La internationalization of a company is not a homogeneous or invariable process.
Furthermore, each company must apply the foreign market entry strategy that best suits its product or service, and its business model itself.
It will also vary depending on the destination market or country we intend to access.
In fact, there are certain strategies for "open" markets (at a commercial level) and others for "closed" ones.
In this article we will see 4 business internationalization strategies.
In any case, before developing an internationalization strategy, or just deciding which is the most suitable for us, we must take into account the following premises - which will help us make internationalization a success (or a disaster, if not take into consideration)-.
Premises to internationalize your company
- Your company must be efficient. You must optimize your resources to the maximum and eliminate unnecessary tasks.
- Investigate. There is no successful international company that has not dedicated a large part of its resources to researching foreign markets and its own development. This is how you can do good research:
3. Either you adapt or you are out. Adapt to changes. Internationalization is one of them, and it will be decisive.
4. Have a global vision. Without a global vision it will be difficult for you to coordinate the different markets in which your company will operate; and, therefore, you will not develop the competitive advantages that internationalization brings you.
5. You and your team have to be very clear the objectives you seek to achieve. Commit.
6. Dinnertry what you know how to do best. Specialize and focus on the business units that make you more competitive.
7. Reduce the hierarchy. Facilitates communication between the team so that good actions can be developed and implemented. You have to be flexible to respond quickly to the needs of your market.
8. Create a multidisciplinary team that complement each other.
9. Set a profitability target by processes. What benefits will this or another process give you?
If you already have all this ready, it is time to know what strategies for accessing international markets exist (or which ones are best known).
Let's see:
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Strategies for access to international markets
There are many business internationalization strategies, but we are going to explain them in the most concise way possible.
At a macro level, we find 4 main types of business internationalization strategy: direct and indirect exports, alliances and non-commercial formulas.
At a micro level, there are various substrategies within these 4 large types:
Direct exports
We sell -directly- our products or services in international markets.
They are usually applied in easily accessible markets (if you are Spanish, then any EU market):
Own sales department
Representatives of the exporting company regularly travel to foreign markets to sell their products.
It is a strategy often followed by companies that sell a product at a high price and with customers who are already located.
It is recommended for companies that are already established in foreign markets with a series of fixed sales points and loyal customers.
salaried representative
It is a natural person who is employed by the company and receives a salary.
He is just another employee, but with the task of measuring markets, selling products in the name of the company and reporting on the status of commercial operations, among others.
Basically, it is the same figure as the commission agent, but with two main differences: the client portfolio belongs to the company and is more loyal to the company's objectives by being an integral part of this.
Commercial subsidiary
By establishing a commercial subsidiary, you can achieve greater control and knowledge of the foreign market.
Through its own commercial subsidiary, the company gains access to highly profitable sectors in which to establish a certain market power.
If subsidiaries are consolidated at the accounting level, higher margins will be obtained and, consequently, more income.
In addition, establishing a commercial subsidiary promotes better international tax planning, since the specific tax regulations of each country in which the company operates are considered.
In this way, commercial subsidiaries make it possible to take better advantage of the incentives and low tax costs of each country in which the company is established.
Online Stores
It is a strategy that allows you to trade a product abroad without the need to have a commercial network in the place where you intend to sell the product.
It allows the company's team to concentrate in the same place, without the need to expand it to each territory where the merchandise is exported.
The latter enables a faster reaction to market trends and adaptation to them.
La online sales directly connect the seller with the consumer directly without the need for intermediaries, and payments can be made instantly.
commission agent
The commission agent is what we commonly know as a "self-employed person."
It usually operates in a specific geographic area and has its own portfolio of contacts that it owns only.
It is usually hired by companies that want to export or import in that specific geographical area in exchange for obtaining commissions for each commercial operation carried out.
For the company, it is a useful option if it wants to start marketing products in new geographic areas and does not have the knowledge or contacts to do so.
Indirect exports
These strategies are recommended for companies that do not want to take many risks when internationalizing or that do not have the capacity to do so unilaterally.
The company does not carry out exports or sales on its own.
We work with an intermediary who appears in various forms:
Distributor
In this case, the foreign buyer is the one who goes to the domestic market and acquires the product to export it, or the arrival of the merchandise is facilitated.
It is the most widespread strategy when a company does not have much experience in international sales or it is the first time doing it.
Its main advantage is that it minimizes investment costs and associated risks. Some of its disadvantages are: possible coordination problems with the distributor and divergences in terms of objectives of both actors.
