to rising wages and soaring land prices. As a result, there has been a growing movement to relocate factories overseas, particularly in emerging countries such as Asia, in search of cheap labor.

Also, the reduction of factory sites in Japan may have spurred this movement.

However, in recent years, due to economic growth and the development of human resources in emerging countries, production costs at overseas production bases have risen. As labor costs have soared, it has become difficult to reduce production costs simply by moving production overseas.

Companies considering overseas expansion in order to reduce production costs must carefully select countries and areas where this will be achieved, and must take careful measures at the planning stage, such as forecasting future wage increases.

When starting a business in an area with a high rate of increase in personnel costs, it is important to set a time frame for recovering the costs of overseas business expansion and to plan the investment of funds with sufficient latitude. When you receive a loan in addition to your own funds, you have to consider repayment plan and interest payment.

Purpose 3: Ease of securing parts and materials

Some companies that expand overseas place importance on the advantages that parts and materials are easy to secure and affordable. By procuring parts, materials, equipment, and materials overseas, we can obtain them at low prices, so we aim to reduce labor costs as well as production costs.

By procuring necessary materials, raw materials and commercial materials locally, we can produce and sell products without using expensive Japanese materials and commercial materials. Furthermore, by having a local production base and sales channels, there is no need to import products into Japan.

In order to expand overseas, considering the ease of procurement of parts and materials and procurement costs, it will be necessary to have a comprehensive plan and vision for future sales channels and markets. In the past, many companies that expanded overseas sought to reduce production costs in the host country and then, due to the appreciation of the yen, sought to reverse imports. In recent years, however, more and more companies are seeking markets in the host country.

It is also important to consider the purpose of expanding overseas in addition to procurement costs.

Purpose 4: Securing talented human resources

Some companies cite securing excellent human resources as a purpose of expanding overseas. Many countries around the world, including emerging countries, are producing excellent human resources.

While this trend has led to higher labor costs, it has also made it easier for us to secure human resources outside Japan that are suitable for global businesses and have the necessary technical skills. Naturally, I am familiar with the local situation, and I can expect language and local network construction.

For this reason, some companies are looking to secure foreign human resources in order to expand overseas.

However, it takes time to make effective use of human resources in companies expanding overseas. Even if you can recruit excellent people, the turnover rate is high and you may quit soon.

Also, if the Japanese corporate culture remains strong, foreign workers may be less satisfied and their motivation may decline. For this reason, companies that place emphasis on human resources need to secure and retain excellent human resources, and consider management and working environments that match local trends.

Summary

As described above, there are several purposes that can be set for overseas expansion, but it is important to decide them in advance. In addition, it is important to clarify not only the main purpose but also the purpose by breaking it down into KPIs.