Business internationalization: types, goals and strategies

What is meant by ‘business internationalization‘?

In contrast to what one might think, the expression is not equivalent to ‘export’. Exports are in fact only one possible form of internationalization.

More precisely, it represents the set of activities by which a company opens up to foreign markets, creating relationships with other companies, consumers and institutions operating in these territories.

When the development of these relationships takes place on a commercial level, we can speak of export.

After analysing the most widespread forms of internationalization, we will focus on the opportunities and risks of the process, using examples from the B2B world as always.

In addition, we will focus on how to develop an internationalization project and the tools to support this process, with a special focus on SMEs.

The characteristics of the latter in fact determine foreign development paths that are very different from those of multinationals.

The forms of internationalization

Business internationalization is a complex phenomenon, which does not necessarily involve the sale of goods and services and touches all operational areas of the company.

Here are its main types in addition to exporting:

• Internationalization of supplies: this occurs when the company establishes supply relationships in foreign countries. The process may be driven by the intention to diversify the supply chain, the need to reduce raw material costs, or to identify very specific sources of supply not available at home.
• Internationalization of R&D: this occurs when an organization’s R&D activity is developed abroad independently or through partnerships with other companies or institutions of a public or private nature. An example is an agreement between an agri-food company and a foreign university collaborating with the private sector to study new types of sweeteners. Another case is the creation of a joint venture between companies in two countries for the development of an innovative technology for industrial use.
• Financial internationalization: it involves a company’s entry into foreign financial markets. Here again, the objectives can be very diverse and include the search for new sources of financing, the purchase of investment vehicles, the acquisition of shares in corporations and more.
• Production internationalization: the typical example is relocation, whereby a company moves or expands its production abroad. The last few years have seen a reversal of this phenomenon for many Western companies, with so-called reshoring to bring manufacturing of products back home or to neighbouring countries (in this case we speak of nearshoring).

Getting international: what you should consider

The internationalization of a company is a complex and challenging process that requires adequate knowledge, skills and means. Put another way, it is not possible to be international without a strategic plan.

Before delving into its elements and how to develop it, let’s see what opportunities and risks a company should take into account before embarking on an internationalization process, regardless of its type.

The opportunities

Post-World War II globalization has opened the doors of companies to a much larger market than before.

The development of economic agreements between individual countries and international institutions has facilitated this process: just think for a moment of the European Union’s single market, with a value of EUR 14,500 billion in 2021.

On a theoretical level, this situation allows companies, even SMEs, to seize important opportunities. Here are some examples:

• Faster access to new markets with consumer groups and companies in line with their offerings.
• Harmonized customs and administrative procedures.
• Greater diversification of outlet and supply markets, with a consequent reduction in operational risks.
• Availability of tools to facilitate internationalization, often offered by internal bodies of national and international authorities.
• Possibility of exploiting new technologies to identify and make contact with other companies and organizations, in less time and in an easier way.

However, the fact that companies today have more tools at their disposal to internationalize does not mean that this process is simple.

The risks

Among the risks that an internationalization project brings are:

• The country risk: this is related to the political stability of the area in which one wants to operate. It will obviously be higher for those areas of the world characterized by authoritarian political regimes, with high corruption and anti-democratic tendencies.
• The monetary risk: this depends on fluctuations in the exchange rates of the currency used within a country.
• The economic risk: this is the same risk normally faced by companies in the country of origin, and is linked to the volatility of demand and the resulting uncertainty of business activity. Abroad, this risk is usually higher because there is less in-depth knowledge of the market and its dynamics, which can change rapidly, especially in emerging economies.
• The legal risk: this is related to the country’s legislative scenario, and coincides with the likelihood of incurring court cases due to a lack of knowledge of the regulations in force.
• The credit risk is related to the possibility of customer insolvency in foreign markets. Here again, the lower knowledge of the country, its economic dynamics and the health of the companies determines a higher risk than at home.

Internationalisation strategy: how to build it

Having seen what the benefits and risks of internationalization are, let us see how these factors can be managed.

The essential tool for this is the internationalization plan.

It is a document in which to condense goals, data and assessments relating to the company’s project.

Obviously, each reality constitutes a case in point, and this results in a different structure of the plan.

Before proceeding with its drafting, however, there is a fundamental step for every organization: the preliminary check-up. Let us see what it is.

Are we ready to be international?

The check-up is a process to assess the readiness of a company aiming to be international.

