Do you have big hopes and dreams for your business? Can you see yourself thriving in an international market? If you’re excited by the idea of taking your business global, then you’ll need to know all about the different internationalization strategies and the challenges they pose.
Our globalized world has made it easier than ever to cross national borders and do business abroad, expand your audience, and grow your revenue. So what different approaches are international businesses taking to going global?
In today’s article, we’re going to discuss the four international business strategies used by companies to boost their businesses globally.
First of all, let’s answer some key questions before we dive into the strategies.
What is internationalization in business?
It’s exactly what it sounds like! It’s about taking your business to the next level, expanding your horizons, grabbing the bull by the horns… and so on.
When you decide to internationalize your business you’re not undertaking an easy task. It requires planning, resources, and plenty of energy. So where do you even begin?
Coming up with a strategy is a great place to start.
What is an internationalization strategy?
By definition, an international strategy is a strategy through which the firm sells its goods or services outside its domestic market. International markets yield plenty of new opportunities for your business to grow. With an internationalization strategy your business could see:
- Increase in market size and emergence of new markets
- Greater ROI
- Competitive advantage by location
- Global brand recognition
- Global customer satisfaction
Business internationalization can have huge benefits, but that doesn’t mean it’s risk-free. You’ll have to consider some risks when adopting an internationalization strategy, including increased costs, barriers to trade, and lack of sensitivity to local demand.
But let’s focus this article on all the great opportunities business internationalization can bring!
Choosing the right strategy
Now, let’s take a look at the four international strategies and what they could mean for your business. Some strategies share similar aspects, but they each represent a unique approach to business internationalization. First up:
The international strategy is arguably the most common of the four.
Often called an exporting strategy, it focuses on exporting products and services to foreign markets while maintaining production headquarters at home. This means companies avoid the need to invest in staff and facilities overseas. Business objectives are mainly towards the home market, but with some relating to the international market.
There are some challenges that come with adopting the international strategy, such as initiating sales offices abroad, managing global logistics, and making sure that your company complies with foreign trade regulations.
Key features of the international strategy:
- Business objectives and competitive advantage relate primarily to the home market
- Products are produced in the company’s home country then sent to customers all over the world
- Often referred to as an exporting strategy
This strategy is often followed by small local businesses that are seeking to export resources to foreign markets. Some good examples are wine
The multi-domestic business strategy invests in establishing a presence in a foreign market and tailoring its products to the local market. Companies adapt their products and offerings and reposition their marketing strategies to engage with a foreign audience. This includes taking into account foreign customs, traditions, and cultural traits.
With a multi-domestic business strategy, company headquarters are often maintained in the country of origin. However, the company may establish localized headquarters overseas from which they can more easily manage relations with foreign customers.
Key features of the multi-domestic strategy
- Focus on establishing a presence and tailoring products to suit new markets
- Competitive advantage determined separately for each country
- Multi-domestic strategies are largely used by food and beverage companies.
Nestle is a great example of a country using a multi-domestic strategy. It takes a different marketing and sales approach in each of its markets and adapts its products to local tastes.
When companies adopt a global business strategy they treat the world as one market and leverage economies of scale to boost reach and revenue.
Global companies have little local variation, as products and services are homogenized to reduce costs while reaching as many people as possible. Usually, these companies have a central office or headquarters in their country of origin, while also establishing operations in foreign markets.
Although most aspects of the goods and services are homogenized, small changes might need to be made. For example, fast food companies like McDonald’s or Burger King might have to alter, add, or remove certain menus from their menus to suit the needs of local markets. Pharmaceutical companies are a great example of a global strategy in use.
Key features of the global strategy
- An integrated approach across different countries
- Homogenized products to minimize costs and reach a broad audience
- Small adjustments needed to break into international markets
Although global and international strategies sound similar, there’s actually a big difference! Where international strategy maintains a domestic policy and adapts it to international markets, the global strategy involves companies treating each foreign market differently and adapting their products or services to a foreign market.
Now things get a bit more intricate. The transnational business strategy combines elements of global and multi-domestic strategies. This means that the business is still operating from its headquarters in its country of origin, however, it also allows the company to expand with full-scale operations in foreign markets.
Transnational companies sell their products and services in multiple countries across the globe. The difference lies in how the product is marketed in each country. A transnational product is the same regardless of the country in which it is sold. It doesn’t change to suit a new market – the product is the same everywhere and isn’t modified to appeal to local customs or preferences.
The challenges of the transnational strategy include identifying effective management tactics and large investment costs.
Key features of the transnational strategy
- Combination of global and multi-domestic strategies
- Allows the establishment of full-scale operations in foreign markets
- Companies have separate marketing, research, and development departments to respond to local customers
- Product or service is the same for different markets
A great example of a brand that has employed a transnational strategy is everyone’s favorite soft-drink Coca-Cola. Coca-Cola is the same everywhere, it has the same logo and marketing approach, the same taste and formula all over the world – the only thing that changes is the language on the packaging.
Next steps in business internationalization
Now you know all about the four internationalization strategies, you might be wondering how to go about choosing one that’s right for you.
You’ll need to think about your growth objectives and the resources you have on hand. If you have a deep understanding of these business internationalization strategies and are ready to put your analytical and management skills to work, then you’re ready to begin expanding your business.
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