For many businesses, the relatively small size of Australia's population means it can be nearly impossible to generate growth without international expansion.
Take for example, Telstra Corporation Ltd (ASX: TLS). The telco giant has dominated the domestic market for many years and it now appears it will have to venture offshore in order to generate a decent level of growth.
For other companies, international expansion is an avenue to scale-up production and take advantage of growth opportunities as they present.
But international expansion isn't without its risks.
Just ask the board and shareholders of Slater & Gordon Limited (ASX: SGH).
In fact, expanding overseas exposes a company to a whole range of risk factors not normally associated with doing business in a market they are already familiar with. Some of these include movements in the currency, different legal systems, new competitors, political uncertainty and civil unrest.
When done successfully however, the benefits to shareholders can be truly exceptional. Biopharmaceutical company CSL Limited (ASX: CSL), private hospital operator Ramsay Health Care Limited (ASX: RHC) and packaging company Amcor Limited (ASX: AMC) are just three examples of Australian companies that have reaped the benefits of expanding abroad.
There are also a number of other Australian companies that are in the early stages of international expansion. Three that look quite promising right now include:
Flight Centre Travel Group Ltd (ASX: FLT) – Subdued domestic demand has put the brakes on Flight Centre's overall profit growth over the past couple of years, but its international business has continued to go from strength to strength. The travel agent now operates in 14 countries following its most recent move into The Netherlands.
As the slide from Flight Centre's first half presentation reveals, its Australian division is still by far the biggest contributor to earnings overall, but its operations in other parts of the world are growing at a far more rapid rate.
3P Learning Ltd (ASX: 3PL) – 3P Learning's share price has been hammered recently as a result of weaker-than-expected first half results. It wasn't all bad news though with some promising progress being made in its international operations.
Revenue in its Middle-East and Africa (EMEA) and Americas divisions increased by 52% and 58% respectively – compared to just 10% growth domestically. Admittedly this was off a much lower base, but as the graph below shows, its international business is becoming more relevant to its overall growth strategy.
In fairness, much of 3P Learning's future success hinges on its ability to penetrate into the US market. This market dwarfs every other developed country with more than 54 million enrolled school students. With 3P Learning investing heavily in this region, investors will be anxious to see how much progress has been made when the company next reports.
Retail Food Group Limited (ASX: RFG)
Retail Food Group might operate some of the most well-known food brands in Australia including Crust Pizza and Donut King, but it is also rapidly expanding its footprint overseas in part due to the company's acquisition of global coffee brand Gloria Jean's Coffee in 2014.
The group's international operations now make up nearly 17% of total earnings and this is expected to further increase over the remainder of the year.
The company has recently commissioned a record number of new outlets with its international division making a significant contribution to this. As the graph below shows, its plans for new international outlets are forecast to increase at an even faster rate for FY16.
Foolish takeaway
International expansion certainly has its risks but if executed successfully can deliver great rewards for shareholders.
Only time will tell if the companies above will have great international success, but the early signs are looking very promising.
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