Business internationalization is a process that allows a company to expand and take advantage of new business opportunities outside its national borders.
Internationalization occurs, for example, when an enterprise exports or sells its products abroad, when it establishes joint ventures or strategic alliances with foreign partners, when it implements foreign direct investment or relocation operations, or when it makes capital contributions from foreign shareholders.
In approaching an internationalization process, however, it is crucial to be clear about why you are internationalizing.
In fact, internationalization puts the company in front of ambitious but demanding challenges, which also imply a transformation of many aspects of the business. The process of business internationalization, therefore, cannot be improvised. It takes basic business solidity, a high level of preparation and a sharp vision of the goal you want to achieve and the tools needed to get there.
In this article, we will look in detail at what motivates a business to go international.
Why companies internationalize: ten key reasons
The opportunities of business internationalization are countless. In particular, there are ten fundamental reasons for a business to go international:
- increase turnover, as opening up abroad allows you to establish business relationships with more customers, who may turn out to be strategic business partners;
- increase sales and growth opportunities by expanding their potential customer base in another country;
- increase the lifecycle of their products, which may no longer be so attractive in their home market but could be attractive in a new market;
- Diversify risks, reducing dependence on a single market or client;
- Acquire new knowledge, skills and resources available in another country;
- Developing new technologies and new products through contamination with foreign countries;
- improve competitiveness on a global scale by accessing skilled labor on the one hand, and lower labor costs and tax burden on the other;
- draw on more favorable sources of funding, gaining tax and governance advantages;
- reduce dependence on economic policies and domestic market fluctuations, increasing the long-term stability of the enterprise;
- increase one’s brand appeal, with positive consequences for corporate reputation.
In addition to all the opportunities of internationalization that we have just seen, among the reasons for a company to go international may also be situations in which foreign markets are the only way out of business failure. This happens when market conditions in one’s own country are increasingly unfavorable and the company has no choice but to seek new opportunities across borders in order to survive.
In conclusion, we can say that the internationalization process can be triggered by multiple motivations, but often-especially with regard to the reality of any given domestic SME- the difference is the presence of a visionary, courageous, and enterprising entrepreneur who decides to engage in a medium- to long-term activity to conquer international markets. Interest in an internationalization process grows, therefore, when a company is led by a leader who wants to create his or her own competitive advantage in foreign markets with the aim of strengthening his or her company’s position in a global context.
The internationalization of SMEs enterprises
Finally, it is worth spending a few words on the internationalization of domestic companies, particularly the so-called “SMEs,” the small and medium-sized enterprises so prevalent in some countries. Although these types of companies have been present in international markets for a long time now, in most cases they have not made a real “quantum leap” from the perspective of internationalization.
On the one hand, underlying all this is certainly the difficulty of recreating abroad the ideal conditions for high quality production-at the height precisely of the famous and much-loved “Made in Country”-but on the other hand there is probably also the widespread concern of finding oneself creating business structures that are too rigid and complex, which could prove difficult to manage and sustain in the long run.
All this means that many domestic companies have launched themselves into foreign markets with internationalization models that are neither fully mature nor solidly structured, achieving less than satisfactory results. Instead, what can really make a difference in business internationalization is the mix of planning, analytical skills and willingness to be supported in the internationalization process by experienced consultants who can structure an appropriate and customized strategy.
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In my consulting work dedicated to business internationalization, I am precisely concerned with helping companies-particularly domestic SMEs to develop a differentiating strategy to successfully emerge in international markets.
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