Businesses that rely solely on their local areas are at risk in the modern interconnected economy. There is a solution! It’s called internationalization and it turns out to be the winning strategy for business success.
How, you say? Are you a company eager to expand its national borders or simply a person curious to learn more about internationalization and why businesses should aim for such a strategy? Keep on reading this article to learn more!
What is meant by internationalization and when does it arise?
The term internationalization refers to a process that a company undertakes to penetrate markets located outside its national borders.
Specifically, internationalization occurs when the enterprise decides to:
- produce abroad
- export its products or services abroad
- forge partnerships with foreign companies
- bring in capital belonging to foreign shareholders
- set up production units in one or more foreign countries
The goal is to establish relationships with other companies, institutions and consumers operating abroad. In this way, the company is more likely to assert its influence globally.
What underlies this process, however, is called “globalization.” The term denotes a phenomenon characterized by the intensification of trade and investment on a global scale. Direct consequence of this: an increasing interdependence of the various national economies. And this is the main reason for organizations to take the path of internationalization.
The reasons behind an internationalization strategy
Do you have any idea why a company chooses to implement an internationalization strategy?
There are many reasons and they vary according to the needs of each organization. However, there are a few that can be considered the main ones.
Read on to find out what they are!
Expansion into new markets
This motivation generally arises when the growth rate of the local market begins to remain stable or even to be negative.
As a result, the company may feel the need to open up to new markets in order to increase sales.
Risk diversification
The more markets a firm can penetrate, the more it reduces the risk associated with dependence on a single market or country.
In fact, should a particular market experience a period of instability, the firm can still rely on the returns earned in other markets.
Increasing the competitiveness
If a company internationalizes, it can leverage its competitive advantage in multiple markets. Among other things, opening up to new markets provides access to new consumer segments that may not exist in the local market. And this helps the company increase its competitive advantage.
Reduced production costs
There are countries in the world that offer reduced costs. This could be due to lower prices for raw materials or labor, for instance. As well as could it be that the state requires a lower tax burden.
These are significant incentives for companies to expand abroad. Not least because reduced production costs in most cases have as a direct consequence the increase in profitability.
Development of strategic partnerships
We mentioned at the outset that internationalization is also when a firm establishes partnerships with other foreign firms.
By collaborating, a company is able, for example, to acquire new technologies or access new supply or distribution channels. Which could be convenient in order to increase its influence globally as soon as possible.
Access to foreign financing
Running a business means making continuous investments. But in order to invest, it is necessary to have the necessary financial resources available.
When a business decides to expand its reach abroad, access to such resources is greater. In fact, it can often rely on financial support from foreign investors and the government.
How to grow internationally
So far we have reviewed the concept of internationalization and the main reasons behind this strategy.
Now let’s go over what are the key aspects to keep in mind when deciding to implement such a strategy.
Why such a business decision?
First of all, it is important to be very clear about the reasons why you want to attack a particular foreign market. The enterprise should also make sure that these motives are compatible with its business objectives. In this way, the success of the company is more likely to be guaranteed, especially from a medium-to-long-term perspective.
What do you know about your business?
Second, it is good to conduct a business analysis, assessing as objectively as possible the internal environment of the enterprise.
This step should not be underestimated, as it provides insight into whether or not the enterprise has the resources and skills necessary to take such a step.
And what about the macro-environment?
Alongside the analysis of the domestic context, it is then forward-looking to also make an assessment of the context in which the enterprise is going to operate.
This phase therefore translates into the in-depth collection of information about both the country and the foreign market that the company wants to attack. In this regard, there are several evaluative techniques that can assist. One of these is the PEST Analysis. The term stands for “Political, Economic, Social, Technological Analysis” and is precisely used to analyze the political, economic, social and technological conditions of the new country.
Better together than alone
Another key point, the search for partners.
No enterprise succeeds in pursuing an internationalization strategy alone. On the contrary, it is much more useful to establish viable partnerships on the ground, be they logistical, commercial or financial. They will help the enterprise achieve its goals more quickly in the new market.
What next?
Last but not least is the operational phase.
This is when the company, supported by its consulting firms and partners, implements all the previously planned steps.
However, this phase also requires the right knowledge and skills to manage foreign relations. The success of the action plans themselves depends on it.
Conclusion
So, if you are thinking of internationalizing your business, we suggest you remember these steps. It is good to keep in mind that embarking on such a path is not without its challenges. On the contrary, the obstacles you face can be diverse, from regulatory, cultural and logistical complexities to potential geopolitical risks in the foreign country.
However, with a deep understanding of target markets and the ability to adapt quickly to changes, as well as proper planning and management, internationalization undoubtedly proves to be the winning strategy for both business survival and growth.
Check out our international services and take the step of expanding your business internationally!
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