Internationalization planned successfully

A lot of companies decide at some point to cross borders and enter other geographical markets. In most cases this is driven by the goal to further grow sales. But sometimes the decision to get the company established in other countries can also be based on lower personnel cost, shortage of skilled workers in the home country or a more friendly legal, political and social framework. I want to concentrate more on driving factors like:

  • Accelerating growth
  • Saturation of the domestic market
  • Maintaining competitiveness
  • Opening up new markets with less competition and high demand
  • Reducing risk by reducing dependency on just one market

A successful internationalization needs a lot of groundwork. You need to decide about your individual internationalization strategy, you need to be aware of the technical and cultural challenges and you need to define your specific target market strategy. 

What strategy should I choose?

There are several strategies or forms of internationalization. The easiest is just to sell your products or services in a foreign market, maybe but not necessarily with own presence through local staff or subsidiaries. Many companies are already operating internationally without really driving this proactively. They sell their products online and ship them throughout the world or make them available for download or in the cloud.  You could also implement a franchise concept and sell licenses for production and distribution or for the implementation of your business concept. In some countries joint ventures are a common way to enter a market, means a joint establishment of a company together with a local company. Or you establish a branch office in the foreign country. Another way is to found a subsidiary, basically a new company abroad, which is legally independent, but controlled by the parent company. The described strategies vary pretty much in terms of effort and risk, but also regarding the possibilities of control.

The technical challenges

For sure internationalization also provides some challenges. This starts with local laws and regulations, e.g. taxes, the labor law or social and environmental standards. In most cases you also have different currencies. In some cases these can be very unstable, which then potentially can create serious issues, if you want or need to sell in local currency. Different languages will most probably require local staff and a lot of translation work. Customs and import regulations might make your business more difficult, in some cases even impossible. You might need to adapt materials and IT systems. The local infrastructure and public administration can be very different from your home country, which then often requires a lot of administrative overhead and patience. Therefore, a thorough analysis of the target market can make a huge difference. For most of these technical challenges there are also technical solutions. Some of these solutions might be pretty simple and straight forward to implement, some might need a bit more time and efforts. In my view, a much bigger challenge, however, very often is the cultural difference of the target country or region.

The cultural challenges

Habits and traditions as well as the working conditions and moral values can be very different from those in your home country. Conflicts and misunderstandings in everyday communication can happen very often if you do not know or ignore the local habits. The expectation towards a manager’s behavior differs widely in various cultures. I just want to provide you with a few examples of my own experience, which should illustrate all that a bit more. Gender equality unfortunately is not self-evident everywhere. If we like it or not, but in some Middle East countries you simply need to hire men in certain positions or you better decide right away to ignore those markets. The understanding of work-life balance can be very different. While in some countries people work around the clock with no or small breaks, in Brazil in most cases you might not reach anybody before 9:30am and between noon and 2pm. In Bulgaria I once sat in a long customer meeting. Everything was discussed in detail and decided. I summarized everything at the end to get the final “Yes” from the client. And then he looked at me shaking his head. I was shocked, but I simply should have known that in Bulgaria this means agreement. In our so-called Western cultures people expect a manager to lead and empower his people. In other parts of the world, for example in many Asian countries, people simply expect that the manager directs and closely supervises all activities. Sometimes the cultural differences are small, sometimes they are very big or even too big.  

Company culture and local culture

The challenge for every global company is to develop and maintain a uniform corporate culture with consideration for the peculiarities of the regional cultures. Many companies are obviously doing a great job here, others are still struggling. When I worked for Intel Corporation between 1990 and 2006 I think we really did a good job during that time. In every single international office you could feel the strong Intel culture already at the reception. But there were always also the subtle distinctions respecting the local culture of a given country. One reason for that was clearly the fact the company had defined strong central values and every local management team implemented and lived these values in the framework of their individual cultures. Clearly, hiring the right employees and managers in each country is a key factor. And you need to be open to learn and adapt.

Five steps for a successful internationalization

There are basically five steps every company should follow to prepare a successful internationalization strategy:

  1. Market analysis
  2. Economical challenges
  3. Language and culture
  4. Legal framework
  5. Online presence

The 5th step was probably not that important still many years ago. Today it can be crucial. Choosing the right language in countries with no designated primary language, legal regulations, photographic habits and country specific social networks and search engines are only a few examples to mention here.

The target market strategy

Once a decision has been made about the potential international markets to focus on, you need to develop your strategy to enter these markets. Here you also need to consider the following topics:

  1. Attractiveness and risk (broad expansion or focused approach, markets similar to home market,…)
  2. Form of market entry (export only, subsidiary, joint venture,…)
  3. Timing (first mover or late follower, waterfall or sprinkler)
  4. Allocation (central vs decentral, standard products and services vs. differentiation or adaptation)
  5. Coordination (management structure, budget allocation,…)

The outcome might be that you want to focus on two or three markets or even one market only in the beginning, starting with freelancers first centrally managed with the aim to later found a subsidiary and build local management structures with more autonomy. At least that was a strategy I implemented successfully quite often.

Internationalization offers opportunities and risks

Internationalization strategies primarily differ in terms of the resources and expertise required and the potential risk. An intensive analysis of the local conditions on the target market is absolutely necessary before making any further decisions. The more intensive the preliminary work, the better the chances of long-term success. Still there is a chance to find out after some time that a wrong decision was made. In this case you should also have the courage to “pull the plug” sooner rather than later. Last but not least, do not try to push your products through into the market and avoid “copy and paste” as this is usually doomed to failure.

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