Trading company
They are companies specialized in the operational part of International Trade.
They cover all operational processes of exports and imports.
They are a good option if you want to export large volumes of merchandise.
The company signals It is the one that goes to the local market to transport the merchandise to one or more foreign markets to distribute and sell it thanks to its own distribution channels.
Purchasing agent
Purchasing agents are responsible for locating suppliers, contacting them to purchase merchandise.
The goal of the purchasing agent is to obtain that merchandise at the lowest possible price without deteriorating the quality of the product under any circumstances.
The purchasing agent can be self-employed and be hired occasionally by companies that wish to acquire merchandise or be part of the active staff of a company.
alliances
Alliance or cooperation strategies are very common and useful for SMEs that want to export their products or services abroad.
It is about joining forces with local companies to become stronger internationally.
Within these alliances we find various options:
Consortium
Thanks to consortia, companies from the same country (in the vast majority of cases) that are competitors or have complementary products cooperate to carry out a common export operation.
Consortia have a legal and organizational structure that carries out foreign trade tasks systematically.
The consortium will allow the companies that make it up to better access foreign markets by taking advantage of economies of scale, reducing costs as a result of carrying out certain activities jointly.
Piggy-back
Contract or collaboration agreement between two companies from the same country, one larger and that operates commercially abroad and an SME that does not market outside the country, but that takes advantage of the commercial structure of the other to do so.
For SMEs, it is a great opportunity to save costs, access the market more easily and eliminate numerous administrative and logistical operations.
It is a great opportunity for SMEs that want to expand their business abroad.
Joint venture commercial
Joint business formula of several companies with similar objectives that will follow a common strategy.
The strategy will coordinate resources to efficiently achieve common goals. However, the merger of companies is only temporary and they maintain their independence.
La joint-venture It can be contractual/strategic or corporate.
Non-commercial formulas
These strategies focus on establishing productive capacities abroad to save costs and take advantage of certain advantages to counteract the high entry barriers of many foreign markets.
The new options are the following:
Production contract
It involves searching the foreign market for a manufacturer that can produce part of the product or the entire product.
It is a common strategy to manufacture at low cost by taking advantage of manufacturing advantages in certain countries, where resources are lower.
There is a risk that competing companies may emerge and the company may lose certain productive capacities.
It is a useful strategy when accessing markets with high barriers to entry.
Technological transfer of licenses
This strategy is based on the formula of transferring knowledge and technology of a product from one company to another.
The licensing company quickly gains revenue with little investment, but knowing that it is losing the exclusivity of ownership of the knowledge about the product.
Added to this is the risk that by giving up product knowledge and technology they could become potential competitors.
But in cases where competitive advantage comes from standardization, licensing is key.
For the licensee, having possession of a license allows him to manufacture products covered by it, sell in the market assigned to him and carry out marketing actions with his product; all this in exchange for the payment of some royalties to the licensor.
It is very useful for accessing markets with many trade barriers for foreign companies.
Franchise
With a franchise, the use of the brand, knowledge, production and commercial procedures of the franchisor is transferred to the franchisee in exchange for financial benefits.
It is advisable to make clear in the franchise contract the rights and obligations of each party.
With this franchise strategy, the franchisor can rapidly expand internationally, investing less and with stable income.
Also can:
- Have local investors who are motivated in the business, invest in it and seek its success.
- Create its own subsidiary in the foreign market that will grant franchises to local investors.
production center
It involves establishing a production center abroad to manufacture products marketed by the company.
It allows you to reduce transportation costs, save on tariff payments and customs costs and manufacture at low cost by using cheap resources.
This strategy also allows access to specialized resources and advanced suppliers in certain cases.
It depends on the circumstances of each territory where the production centre is to be established.
Frequently asked questions about 4 business internationalization strategies
An internationalization strategy is a set of thoughtful actions whose purpose is to meet a series of specific objectives; in this case, the positioning of a company in a foreign market.
Because the internationalization process is neither fixed nor invariable. Each company must follow its own strategy depending on the business model on which it is based.
To execute an optimal internationalization strategy you must carry out prior research, both on your company, as well as on your sector and competition, in your country of origin and destination. In addition, you must obtain technical knowledge about internationalization.
Do you need help in the internationalization of your company?
Internationalist trained at the Complutense University of Madrid with broad interest in international climate issues, micronations and the Latin American region. Master in International Trade.
