Internationalisation is the process of increasing involvement of enterprises in international markets, either by marketing its products or directly setting up abroad. There are several factors that come into play when planning a company’s internationalisation strategy. It is particularly essential to set the objectives pursued, as they have a direct impact on the setting-up process:
REDUCE COSTS: SETTING-UP ABROAD
The best option when the aim is to reduce production costs and, therefore, increase productivity, is to establish the company overseas by setting-up a branch office or acquiring an established local company to manufacture products. This can be done either alone or in collaboration with a local partner.
INCREASE CUSTOMER PORTFOLIO
On the other hand, if the internationalisation goal is to penetrate new markets to get more prospects and customers, the best option is to establish commercial presence by signing an agency, distribution or technological transfer agreement.
Each process entails inherent risks and has an impact on the resources earmarked for internationalisation. Establishing a commercial presence abroad generally poses fewer risks and requires fewer resources than setting-up a branch office or local company.
Given the different jurisdictions involved (of the supplier and the distributor), and with regard to establishing a commercial presence abroad, it is advisable to sign any agreements in writing to avoid disputes in relation to the law applicable to the business relationship. This written agreement will also establish the legal framework for the relationship, especially concerning, but not limited to, the consequences of an eventual termination of the relationship, such as the payment of damages and goodwill compensation.
INVESTMENT FEASIBILITY PLAN
In addition to analysing the process of setting up abroad, it is essential to research the target market and draw up an investment feasibility plan. This, together with a tight control over the investment, is crucial to the success of any internationalisation process.
THE SUCCESS OF FOREIGN TRADE LIES IN PLANNING A GOOD STRATEGY
This should consider the following aspects:
- Setting goals – Reducing costs / increasing competitiveness (direct investment) – Developing new markets (setting up commercial presence)
- Market research – Business / commercial – Cultural and legal aspects
- Advice from local experts in the field concerned.
- Analysis of risks inherent in international contracting – Cross-cultural negotiation – Different legal systems – Different currencies – Geographical distance: controlling / managing accounts receivable
- Differences in product quality standards.