Many businesses, at some point, will consider the possibility of expanding to international markets. Whether the goal is to enter as soon as possible or something they are just beginning to consider, it’s important to develop an international strategy.
Where does one start with developing an international strategy? Research. For any business considering entering an international market, it is likely obvious to say they are, at the least, aware that it is a serious undertaking. There are a vast number of requirements that vary widely depending on the type of business. A company hoping to sell physical products will need to consider how their supply chain can pivot to bring their products to a new market. Are they hoping to source through pre-existing local suppliers? Or does a company hope to establish their own production facilities in another country? Any company, selling products or services, needs to consider how government regulations impact business.
Furthermore, a company should consider the needs and wants of the local market. Do people want or need your product? People in Europe and people in North America may both want bicycles, but do they want them for the same purposes? Additionally, what is their perception of your product or service? Brand perception is incredibly important. For large enough corporations, a negative brand perception could be enough to keep them from achieving true success in certain markets. Some people in a local market may like a good deal, but that doesn't mean they are just going to automatically embrace businesses like Walmart.
In any market, it is important to consider political and economic factors. How stable or unstable is the local government? Is the economy stable? An upcoming election is something that should be given attention. A change in government or even voter's priorities could drastically change policies around business.
Walmart’s attempt to enter and establish a solid presence in the Brazilian market, while long-lasting, was ultimately unsuccessful. A number of factors contributed to their failure including a lack of selling an assortment of products desirable to the local market, lack of competitive pricing, and economic downturn among other reasons. Organizations don’t need to be as large as Walmart to consider entering foreign markets of course, but it is important for anyone to realize an organization’s size and vast resources aren’t necessarily enough to guarantee success.
Today there are a number of different tools one can utilize to develop an international strategy. Some organizations may, of course, choose to outsource this to another organization that specializes in this work and others might want to do this themselves. There are a variety of analysis tools available, and some organizations may choose a combination of them.
Tools to Develop an International Strategy
A PESTLE analysis involves exploring the following factors in a country: political, economical, social, technological, legal, environmental. Political factors could include government policies and political stability. Economic factors might include interest rates as well as periods economic growth or downturn. Social factors involve things like age distribution and lifestyle influences. For technological, legal, and environmental there could be:
- Access to internet: are brick-and-mortar stores still popular and growing? Is the market moving toward ecommerce?
- Legislation: what are the laws around labor and competition?
- Pollution: especially important if a company intends to manufacture or even just import products.
The possibilities mentioned above are just a few of the many factors to consider. While there is no 100% guarantee, a well-done analysis will help a business to start off in the best way and to ensure they don’t enter a market they are more likely to fail in.
Another type of analysis that could be of help is the SWOT analysis. This addresses a company’s strengths, weaknesses, opportunities, and threats. Strengths and weaknesses are internal factors. Strengths obviously give a company a competitive advantage and weaknesses are something to (hopefully) overcome through improvement or other tactics. Opportunities and threats are both external factors. Opportunities, clearly, are a positive thing to take advantage of for a company. Threats are outside elements that may get in the way or eventually enable competitors to overtake a company.
Making a Decision
Attempting to take your business global is a serious undertaking. It can take a long time and even companies with seemingly endless resources still struggle. According to Harvard Business Review, “In an analysis of 20,000 companies in 30 countries, we found that companies selling abroad had an average Return on Assets (ROA) of minus 1% as long as five years after their move. It takes 10 years to reach a modest 1%...” This shouldn’t automatically discourage any organizations, but it should help provide an understanding that even the biggest and most successful organizations aren’t guaranteed success.
As stated above, a thorough analysis will provide the best chance at success, even if it isn't guaranteed. Even if a business ultimately arrives at the decision not to expand globally, the time and resources spent are still worth it in the end. Skipping or cutting corners on research will end up costing more. Additionally, the opportunity to expand globally may be something to still consider at a later date, just not for now. Alternatively, if a business does decide to move forward - you are sure to start on a better foot with a thoroughly developed international strategy. The two tools above are great to use in combination and with countless other resources available.
Everything mentioned here is only scratching the surface. It takes a lot of time and effort, but again a thorough analysis is better than doing one at all or barely making an effort at one.
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