In a world that is moving faster and faster thanks to global digitalisation, companies have an easier internationalisation process and can benefit from it economically.
Today there are different types of strategies that can be applied to reach an optimal internationalization, for this reason, below we will explain more in depth the most used strategies that work best for companies.
What is the internationalization of a company?
The first thing you must understand before applying strategies of internationalization of companies, is its meaning, if not, nothing of what we explain later will make sense.
So, to explain in a simple way what is the internationalization of a company we will use as an example the biggest company in the world, Apple. This company has applied different strategies to be able to have a presence in the most economically strongest countries in the world, the internationalization of a company is precisely that presence of which we speak, is the ability to expand its product to different markets beyond borders.
A very important point to highlight is that the internationalization of companies cannot be confused with travel or temporary business plans. When we talk about internationalization, we refer to a permanent establishment in foreign markets, therefore, internationalization strategies are aimed at expanding the company’s market permanently to other countries.
Also, when we talk about the internationalization of a company, it is important to know that there is no exact time to start the expansion process, but everything will depend on the economic resources, decisions and objectives set by the company’s management to start, or not, this process.
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The first strategy that we will talk about in this article to achieve the internationalization of your company are exports. This strategy is widely used by companies to be able to start taking their products to markets outside the country of origin and, in this way, to be able to obtain great economic benefits.
This strategy allows a continuous process of internationalization, that is to say, this process is carried out and little by little the company is established in the country, this because it starts from exports and not arriving in a consolidated way to the place.
As we mentioned before, this is one of the most used methods by companies, since in these cases the priority is the internationalization of the product, so that it becomes known, and depending on how consumers behave and how receptive the product is, they can begin to expand in order to achieve full internationalization to the destination country.
The companies make their product reach another country through indirect export, opening the way to a new market, after this, little by little, different studies are made to be able to move on to a direct export so that, in this case, the internationalization of the company can be achieved in a definitive way.
Now, we will delve a little deeper into what is direct and indirect export.
Let’s start with the indirect export, in these cases the company takes its products abroad through third party companies, where in most cases the producing company is not responsible for the paperwork nor is responsible for the export as such, this third party company is who is responsible for all the paperwork and processes, as well as bringing the product to market. These third party companies are usually commercial agents or trading companies, and they also know the market, how consumers behave in the area and other fundamental aspects to ensure that the product can have a positive impact on the company.
On the other hand we have direct exports, in this, the company does not make use of any third party company, but itself is responsible for exporting their products, taking care of all the paperwork and legal processes, as well as also takes charge of bringing the product to market, find customers, establish techniques to make themselves known, etc.. That is to say, at this point the company takes charge of everything, so that it opens the way to business internationality.
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Establish a production plan
Another strategy used by companies is to establish a production point in the country to which they want to expand so that they do not need to export their products. These production points can be established through different agreements or direct investment.
It should be noted that implementing this strategy is much more expensive than exporting, but nevertheless will generate more benefits in the long term, since the investment is high, but reduces export costs, therefore you can recover the invested capital quickly.
In order to establish yourself in another country so that you can produce your products on your own is a bit complex, you must know all the legal processes that you must perform both in your country and the country you want to reach, always in these cases it is best to seek advice from experts in the field. For this reason, if you want to establish a business plan or want someone to do it for you, in TAS Consulting we provide different types of legal and financial advice that will benefit you if you want to make an internationalization.
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Contractual Agreements: Licensing and Franchising
Contractual agreements are also widely used when it comes to taking a company to its internationalization, these are based on contracts and agreements with companies in other countries in order to bring the brand to the destination that has been agreed.
The level of responsibility increases in these cases, since there are two companies that will be involved in the same economic activity, so we recommend that you analyze a lot with which companies you want to ally or agree any type of contract. In these types of pacts and agreements between companies, two types stand out: licenses and franchises.
Licenses are agreements made through a contract between the licensor, which is the company that grants the licenses, and the company that wishes to establish itself in the country. The licensing company has different rights in its name, so that through the contract, it grants such rights so that the foreign company can establish itself and carry out its economic activity in the country. Among the rights that a licensing company generally owns are: Trademarks, permits to manufacture or commercialize, patents, etc. These rights are granted to the foreign company with different conditions so that they can benefit the licensor.
On the other hand we have the international franchises, these are also contracts but unlike being with a licensor, it is with a franchisor. In these cases the franchising company grants more than just permits and rights, it grants already established systems of production and marketing, so that the foreign company can arrive and use these assets, while the franchising company can receive different benefits for granting the rights and assets so that the foreign company can start operations quickly.
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This is the most ambitious strategy and has more risks, when we talk about direct investment we refer to when the company decides to establish itself in the country of destination on its own without having any partner, which gives you more control to be able to develop as desired and thus to achieve internationalization effectively.
This strategy proceeds through the creation of subsidiaries in the country, so that local production and marketing can be carried out without problems. In these cases, the management of the company wishing to internationalize must know very well the sector and the market it is reaching, since all decisions will be taken internally and will not have any local partner who can intervene and advise on consumer trends.
Investment in shares
Lastly, we have the investment or acquisition of participation in a foreign company, in this case, the company that wishes to internationalize acquires partially or completely the shares of a company, in order to reach the new market through an existing company and thus be able to generate more confidence in the brand.
This type of investment is also costly, since we are talking about the acquisition of an already established organization, however, it can be very profitable since the company already has a production, marketing and other types of systems in place.
However, we must mention that this process has very high levels of risk, since there are many factors that you will have to take into account in order to successfully make a strategic plan and implement it in a proper way without having many inconveniences.
Undoubtedly the internationalization of a company is essential in its life cycle, since there are many benefits that you can get from it, both in recognition, as economically and legally. If you wish to contact us for advice and start your internationalization process in your company, you can enter our website, there you will find more information about our services, we are waiting for you!