As we have said, this activity cannot be improvised, which is why it is necessary to know beforehand whether one is ready to take on the risks and opportunities of the project.

There are four elements that must be assessed:

• The level of commitment in the company: all company departments need to be convinced that they want to invest time and resources in the project. This is the only way to be truly aligned on the objectives and to deal with possible mishaps along the way.
• Real knowledge of the product/service: it is essential to really know your product or service, its strengths and weaknesses, the needs it has met in the domestic market, the way it has been sold, the requirements in terms of supply and beyond. Only in this way is it possible to understand whether and how to adapt it to new markets, in the case of export projects, or more generally what strategies to develop there.
• The ability to adapt to the international context: it is a matter of possessing (or being able to find) the skills with which to enter the foreign market. The first hurdle is that of language; management must be able to communicate in the correct way at all times, and it is often necessary to use specialists who can act as intermediaries.
• Financial coverage: any project requires the right funds. The initial check-up makes it possible to find out which funds are available for internationalization and whether external financing is needed.

The internationalization plan: the essential elements

Once you have checked that all the necessary conditions are in place, you can move on to drafting the plan.

Here are the elements that must not be missing from it:

1. Goals setting: what results do we want to achieve abroad? In what timeframe? This process involves the analysis of both qualitative and quantitative information. Here are some examples: the turnover levels to be achieved, the number of new customers to be identified, the characteristics of the suppliers to be found, the specifications of the product/service to be developed
2. Financial analysis: how are the project resources to be allocated? What costs are expected? What is the expected return on investment? What external sources are needed?
3. Target markets selection: which areas are most suitable for the strategy? What characteristics do they have in economic and cultural terms? What business opportunities do they offer and what is their risk profile?
4. Partners identification: which companies and institutions should be partnered with?
5. Results evaluation: have the initial objectives been achieved? What are the problematic aspects to be corrected? Which ones need strengthening?

Starting from these questions, let us see how an SME can build an internationalization plan.

Developing the plan: an example from the B2B world

The structure of a small or medium-sized enterprise is not the same as that of a large multinational.

If the latter can manage an internationalization project independently, for example by setting up distribution centres abroad, the former will have to proceed differently.

Let’s imagine, for example, an SME specializing in moulds for rubber and plastic components.

With a solid presence in three EU markets, the company’s management decides to look at sales opportunities in the still unexplored Netherlands. At the same time, the company needs to reorganize its supply chain, opting for a foreign supplier offering specific machinery.

The first step is the check-up: is the company really ready to target a new market?

The product knowledge accumulated over fifty years of history and a budget allocated at the beginning of the year make it possible to answer the question positively. As far as the capacity to adapt to the market is concerned, previous experience in economically and culturally similar countries allows reducing cultural barriers.

Now is the time to define goals.

The sales department aims to find at least two new business customers by setting a minimum turnover threshold. For machinery, it is decided to conclude a new contract for the purchase of new mould milling machines by the end of the year.

Having precisely defined the budget available, we come to a crucial stage.

We are talking about the analysis of target markets, both upstream and downstream of the value chain in which the company operates.

The first objective is to identify potential customers specializing in the production of plastic fasteners for the automotive sector.

With regard to suppliers, on the other hand, for the first time the mould manufacturer will have to compare different countries and evaluate the most suitable one to acquire the machines that the current partner is unable to offer.

In both cases, the solution is a tailor-made market analysis. The first is aimed at mapping the Dutch manufacturers of plastic fasteners for the automotive sector, while the second provides a snapshot of the concentration of potential suppliers in three countries: Germany, Hungary and the Czech Republic.

Conclusions

We have seen what is meant by internationalization and how this concept encompasses several areas.

In addition to exporting, business internationalization also concerns supplies, R&D, finance and production.

In any case, it is a complex activity, the execution of which must be preceded by a risk assessment.

However, the first step is the internal check-up: the company must be certain that it has the determination, capabilities and means to approach a foreign market.

Once this self-analysis has been completed, an internationalization plan must be defined. Within it, there must be room for:

• The goals setting.
• The financial analysis.
• The selection of target markets.
• The identification of partners.
• The evaluation of results.

In order to better understand these phases, we used a concrete example from the world of manufacturing, highlighting the contribution of market analysis in two fundamental phases: the targeting of markets and companies to collaborate with.

At Matchplat, we have put technology at the service of these processes, with the aim of speeding up a crucial activity for business internationalization.