Any entrepreneur deciding to start a business is faced with a unique challenge: for as much as you decide to pursue a niche in any industry, you will have to deal with a global level of competition.
In international marketing, we often address this issue by trying to understand the risk-reward relationship that connects international growth with the challenges associated with running a multinational enterprise.
There are many different reasons that can lead your company to seek international opportunities which can be broken down into two distinct categories:
- Proactive reasons. Proactive reasons are connected with opportunity-seeking strategies, such as entering early in a new market or taking advantage of one’s competitive advantage to attract, convert and retain customers in other markets. In this case, a company is aware of the opportunities that international markets present and is actively pursuing these benefits.
- Reactive reasons. Reactive reasons are instead connected to a situation whereby a company is aware of some incumbent threats that are menacing the long-term sustainability of the company and is – to some extent – forced to pursue international growth in an attempt to escape local issues such as a saturated market or a too intense level of competition.
As business people, we can find ourselves often focusing on the benefits and not as so much on the limitations. The 2 general gains of international growth are connected with:
- Increased sales. There are two basic ways in which our business will make more money: the first is by simply selling more. If we’re a strong business, with a highly competitive edge, we can decide to grow internationally to access a wider audience. As a result, our business will have an opportunity to monetize its products towards a much broader market and generate more revenue. Obviously in this case, entering foreign markets is a great way to dip into a much broader pool of potential customers.
- Better profit margins. In this second case, even if you are not selling more products, you are still making more money because you are able to make more profit with each sale. This happens because by accessing international markets, you’ll be able to find opportunities for manufacturing locations which are more efficient and therefore capable of providing a lower base cost, before you add your markup.
However, we need to understand that the choice to access international markets and develop a global growth strategy may depend on a variety of factors. So many – in fact – that assessing the degree of the feasibility of a growth strategy can be really challenging.
Thankfully in academia, thanks to the work of Solber (1997) a different approach has been pursued, one that focuses on two main variables: company readiness and industry globalism. Let’s clarify what they mean.
- Company readiness. Company readiness relates to how prepared for internationalization your firm is. This concept is – in fact – quite broad as it encompasses different types of resources available to your firm both in terms of access to finance, the opportunity for investment, and preparedness of your human capital to take on complex growth projects. According to this criterion, your company can be immature, adolescent, and mature.
- Industry globalism. This second factor relates to how global your industry is. Some industries like aircraft manufacturing are by definition global, whereas some industries like food are more local. Depending on the degree of globalism of your industry you will be subject to different degrees of pressure to take on a more global stance on markets. An industry, according to this concept can either be local, potentially global, or global.
The mix of these 2 criteria creates 9 windows of strategic opportunity or 9 different approaches to globalization, which we’re going to address in detail over the rest of the post. To help you navigate the content we’ve created a small index below. Enjoy.
- Options for ‘Immature’ Companies.
- Options for ‘Adolescent’ Companies.
- Options for ‘Mature’ Companies.
1. Options for ‘Immature’ Companies. Vs. Industry Globalism
In the context of international strategy by “immature”, we simply mean companies with more limited international experience. In this area obviously, the approach is fairly conservative and the suggestions relate to the degree of globalism in your industry.
- Local Industry. Vs. Immature Company. In this case, the blunt advice is to stay at home. What the model means is that there is no need to expand to meet global competition and the company would not be prepared to address the challenge.
- Potentially Global. Vs. Immature Company. In this case, the advice is to seek niches in international markets. What this means is that the company is not equipped to address the whole international market, but if it’s able to size up a smaller niche – one that ideally resembles local markets – then the business stands a bigger chance at succeeding.
- Global Industry Vs. Immature Company. In this case, it may be a good idea to prepare for a buyout. The reason for this is that a larger more established player may be interested in acquiring the company so as to avoid potential future competition. This means that if a small company competes with established giants, then it risks being acquired by the competition. This is not necessarily a bad thing, as many smaller companies can thrive within the context of a larger conglomerate as they are then able to access more funding and expertise to finally establish themselves more successfully in international settings.
Great, now let’s move on to a different scenario, where a company is still not completely mature but still able to address the challenge of international growth.
2. Options for ‘Adolescent’ Companies. Vs. Industry Globalism.
Let’s take a look at adolescent companies.
- Local Industry Vs. Adolescent Companies. In this case, the advice is to consolidate your export markets. Exports are not a very risky form of international growth, as it allows to test markets without actually committing too many resources to it – like in the case of foreign contract manufacturing. Exports are a good way to establish if a company should move ahead by entering foreign markets via hierarchical modes or foreign direct investment, or maybe stay put until their exports are more consolidated.
- Potentially Global Industry Vs. Adolescent Companies. Consider Expansion in International Markets. This is a situation where the business is potentially ready to grow, and it should definitely start collecting information and data about potential markets for expansion as the organization is at a tipping point in its development.
- Global Industry Vs. Adolescent Companies. In this case, the advice is to seek global alliances. The business should expand but is not necessarily well equipped to succeed, so in order to collect a stronger position, it should consider developing partnerships with more established, global organizations.
Ok, now let’s move on to the third typology of options, connect with mature and established businesses.
3. Options for ‘Mature’ Companies.
Let’s take a look at the options for mature companies.
- Local Industry Vs. Mature Companies. In this case, the advice is to enter new businesses. This means that a mature company that is competing in an industry that is not global is having its growth potential capped. As a result, then the business should enter new businesses and new industries which instead allow for this growth.
- Potentially Global Industry Vs. Mature Companies. In this case, the advice is to prepare for globalization. If the industry allows for international growth then the business should go ahead and allot resources so that it can pursue growth in foreign markets and aspire to a global presence.
- Global Industry Vs. Mature Companies. In this case, the advice is to strengthen your global position. This means that you are probably already a global business and in order to maintain a position of power over global markets you may want to act strategically by reinforcing your position.
Great, that’s it. Now that we’ve covered all possible options it’s time to start drawing a few conclusions.
As we’ve discussed there are many options available for your business, based on your readiness and industry globalism. For as much as this model is simplifying a very complex decision-making process, the 9 windows of strategic opportunity can help us start thinking about what is possible for us to do in terms of devising a strategy.
Having said this, international marketing decisions are very complex and in our blog, we have many more resources to help you collect information to make these decisions. Take a look below to see if you can find any additional articles that may be helpful for your business.