After conquering foreign markets, the majority of businesses from Poland want to continue their course. A report by EY suggests that nearly half of these enterprises plan further expansion and entry into new markets next year. Another 39% of companies intend to extend their influence in areas where they are already present. Two-thirds of those surveyed cited the opportunity for growth and increased revenue through access to new markets as the main reason for expansion. Businesses most often operate abroad using the greenfield investment model (61%). Western Europe (56%) is regarded as the most attractive direction for conducting business.
The outbreak of the pandemic and the ongoing war in Ukraine have been catalysts for many Polish companies to enter new markets or further expand abroad. Some of them have chosen this path as a way to diversify risk. For others, it was an opportunity to reduce costs through economies of scale or to increase margins by operating in markets with less competition than domestically. According to the results of EY’s research on challenges related to foreign expansion, businesses that have undertaken such ventures want to continue their actions. Considering their plans for the coming year, nearly half of the respondents (47%) intend to enter new foreign markets, while 39% plan further expansion in the countries where they are already present. Only 15% of companies said they do not anticipate any changes or want to limit their operations in foreign markets.
The success of domestic entrepreneurs abroad is proof that they are capable of calculating risk and creating business plans based on well-defined needs. Any expansion attempt should be preceded by an assessment of the potential of the markets under consideration and the development of a strategic action plan, which will protect the company from improper cost allocation. Moreover, the reason for undertaking a foreign investment must be clearly specified in business terms. For some entrepreneurs it will be the desire to find an even larger market than the domestic one, while others will aim to strengthen relations with existing clients in the global markets – says, Paweł Bukowiński, Partner in EY’s Strategy and Transactions Department, Divestment Advisory Leader in the Central, Eastern and South-Eastern Europe, and Central Asia (CESA) regions.
Expansion as an opportunity for development and increase in income
Survey respondents examined by EY cite the desire for development and increased revenue through access to new markets (66% of responses) as the main reason for foreign expansion. This is particularly important for large enterprises – 76% of them indicated this reason, while among medium-sized companies this percentage was 58%. The second most popular reason was the desire to be closer to key clients (40%), with representatives of medium-sized businesses giving this answer more often (46% compared to 32% in large companies).
One in three respondents (33%) chose to conquer foreign markets due to lower production costs, such as labor and operating costs or attractive incentives for investors. Equally important was the desire to transfer assets to safer geographic regions (30% of responses), which was particularly significant for medium-sized companies (33% compared to 25% in large corporations). A more attractive regulatory environment (29%) closes the list of reasons for expansion.
Jacek Byrt, Partner at EY-Parthenon, and Leader of Transaction Strategy & Executions in Poland, explains that there are many reasons for foreign expansion, and a lot depends on the current situation of the company and its adopted development strategy. Over the past few years, especially in the production sector and B2B services sector, there has been increased motivation to expand into markets where current business partners are already operating. Such a move strengthens one’s market position, for example, by increasing participation in a client’s global orders. Foreign expansion is also a brilliant occasion for gaining experience in a certain sector and building one’s know-how.
Building business from scratch
The most frequently mentioned model of expansion by the respondents was greenfield investment, that is, entering a new country with your own representative or building your own assets (61% of responses). This option is particularly popular among large companies (68% compared to 56% of respondents from smaller organizations). This is probably due to having larger financial resources, which gives them more opportunities, and is a model that suits experienced managers who want to have complete control over the direction of expansion and invested resources.
International market entry through a partnership with another entity – a joint venture – came second (38% of responses). Companies of medium size (42%) prefer this business model more than large companies (32%). Companies with smaller financial resources are forced to look for external partners who could assist them in foreign expansion. Such a strategy also allows for risk diversification in the initial phase of operations in foreign markets.
The least frequently mentioned model was M&A, i.e., the acquisition of an existing entity (27% of indications). The reason for this is that this path of expansion involves the highest capital commitment and requires thorough preparation to maximize return on investment. This route is chosen by larger companies and private equity investment funds that have experience in international acquisitions.
Main direction: Western Europe
One of the most crucial decisions is choosing the right country for foreign expansion. More than half of the respondents (56%) find Western Europe to be the most attractive direction. Central and Eastern Europe came second (39%), followed by countries across the ocean – USA and Canada (35%). Other regions in the world are significantly less popular. For instance, only 14% of respondents would conduct business in the relatively near Middle East. The same percentage would opt for developing Southeast Asia, and 11% find Central Asia to be an attractive direction.
It is clear that Polish entrepreneurs regard the nearest regions, with a stable economic situation, similar legal regulations, and better known to them, as the most attractive areas for expansion. These are also markets that are familiar to them, at least from existing export activities. They rarely point to developing countries, which, while perceived as future-oriented by businesses, are on the other hand less stable, culturally alien, and much less recognized.
About the study
The ‘Challenges of Foreign Expansion’ study was conducted by CubeResearch using CATI and CAWI techniques on behalf of EY Poland between September and October 2023. It involved 314 companies employing at least 50 workers, actively expanding into foreign markets, and operating in the manufacturing, service, and trade sectors. The respondents were business owners, board members, and individuals from finance, human resources or sales.
Source: https://managerplus.pl/ekspansja-zagraniczna-polskich-firm-nabiera-tempa-46166
