What you need to know before your company goes international
Even though the term globalization was coined in 1897 (yes, 1897!), we have seen it take over our way of life and economy over the last 30 years. It is everywhere. Everybody seems to know it. And in business, that is front of mind for companies, right?
Wrong! I am shocked how many times I encounter companies that are not nearly as purposeful in their global strategy as they should or as they may think they are. Actually in small and medium businesses many times their international presence happens by accident. As a result, many times it doesn’t bring the desired results and a lot of money is wasted in the process. I have seen examples where it brought down the whole business.
THE FOUR MAJOR STRATEGIES OF INTERNATIONAL BUSINESS
For starters, let’s understand the spectrum of what going international means. The four major categories are Export, Distribution, Joint-Venture and International Subsidiary. As you move from one type of strategy to another, the general rule you will see greater risks, complexity, costs, but also control. Let’s discuss each one of them.
If you decide to EXPORT, the risks are low since you will do it from the comfort of your home country and it may be a relatively inexpensive way to expand your top line and expand your product’s reach.
When you set up a DISTRIBUTION network by contracting wholesalers or distributors or engaging sales representatives, the complexity grows and depending on the country the taxation rules will also vary. It may be a cost efficient way to expand your markets and have a more proactive approach. The downside is that you do not have control over your network, brand or image.
You may be considering a JOINT-VENTURE (JV) with a local company. This may accelerate your learning curve about the target country. The complexity and costs are greater and your control increases as well. The downside of a JV is that you are not calling all the shots, you have a partner.
Lastly, we may decide to have an INTERNATIONAL SUBSIDIARY. You may get there via a merger or acquisition or starting from scratch. Usually this choice is the most costly, but it is also the one that gives you the most control.
DEFINING YOUR STRATEGY
Now that we define what going global can be. Here are a few things to keep in mind when defining your strategy:
Think about what fits best with your company’s long term goals.
Map the location of your customers and suppliers.
Do your due diligence: of partners, locations, local law, options, timing, etc.
Understand culture, infra-structure, and tax regulations of the country you are targeting.
Check if there are treaties with the US.
Learn about the business ethics, expected conduct, availability of skilled labor, overall labor market trends, economic and political state of the country you are planning to do business in.
The list above is by no mean exhaustive, but a good start. And of course we all want some luck, but it can’t be the base of our strategy. When going international winging it is not the answer. What’s your strategy? What’s worked best for you?