In previous posts we have explored the different types of internationalization strategies, understood as the process to take a product to foreign markets, as well as the types of international business strategies, understood as the way in which the company conceives international trade as part of its business activity.
In the latter, we briefly explain which commercial strategy is best for each type of company, however, in the first we do not go into analyzing this aspect.
Therefore, the objective of this blog will be to analyze What is the best internationalization strategy for each type of company, based on the four types of internationalization strategies collected in our previous blog.
Types of companies
First of all, before proceeding to the analysis of the different internationalization strategies, it is pertinent to briefly introduce the different types of companies that will be taken into account and what their characteristics are:
- Startups: Recently created companies that do not yet have an established business model. They have few resources available and it is recommended that they find a business model in their national market before taking the step towards internationalization.
- scaleups: Those startups that have found a successful business model and have reached at least 1 million in equity value. Scaleups are in a position to take the step towards internationalization.
- SMEs: As the name suggests, these are small and medium-sized businesses. They have an established business model, but in most cases they may not have enough resources to undertake the internationalization process. It depends on the particular situation of each company.
- Big enterprises: These are those companies that have more than 250 workers and, therefore, sufficient resources to internationalize without problems.
- multinationals: Larger companies, which in themselves have a global reach and have sufficient resources to carry out any internationalization project.
Analysis of internationalization strategies
Once we have explained the different types of companies that we are going to take into account, we can proceed to carry out the analysis of what is the internationalization strategy Which best applies to each of them:
Exports Direct
Direct export strategies consist of the direct sale of the company's products abroad through its own means.
Considering that we can find several ways to carry out this strategy, including the creation of our own sales department, hiring a salaried representative or selling online, among others, we can say that this is a very flexible option in general.
Of course, a direct export strategy is the main or general idea that one has when it comes to understanding an internationalization process, however, there are other options precisely because direct sales are not always possible.
In this sense, direct sales is a strategy that allows the company to maintain full control of the distribution process, while increasing its presence in the target market. However, it is also the option that involves the highest cost and risk.
In general, direct sales will always be the priority for multinationals and large companies, since it is preferable to have total control of the commercial process in order to be able to respond quickly to any change in the environment, even if this means incurring higher costs, which in turn are more difficult to reverse.
On the other hand, it is logical to say that the option of direct exports will not always be possible for SMEs, scaleups o startups, as it is necessary to make a certain level of economic investments to create and maintain direct sales structures that smaller companies will not be able to put together so easily.
Indirect exports
Indirect export strategies are those where the company does not have full control of the marketing process of its products, but rather this is carried out through an intermediary.
There are different types of indirect export strategies depending on how much of the marketing process the intermediary takes on. There are purchasing agents whose role is to contact customers and also trading companies that cover all the operational processes of exports.
Of course, the greater the role of the intermediary, the more expensive it will be to acquire its services, although the lesser the company's involvement in internationalization will be, which will allow them to abandon the process more easily when they consider it necessary.
In general, larger companies should prefer to adopt a direct export method rather than indirect export, except in cases where the intention is to reduce the risks of internationalization if they are not familiar with the target market.
However, for SMEs, scaleups y startups, indirect export is always a good option when taking the first steps towards internationalization.
Alliances
Alliance-based strategies involve joining forces with other companies, whether in the country of origin or the destination, to increase the amount of total resources available, the capacity to face the internationalization process, or simply to overcome tariff barriers or other types of strategic aspects.
Unlike the two previous strategies, in this case it is no longer a matter of investing own resources or hiring the help of other companies, but of reaching cooperation agreements where collaborators also have decision-making power.
Consequently, for the same reason as in the previous cases, larger companies that can afford more direct approaches will choose to maintain full control of the internationalization process, while the option of creating alliances will be more attractive for smaller companies, which have fewer resources of their own.
In particular, this approach is especially recommended for SMEs, which already have an established business model and are aware of the objectives to be achieved through internationalization.
On the contrary, a strategy based on alliances may not be so advisable for scaleups y startups, since it may mean losing one of their main strengths, which is the flexibility they have thanks to their recently created nature.
Non-commercial formulas
Finally, we find non-commercial formulas, which are those strategies that seek to produce at the destination, either through a production contract, the transfer of licenses, the establishment of a excess or the creation of a production center.
In other words, this strategy consists of reducing international transport costs by taking production directly to the destination country, even accepting the loss of control of the production process as a result.
Again, this is a strategy that may not initially seem attractive to larger companies, as they would be dependent on outside entities to carry out their production process. However, in reality it is an option that is always interesting to consider due to the huge savings it can entail.
For the same reason, non-commercial formulas are approaches that can be very interesting for smaller companies, allowing them to enter foreign markets with relative ease.
In any case, it is important to consider that the main negative aspect of this strategy is that key information about business activity is shared, so it is necessary to be careful when choosing who to trust and under what conditions to do so.
Conclusions What is the best internationalization strategy?
- We can distinguish five types of companies depending on what phase of the business life cycle they are in and/or the amount of resources they have: Startups, scaleups, SMEs, large companies and multinationals. At the same time, we understand that there are four main internationalization strategies: Direct exports, indirect exports, alliances and non-commercial formulas.
- Companies larger size, such as large companies and multinationals, which have more resources available and can assume greater costs and risks in the internationalization process, will tend to adopt strategies that allow them to maintain a greater control of production and marketing, since this will help them adapt to changes in the environment. That is, they will mainly opt for the strategy of direct export.
- Companies smaller size, As the startups, scaleups y SMEs, who have fewer resources available to face the internationalization process, will resort to strategies that involve less coste and involve a minor risk, allowing them to explore foreign markets without compromising their current situation. In this case, the strategies indirect export, alliances y non-commercial formulas They are the ones that may be most interesting to you in general terms.
- When push comes to shove, each company must weigh the advantages and disadvantages that the different internationalization strategies present and decide if they prefer to maintain high control of the commercial process, even if this means having greater costs and risks, or if instead it is worth minimizing their costs and risks in exchange for reducing the control that they can exercise.
Internationalization assistant at RRYP. Student of Business Administration and Management and International Relations at Loyola University.
