Challenges of Internationalization and How to Tackle Them

The demand for customers is continuous and influenced by many factors. In today’s competitive markets getting new customers is vital and the potential customer base in your own country might not be sufficient enough to carry your business in the long term. Now, imagine the following situation; your current business and a different country with a different culture and customs. Your first thought might be that tackling the cultural and regulatory challenges in a new environment might take too much of your resources. But a skilled businessman has to be prepared for quick changes in the market and be able to take the bull by the horns immediately when the time comes. In this article, we observe how and why internationalization is rather a great opportunity than a heap of problems to solve. We use as an example here the Uppsala model.

What is Uppsala model? Some of you might already be familiar with it, but let’s have a short overview of the model: Uppsala model was based on the process of acquisition of foreign business environment. It could be just the step forward that your company should take, considering the fact that internalization of your business could be a ground-breaking improvement in attracting a wide range of new customers with unknown potential for future growth. But on the other hand, there are also lots of threats one should be aware of and acquainted with in order to successfully expand operations abroad.

Face-to-Face with Uppsala Model

The theory in the Uppsala model says there are two types of companies: ones that are so-called “born-global” companies, which means that they were established for the sole purpose of selling products and/or services in the foreign markets, and ones that were created for a specific marketplace in a specific country but want to cast their net wider. The Uppsala model has been a great stepping stone for the latter type, which means that the companies made a plan, were ready to take a risk and are now very successful both domestically and internationally. To go more into detail of the model, the whole idea was built on four Swedish companies: Sandvik, Atlas Copco, Facit, and Volvo.

What is then the key to success according to the Uppsala model? J. Johanson and J.-E. Vahlne, the authors of this method, argue that these companies had given preference to the safe and more sophisticated way of reaching the foreign market. In the model, they describe the particular steps required in the process, from the phase when a company has not any connection to the wanted target market all the way to the final phase, the success when a company has established its subsidiary abroad. When you peruse the particular steps in the model the whole thing might seem easy, but we cannot ignore the fact that the process does require a lot of planning and hard work, aka resources and flexibility from the company.

Steps to ensure successful internationalization

Always be aware of sensitive information about your company. Be critical. What have you done until now, which actions were good, which were not? What more can you do? What are you able to manage and how? What would you need help with to manage? The first step, of course, is to make a strategy; Ask these questions from yourself about the domestic market and then about the wanted target market. Compare your answers, find the opportunities in both. Think also one more time, is it necessary to expand your operations; are there no new opportunities in your country anymore?

To answer the last question you should consider these points about the domestic market:

  • Is there global competitiveness in your domestic market?

  • Are there foreign companies or companies with higher earnings?

  • Do you have an increasing number of customers?

  • What is better for your company, be dependent just on one market or have at least some operations on the foreign market.

After you have considered and answered these questions and you have arrived at the conclusion that expanding abroad is a viable option it is time to take the next step. Expanding to a foreign market will require money but more importantly time. Study the culture in the target market, in business as well as national level, make sure you understand the do’s and don’t’s, distinguish the cultural differences that might be challenging. You must make sure that your company is prepared for the changes in surroundings as well as in practical matters. That will be the ace up your sleeve.

According to the Uppsala model, this phase is characterized as “No regular export activities” because in this step most companies have no idea, what is waiting for them abroad and often they do not make the aforementioned research beforehand. Due to a lack of information and confidence, they try to avoid any problems by just waiting on the market. How many companies do you know that have succeeded by doing nothing, waiting for things to come their way? Nobody can take this step for you, you cannot outsource it. But the time spent on the research will be handsomely paid back if you succeed in the end.

Exploring a new market – Networking is the key

If and when you are really sure that the chosen foreign target market fits your company and your reasons are sane and well thought out, then prepare yourself because it is time for executing the strategy.

Orientation for both, new and old staff on the new target market is important to do with care and precision, because if you get it right the first time you have a big advantage in your hands already; after all people are your best resource. When you get the operations rolling, it is time to cast the net out and catch some fish. But where and when? Again, information is the key and now that you are already in the market, the best way to get the best information about local partners or regulations is to have local contacts. You have already executed some basic market research in the previous steps but now it is time to deepen this information. Be active, be social, be very much hands-on-deck and go to events, network. Find the professionals who can help you with this comprehensive work and that way you will get more intricate, intimate data, which makes the cornerstones of your advantage when you really start off in the new market.

The Uppsala method expresses the importance of communication and contacts on the foreign market. It is like a huge ripple effect. These contacts will lead to information, worthwhile advice and also customers. Each of us must master networking if we want there to be any chance of success outside our own familiar borders.

If you are a skilled networker you can have access to all answers streaming from many years of experience: adapting to the new production policies and regulations, possible distribution channels, suitable pricing policies, cultural preferences when it comes to products and services, etc. If somebody offers you advice, take it no matter how trivial it may seem at first. Your worst mistake could be ignoring the teeniest cultural difference.

Here are a couple of the millions of examples in underestimating the cultural differences: in Japan Pepsi Cola thought that the American way of marketing could work just as well in the Asian business giant: their slogan “Come alive” literally means ‘come out of the grave’ in Japanese, which obviously did not go down too well. A Finnish furniture company, Asko, had to retreat from the Spanish-speaking markets because their name means ‘ugly’ in Spanish. Imagine the amount of money and effort that could have been saved if somebody, anybody had just bothered to talk to any local people in the target country.

Every company has a chance on the foreign market as long as the base work is done well and executed with care. There will always be risks and challenges but if you are afraid of these two particular things what chance does your business have in today’s very competitive markets? Just remember when internationalizing that communication plays the main role at every step; it will save you time and money and guarantees you the information that will enable you to succeed. Be prepared and rule the world!… Or at least the markets where you want to rule.

References:

http://www.podnikatel.cz/clanky/5-kroku-pro-uspesny-vstup-na-zahranicni-trh/

http://www.forbes.com/sites/theyec/2013/10/08/five-steps-to-expand-your-business-globally/

http://www.businessballs.com/business-networking.htm#be-different

Lea Kubíčková (2013), Limits of the Uppsala model application in the internationalization process of Czech SMEs

Johanson, J. and Vahlne, J.-E. (2009), The Uppsala internationalization process of the firm – a model of knowledge development and increasing foreign market commitments

Šárka Zapletalová (2009)