What is the Global Marketplace? Definition, Benefits, Risks, & Strategy

The global marketplace means an effective absence of all such borders across the world. Consider the following examples demonstrating the myriad ways an enterprise might engage in the global marketplace:

• A bank with its head office in Switzerland, and subsidiary branches in Hong Kong, New York City and London;
• A fast-fashion retail chain based in Spain, that operates factories in Colombia and Cambodia;
• A fast-food chain headquartered in the United States, with 1000s of independently franchised operations throughout the world;
• A mobile device distributor and retailer which engages manufacturers in China supported by a Professional Employer Organization (‘PEO’).

Below we look at the key advantages in participating in this global marketplace.

Summary: The global marketplace is all the buyers and sellers throughout the world, considered independently of borders.

Global Marketplace Advantage 1: Market Targeting

Often enterprises consider entering the global market place as part of an international expansion strategy: The enterprise has flourished in its home country/territory, but sees expanding beyond borders as the logical next step in its growth journey. One key advantage to doing so can be identifying other countries where there is potential to grow your particular product or service. For example, a smartphone retailer might carry out market research and competitor analysis and identify an opportunity to be ‘first to market’ in an emerging economy.

Summary: Restricting sales to an enterprise’s local or ‘home’ market can place an artificial limit on growth.

Global Marketplace Advantage 2: Market Diversification

Any major economic shock or downturn affects countries in different ways: No country will have the same experience with respect to economic growth, inflation, unemployment, or other key indicators. In some cases, these are difficult or impossible to predict. This can obviously have a substantial impact on your enterprise.

Sometimes, a business in one country might be negatively impacted, not by general economic events or trends, but by an event that harms its specific business or service. For example, a company that operates ride-sharing services might be vulnerable to a legal ban in one specific country.

Participation in the global marketplace provides your company with a degree of protection against these events by diversifying the risk of economic impact.

Summary: The global marketplace allows any business to mitigate the impact of a negative business event in any one country or territory. It functions as a form of ‘geographical arbitrage’.

Global Marketplace Advantage 3: Workforce Enhancement

Your local economy might not have the optimal people talent for the next stage in your growth journey. This is where international recruitment comes in. It may be that:

• Certain countries have a surplus of the specific talent that you need. For example, some countries have a more technologically skilled workforce then others;
• Other countries have the diverse educational, cultural, and linguistic backgrounds that you need to drive your company forward; or,
• You need expert local knowledge to better target you company’s products or services in another country.

Summary: Through international recruitment, you can more readily tailor your workforce for the company’s overall needs.

Global Marketplace Advantage 4: Slashing Costs of Doing Business

The global marketplace can be used to significantly reduce the costs of operating in another country. There are many reasons for this, including:

• Some countries have a cheaper cost of living, and thus lower wages, which mean reduced staff costs;
• Some countries employ superior technological processes that allow them to provide materials or labor at a much lower cost;
• The raw materials are cheaper in some countries; and,
• The compliance or tax environment in some countries may make operating there cheaper.

Summary: The global market can provide cost savings, relative to your local market. Consider whether a PEO, or outsourcing a function (such as payroll), would make your enterprise more profitable overall.

The Challenges of the Global Marketplace

While the advantages to participating in the global marketplace are clear, there are also risks to doing so which need to be addressed:

• Managing tax liability. Expanding your activities into other countries can affect your tax obligations. Even if you don’t incorporate a subsidiary in another country, you may become liable for corporate and turnover (e.g., VAT, sales or GST) taxes in that country. While it differs by country, this depends largely on whether you have a permanent establishment in the country in question;
• Compliance and legal liability. As well as tax obligations, by operating in another country you may incur other compliance obligations, such as worker health and safety and data protection obligations. You will also need to consider the impact of other laws in that country such as contract law, which might impact on your operations;
• Aligning company strategy across different countries. By operating across multiple countries there may be a risk that ‘too many cooks, spoil the broth’. It is essential to ensure that each branch of the enterprise is aligned to the company’s global goals;
• Cultural factors that impact on profitability. A global marketplace means accepting that things are not done the same everywhere. One factor in the failed expansion of Wal-Mart into the German market, was a lack of recognition that German consumers found US sales tactics invasive and over-bearing.

Summary: Expanding into global markets means acknowledging the effect of different compliance, business, and cultural environments.