The reasons of business internationalization

Monday, 7 may 2018 | Redacción CEU

Whatever the size, every company is born with the desire to grow. In the current business environment characterized by globalization, digitalization, invariability of change and strong competitiveness, it is not surprising that many companies have a clear interest in translating this will of developing into the growth abroad. The business internationalization offers significant advantages, but its exercise also involves facing inevitable problems. What reasons are crucial when making the decision to launch into a new market outside domestic borders? How do companies find the perfect formula and the right time to do it?

 

Starting a business internationalization process means leaving the usual comfort zone. Replicating the success of a company abroad is not as simple as it may seem a priori. As in the launching of any new company, initiating a project requires from the entrepreneurs an exhaustive analysis of the market, an investment capacity adapted to the type of project, a dedication and effort in it and a sufficient margin of time for its consolidation. There are many obstacles and difficulties that companies can find when embarking on this journey abroad. However, if the previous work is well done, most of them are foreseeable and avoidable. It will be therefore key in a decision like this, being willing to go through a period of intense preparation, and, first of all, knowing how to answer an important question: Why internationalizing the company?

The reasons of a crucial decision

In order to undertake an ambitious project like the company internationalization, entrepreneurs must be clear about the reasons why they want to take risks and face this challenge. Opening the market abroad can mean the diversification of markets and risks, the brand consolidation, the compensation of the weaknesses in the domestic market, the customer portfolio expansion, the opportunity to take advantage of a key and differentiating factor, the increase of competitiveness, the perfect chance to solve an unfavorable situation in the market of origin, the strengthening of a productive and financial capacity, or the improvement in production, costs or the quality of services or products.

"Growing wide" also means a greater workload, a greater production capacity, more hiring and more investment. If everything goes well, this effort will also be reflected in an "upward growth" with the corresponding and considerable increase of the benefits. It is important not to forget that the process of internationalization of a company is complex and involves risks, so it is highly recommended to count on good professionals who can help bring this challenge to a successful conclusion, since there are many geographical, logistical, cultural and fiscal barriers that entrepreneurs can find in this path.

As in any logical reasoning, the "pros" must overcome the "cons". Before embarking on an adventure like this, companies must be clear about the reasons for this decision so they can get to define the goals well, weigh their viability and design projects according to the circumstances. It is important to remember that the dimensions of the companies are not decisive to discard the challenge. There are different formulas for business internationalization and SMEs also have an important role in them. However, it is a decision in which issues like the maturity of the business or the intensive knowledge of the market where you want to enter are really important.

The reasons of business internationalization

After the reasons, comes the know-how

Once companies have defined the reasons of internationalization, they need to discover the second most important element in this process, the choice of the most appropriate tool to carry it out. There are different types of entry into foreign markets that also fit with the particularities of the different types of companies. When undertaking a feat of this magnitude, companies have to be aware of which formula suits their objectives and circumstances best. The standard classification of the types of internationalization is usually the following:

  1. Export: indirect, cooperative and direct exportations
  2. Partnerships or cooperation agreements: licenses and franchises
  3. Direct investment: joint ventures and production or sale subsidiaries

After setting the objectives of international expansion, and before understanding what kind of strategy can fit best with the company, it is important that entrepreneurs make an analysis effort both at an introspective level, where they study their weaknesses and strengths, and at an extrinsic level, where they identify the threats and opportunities of the target market. It is advisable in these cases to use a SWOT analysis. If the weak points are more numerous or difficult to solve, they can always look for a market that is more convenient or favorable, choose a more opportune or propitious moment to undertake this great achievement or look for a strong ally that knows the field well so that the transit is easier.

Achieving a successful business internationalization requires a good knowledge of the target market: What is its maturity degree?, What level of competence is there?, What actors are important and why?, What degree of technological development do they have?, What geographical points have a greater interest?, What differentiates this market from others?, Which interlocutors do we have to deal with?, ... The keys to the success of entering into a foreign market are in the care of the details like knowing how to translate elements that are not obvious (such as language or negotiation codes), adapting products and services to local markets, counting with good advice and in-depth knowledge of the legal and fiscal frameworks or working on the continuous monitoring.

At The CEU IAM Business School we are aware of the growing interest in the management of a business environment in constant change, globalized and marked by digital transformation. For that reason, we have designed an Executive MBA in which we address complex issues such as the management of the change, the fiscal and legal complexity, the international and virtual business, the corporate social responsibility and the business internationalization.