When should you take operations abroad?
When a business begins to sell across the globe, it’s sometimes assumed that the next step is to move some—or most—of the manufacturing operations to one or more foreign countries as well. After all, it’s always advantageous to be closer to your customer base—right?
Not necessarily. The decision to expand operations internationally has unique implications for each business, and the decision making process isn’t black and white. (Check out our new guide to determine whether you’re prepared to go global.)
There are some cases where it makes sense to expand operations across the globe. Tom Szaky, founder and CEO of the eco-friendly consumer products recycling company TerraCycle, explained in a recent New York Times blog how his business has grown from moving operations closer to customers. TerraCycle expanded first to Brazil in 2008, and operates today in 19 countries around the world. “The trick to such rapid expansion,” explained Szaky, “is having a replicable business model that can be executed with simplicity and good oversight.”
The impact on TerraCycle’s bottom line has been profound. The company now gets 35% of its annual revenue from outside the United States, and its foreign business is growing faster than its domestic business.
Determining whether your business is equipped to expand abroad
For companies already selling products around the world, there are several reasons why setting up shop abroad makes sense. As with the case of TerraCycle, businesses can see reduced shipping and logistics costs, improved customer relations, and fewer barriers of access to foreign markets by moving operations to customers’ countries.
However, there is also risk associated with taking operations internationally. Moving abroad prematurely may decrease a business’s supplier stability, jeopardize product quality, and introduce new social and geopolitical challenges into the mix.
To help businesses determine whether they are prepared to go global, we developed our resource called Should I move manufacturing closer to customers?—which I highly recommend. In this article, you’ll find a step-by-step guide for weighing your options, a cost-benefit analysis of going global and tips for smoothing the transition.