.png)
International expansion is an important opportunity for Indian businesses. In a recent report, the India Brand Equity Foundation (IBEF) estimates that Indian companies invested more than $16 billion abroad last year.
However, these investments were largely made by Indian multinational companies. Indian SMEs face several distinct challenges when expanding into foreign markets, among which are dealing with complex international rules, understanding cultural differences, and foreign exchange risks. According to a Mastercard report, 40% of SMEs face difficulties in cross-border payments.
An international expansion strategy designed for SMEs is thus required. This article will help you understand several ways to enter international markets, and manage finances, along with some successful international expansion examples.
Getting into the right market at the right time will greatly influence the result of your international expansion efforts. A thorough research process is essential for every market, as each market has its unique opportunities and risks, which in turn require unique requirements for Indian SMEs. Learn how to select the best market for exports and enter it step by step through this guide:
Any new market requires comprehensive research before entering it. Data-driven insights can better equip SMEs to understand the feasibility of their products or services and predict possible barriers. Recommended resources include:
Google Market Finder
This free tool is specifically designed for businesses looking to expand. It gives insights into potential markets, demographics of the customers, as well as linguistic requirements based on website traffic.
Federation of Indian Export Organisations
For the interested-to-export SMEs, it gives market research, holds events and provides trade data by industry across many countries.
Ease of Doing Business Reports
Several organizations, including the World Bank, rank countries on ease of doing business. It covers regulation, tax liabilities, as well as infrastructure development essential to business.
With the help of these tools and services, SMEs are able to derive a full view of consumer preferences, competitive status, and stability of an economic system before forming the final opinion of which market to choose.
Entering a foreign market is fraught with complications. An ideal market entry strategy, that takes into consideration your specific business requirements and risk appetite is thus essential. Selecting the right approach can greatly influence the speed and success of market penetration.
1. Direct Exporting
Direct export involves selling your goods or services directly into a foreign market without opening up a local branch or intermediary. Of all the possible avenues available for businesses looking to expand internationally, this is the cheapest and simplest.
It is ideal for small firms with unique products that are in high demand, like Indian spices, textiles, or special IT services.
Pros:
Cons:
2. Franchising
Franchising is a model where a business (franchisor) allows others (franchisees) to operate under its brand, typically in exchange for fees and adherence to brand guidelines. This strategy enables rapid market expansion with reduced capital investment.
It is best suited to companies that have a well-established brand image and are flexible enough to scale up their businesses. For example, fast food chains, retail stores, or wellness centers.
Pros:
Cons:
3. Joint Ventures/Partnerships
A joint venture or partnership with a local business is an option that allows an Indian company to pool resources, distribute risks, and learn from a partner who knows the experience of a local market. This can be used to great effect in complex or highly regulated industries.
Best suited for SMEs with a focus on complex or regulated businesses like healthcare, finance, or energy businesses that would particularly benefit from having an understanding of their local market.
Pros:
Cons:
4. Opening a Local Office
Establishing a local office is a commitment to fully entering a foreign market with a dedicated, on-ground team and facilities. This strategy is resource-intensive but offers maximum control and brand presence.
It is perfect for SMEs with strong demand in the target market and sufficient resources to support a substantial local investment, especially in high-growth regions like the Middle East, the US, or the EU.
Pros:
Cons:
Only by choosing a strategy that suits the market, resources, and growth goals will Indian SMEs reduce risks and find a stable basis for further growth.
International expansion not only calls for preparedness in terms of operation but also requires a lot of financial input. We have listed some of the crucial funding methods, tools, and government support schemes that will guide SMEs towards the appropriate funding source.
In international expansion, the first financial decision of SMEs is between internal and external funding. Internal funding gives the autonomy of no equity dilution and no debt accumulation but external funding provides a capital thrust to scale fast in an intimidating market. The choice between the two depends on your business fundamentals.
For Indian exporters, specialized financing tools exist backed by government schemes and bank guarantees.
Export Credit Insurance: The Export Credit Guarantee Corporation of India (ECGC) offers insurance covering credit risks at the time of exporting. It protects exporters against non-payment by buyers in foreign countries.
Factoring Services: Factoring services enable SMEs to sell to a third party their accounts receivable, i.e., outstanding invoices, at a discount, thereby realizing immediate cash flow rather than waiting for the clients to pay.
The Indian government offers various schemes that SMEs can use as a stepping stone in their journey towards expanding overseas. These schemes may include financial assistance, lower financing costs, and even guidance on how to invest in international markets.
EXIM Bank Schemes: The Export-Import Bank of India, EXIM Bank, is a premier finance institution offering specialized loans and financial products for SMEs. Its initiatives include the Buyer's Credit program, which enables Indian exporters to provide deferred payment options to foreign buyers, thereby improving competitiveness.
Make in India and MSME Development Programs: As part of the Make in India initiative, a whole set of government-backed funds and incentives are provided to enhance manufacturing and export readiness for SMEs. The MSME Ministry offers grants and subsidies besides export promotion programs to enhance the competitiveness of SMEs.
Expanding internationally means dealing with foreign currencies, and the volatility of these exchange rates can significantly impact profitability. Implementing sound foreign exchange management practices is crucial to protecting SME profits. Financial instruments, such as forward contracts or options can be used to lock in exchange rates. This is also known as currency hedging and reduces exposure to adverse currency movement.
Being an Indian SME, international expansion requires the right kind of financial partner to handle international remittances, payments, and foreign exchange needs.
Karbon Business offers tailor-made services for SMEs dealing with international payments. We ensure transactions at live market exchange rates with 0% markup.
Get in touch with us today and see how we can help you.
Southeast Asian markets, particularly in Indonesia and Vietnam, the Middle East- especially the UAE and Saudi Arabia-and parts of Africa are expected to offer strong potential for growth for Indian SMEs in 2024.
Some common mistakes made by Indian SMEs when expanding abroad are -
Platforms such as Amazon, Alibaba, or Etsy reduce the barriers for Indian SMEs to enter international markets. By using these platforms, companies can reach customers around the world without large-scale physical infrastructure.
Indian SMEs would be liable for corporate taxes, import-export taxes, and VAT or sales tax. A Double Taxation Agreement exists between India and many other countries. This DTAA could be utilized to avoid double taxation on the same income.
