The international marketplace offers a world of business opportunities for all types of companies, either large or SME (Small and Medium Enterprises). The goals could be either to sell or source products worldwide. Not only can you tap into a world marketplace of 7 billion people, but according to academic research, companies that do international business grow faster, fail less and become more competitive than companies that don’t. Management needs to have a desire and commitment to develop and build business in international markets as a guarantee of company survival.
However, a few of the more wide spread reasons to internationalize are the following:
1. Increase sales and profits
If your business is succeeding in your domestic market, expanding globally will likely improve overall revenue. Economic growth rates in Europe, USA and Japan are very low compared to the large and new emerging markets. In Europe live around 300 million people as well as in the USA. Only in China and India, we can approach more than 2.4 billion potential consumers. This suggests customers are global and that if your company looks beyond the shores of the domestic market, you have some real upside potential. If your company has a unique product or technological advantage not available to international competitors then this advantage should result in major business success abroad. Sales in foreign markets can also be at a higher price (an margin) than in the domestic market. Many imported products are paid as premium products and brands. Therefore, more sales in foreign markets, generally brings more profits.
2. Short and long term security
Your business will be less vulnerable to periodic fluctuations and downturns in the Spanish or European economy and marketplace. Generally speaking, the Eurozone is a large, mature market with intense competition from domestic and foreign competitors. During these years of deep economic recession, exports were the solution for many Spanish companies. Thanks to these sales to foreign markets many companies could keep and also improve their production capacity, employment and financial structure.
3. Increase innovation and management learning
Extending your customer base internationally can help you finance new product development, learning from competitive markets and competitors, and get use to work with very demanding and sophisticated customers. A company can benefit so much from participating in a tough and competitive market and that its own product design and marketing would improve and enable it to perform better around the world.
In most sectors, participation in the “lead market” would be a prerequisite for qualifying as a global leader or global brand, even if profits in that market were low. Lead markets include: United States for software and IT, Japan for consumer electronics, Italy and France for fashion, Germany for automobiles and so on.
It should be noted that if a company is to maximize learning from a lead market, it should probably participate with its own subsidiary.
Learning indirectly, via a local distributor or partner, is obviously less effective and will contribute less to the company’s development as a global player.
4. Economies of scale
Exporting is an excellent way to expand your business with products that are more widely accepted around the world. In many manufacturing industries, for example, internationalization can help companies achieve greater scales of economy, especially for companies from smaller domestic markets. In other cases, a company may seek to exploit a unique and differentiating advantage (intellectual property), such as a brand, service model, or patented product. The emphasis should be on “more of the same,” with relatively little adjustment to local markets, which would undermine scale economies
5. Competitive Strike
Market entry can prompt not by the positive characteristics of the country identified in a market assessment project, but as a reaction to a competitors’ moves. A common scenario is market entry as a follower move, where a company enters the market because a major competitor has done so. This is obviously driven by the belief that the competitor would gain a significant advantage if it were allowed to operate alone in that market. Another frequent scenario is “offense as defense”, in which a company enters the home market of a competitor usually in retaliation for an earlier entry into its own domestic market. In this case, the objective is also to force the competitor to allocate increased resources to an intensified level of competition.
Just some final thoughts as a summary
Above are some of the good reasons to go global, among other many that a company can have: following local customers, extended product life cycle, searching for raw materials or other inputs, delocalization in order to reduce production costs, saturation of the local market, etc.
A strategic decision once the company decides to internationalize will be the approach to entering the international market. Different circumstances will be prevalent in different markets and for different companies. In all cases it is strongly advised to undertake serious thought and much preparation. Research foreign property and understand the customer culture of your overseas operations. This analysis and research will provide the company with the adequate information to make sound entry decisions and to implement a sound marketing mix strategy in the new international scenario.
Article by Professor Julio Cerviño, Codirector of the Master in International Management (MADI – Master en Dirección Internacional de la Empresa)