It seems that business internationalization is totally necessary for the Growth of the company to the globalization. This phenomenon has allowed borders to be diluted to give rise to a common market of which all actors can be part, with the consequent benefits and disadvantages that this entails for users and companies.
Furthermore, part of the academy and professionals in the sector see internationalization as a way out of the crises that companies face in their domestic markets. Internationalization allows permanence, survival and growth of the company thanks to being present in several markets.
And although this is true, for the internationalization process to be carried out satisfactorily, it must be linked to the business competitiveness. And this is the big problem of many companies that pursue internationalization in the short term and without being convinced of it; that propose objectives that are not very coherent with the means they are willing to use to achieve them.
Therefore, in this entry, I will explain what the implementation of a company in a new market consists of, but not before commenting on what internationalization really is and what other entry strategies exist to improve the competitiveness of our company based on our budget. , which will be the one that defines our objectives.
What is business internationalization
Internationalization is the process by which the company develops its capabilities to do international business in other countries that constitute markets other than its natural geographical environment.
Therefore, activities that involve exporting, importing, transmitting technology and knowledge or investing directly abroad are part of this concept. However, not all of them can be positioned to the same degree. We could say that each of them are part of the different stages that a company goes through to be able to say that it is an international company.
Phases of business internationalization
The internationalization process of a company can be divided into different phases based on its attitude and operations in international markets:
Phase I: sporadic exports
The company exports sporadically through external agents that promote them. They do not address a business strategy, much less a programmed investment. Your attitude is passive in the face of a new market that offers you options.
Phase II: business partners and customers
The company begins to prospect for new markets. Start learning about international markets and actively look for partners and clients in foreign markets through fairs, business conferences, events or commercial agendas.
At this point, the company will begin to export regularly through local importers-distributors; for what you will have already invested – although minimally.
Phase III: consolidation in new markets
In this stage the company will consolidate its sales in the new international markets in which it operates. The company's business model will consider internationalization as a strategy for permanence and growth as this represents an important contribution in terms of turnover.
To do this, the company will have to invest in prospecting trips and a foreign trade department - whether its own or external - that helps them define and implement the business and marketing plan. You must also have legal advice to carry out international operations.
Phase IV: creation of own subsidiaries or branches and permanent establishments
In this phase the company will be reaching the end of its internationalization process. It will invest in infrastructure and personnel in the destination countries, where its presence will be notable and lasting over time.
Phase V: own production center
This last phase represents the highest level of business internationalization. The company will adapt to the local market and operate in it as another domestic player.
These phases do not represent an immovable roadmap, but rather an indicative guide for companies seeking to establish themselves abroad. Actually, each company has its own objectives and resources, and they must define their own roadmap to achieve them. The Cordoban Wigeon It is a very good example of successful internationalization.
Entry strategies to foreign markets
As we said, companies have different ways to penetrate markets, each with its own advantages and disadvantages. The development and execution of one or the other will depend on the objectives of each company and its resources. Therefore, at RRYP we always start from this to develop the internationalization plan.
Let's look at some entry strategy:
Exporting as a strategy to access international markets
Direct sales from the country of origin (or export) tend to be considered the most appropriate route for a first prospecting, as long as the market allows it.
Apart from traditional sales, associated with logistics and transportation, the spectacular development that has been observed in online sales should be highlighted; and not only wholesale (business to business, B2B), but also retail (business-to-consumer, B2C).
Online sales make the product visible in many markets, outlining its uniqueness at all times.
Basically, there are two online sales strategies: one that is carried out through one's own website and one that is associated with online sales platforms.
Own website to internationalize a company
Having your own website requires special attention. The product catalog must be kept updated, SEO positioning must be taken care of and the legal frameworks of each destination country must be assessed, among other aspects.
Online sales platforms
Therefore, collaborating with an online sales platform can be very beneficial. Amazon, Alibaba, eBay… They provide access to a large customer base and facilitate payment management, but they claim a percentage or commission for the services.
The assessment that can be made about export as a market entry strategy is as follows:
| ADVANTAGES | DISADVANTAGES |
| 1. Investment risk 2. Direct control of the company 3. Net sales margin for the company. | 1. Remoteness from the market 2. Need for personnel at destination 3. Business burnout. |
Implementation in the destination country as a strategy to access a foreign market
This option is closely related to international investment flows, that is, the interaction that occurs between a non-resident investing company and another resident investee company.
Depending on the degree of control exercised by the parent company, different implementation modalities can be distinguished.
Implementation modalities in the destination country
- La branch office, when the company receiving the investment is wholly or majority owned by the parent company, always maintaining its identity, although without commercial and financial autonomy.
- La subsidiary, when the company receiving the investment is wholly or majority owned by the parent company, sometimes disregarding its identity, and having commercial and financial autonomy.
- La joint venture (or joint-venture), when a company joins others, whether national or foreign, to form a new company in the country receiving the investment, with also symmetry in the decision-making capacity of the partners.
Insertion modalities in the destination country
On the other hand, if we look at the insertion method, three implantation modalities can be distinguished again:
- Through new company, which may bear the name of the matrix. It is what is known as greenfield in English, and represents a clear expansion of productive capacity in the country receiving the investment.
- Through previously installed company, that is, acquiring a local company with problems (which does not increase the productive capacity in the destination). It is the most advisable when there are strong barriers to entry into the market.
- Through one discreet introduction of foreign capital, that is, via a commercial agreement or license between a multinational company and a local one, something that is usually articulated in practice through a franchise agreement.
In this entry you can find an example of how to establish a company (Cordoban pastry shop) in China: https://relacionateypunto.com/inversion-extranjera-directa-en-china
RRYP – Internationalization Services helps you prepare your internationalization plan
At RRYP we are experts in the internationalization of companies in an agile way. We design strategic plans to achieve the objectives of companies in international markets. We would love to help you: [email protected].
Article co-authored by Alvaro Perez and Mar Gámez
LL.M in International Business Law and Law from ISDE and graduated in Law and International Relations from Loyola University. CEO and business internationalization consultant at Reáculoateypunto.
