Strategies for Successful Internationalization Projects
1. Market-Entry Preparation
One of the first tasks in an internationalization project is to collect objective information about target markets and client potential, their maturity and readiness for your product or service. In other words, to become competitive in international markets it is crucial to rely on meaningful knowledge and business intelligence. This information needs to drive your business growth strategy based on the real cost of doing business locally.
In addition, even though your product or service may be well established in your home market, your target market may expect product adaptations to their local taste, or local willingness to pay may be different and you will have to adjust product pricing.
It is also crucial to understand specific requirements and in particular legal and regulatory frameworks to adhere to. Based on the initial research, an informed decision regarding the scope of the internationalization project can be made, e.g. between foreign direct investment and setting up a partnership or joint venture with a local firm in the destination country. You may also chose to collaborate with local export partners or local distributors, without setting up a physical presence in the target market. Some regional economic development agencies offer special programs and detailed information on export promotion.
2. Site Selection
Choosing the right destination for an expansion project to increase international activities involves a large set of variables to be factored in: You may already have a certain customer base in a particular region and these customers ask you to be closer to them. Client proximity aside, you may prefer to locate in another area with significant client potential to increase market share and regional scope of your operations.
For many companies the availability of a skilled, qualified work force is key, along with other resources that are needed for production and research. In addition, depending on your specific needs logistics infrastructure, utility costs, available grants, subsidies and incentives, tax benefits and support from Economic Development Agencies, regional training facilities, research labs and universities will influence your site selection decision and market entry strategy.
It makes a lot of sense to explore different regions within a large market such as the USA or Canada to evaluate regional differences in buying behaviors, ease of entry, competition, work force unionization etc. Identifying the ideal place to be and preventing a delay in project roll-out due to common obstacles that compromise an international expansion is very important and requires thoughtful consideration also with regards to cultural aspects and possible language barriers.
Understanding the competitive environment in your target market is critical when you devise your entry strategy. […] For example, Starbucks can be found almost anywhere in the world but not in Italy, where the family-owned cafe concept has been thriving for many decades.
Reducing time-to-market in an international expansion is an important competitive advantage. Ideally the management team should have in-depth knowledge of the target market and an international network of partners. While it is important to be fast, there is no doubt that preparation time to develop an informed market entry strategy and a detailed execution plan is an investment that pays off. Support from local partners should be utilized to further accelerate the expansion.
Economic Development Agencies are there to help with site selection. They also offer insights on the availability of third party manufacturing facilities and shared facilities, such as labs, that can be used by several companies to save time and money related to development and operating costs. A joint venture with or a strategic acquisition of a local company already established and operating in the target market is another way to speed up the expansion process.
By using existing infrastructure and business relationships indirectly through the partner the expanding company gains a better understanding of local market dynamics, buying criteria and decision making processes. The partner’s network is likely to provide faster access to potential customers.
12 to 18 months
Average time following initial market entry to generate a steady revenue stream in a new market.
Average percentage of equity-funded investments by German SMEs in international expansion projects.
Securing funding for an expansion project can be challenging and not only set-up costs such as purchase and installation of equipment and machinery should be looked at: It takes on average 12 to 18 months following initial market entry to generate a steady revenue stream in a new market. Usually, companies combine different sources ranging from their own equity, bank loans, grants and subsidies to investments raised from joint-venture partners to fund international growth projects.
For larger expansion projects tax incentives related to job creation in the target market are usually available through regional governments or private-public partnerships and can be a significant part of the financing strategy.
Ensuring smooth project roll-out is key to make the internationalization project successful. Depending on the scope of the expansion, a strong network of regional sales and marketing staff, distributors and middle-managers with in-depth knowledge of the local market and associated risks is a necessity.
As organizational structure, management system and corporate culture in your home market may be different from what works best in the new destination, local managers can act as facilitators and assist with adjustments. The prime goal is to be competitive in the target market by avoiding common pitfalls such as surprise expenses that diminish anticipated profit margins and lead to financing issues, non-acceptance of the product or service by local customers, a lack of qualified staff or cultural mishaps with regards to personnel and customer relationship management.
As such, language and inter-cultural employee training, multi-lingual marketing materials and product documentation and a profound understanding of expected service levels in the target market are critical success factors.
Making partnerships or alliances is really the way to go to get into different markets and gain management experience.