28 Jan Internationalization: let’s start!
It’s finally decided: we’re going abroad!
For many companies, internationalization is a challenging but decisive step towards expanding their offerings and serving international markets better.
In this particular period of slow recovery from the global pandemic crisis, it is impossible not to look across borders, where there are some positive signs: exports, even if with many limitations, have started up again. In the October-December quarter of 2020, compared to the previous quarter, exports of Italian products grew by 4.0%: a decisive increase on an annual basis was exports to China (+18.3%), to the countries of South America (+16.3%), to Turkey (+8.4%) and the United States (+8.0%).
But what are the things to keep in mind when deciding to start an international experience? Among the many considerations to be made, in addition to defining clear objectives to be achieved and the target country (or countries) to be identified, one of the first things to ask yourself is with which method you want to approach a foreign market.
Sometimes the choice is dictated by urgent needs, other times you have the opportunity to choose in a thoughtful way which channel to use.
If we were to categorize the channels for accessing international markets, they would be divided into direct channels, indirect channels and partnerships.
The direct internationalization channels could be defined as follows:
- Direct selling to the user, with or without the use of agents, i.e., going out to find customers directly, without the use of intermediaries.
- Direct settlement, through its own headquarters (sales, logistics, storage, production or technical assistance), or the opening of a branch or directly controlled company; naturally, this choice involves more demanding organizational solutions, in terms of costs and human resources employed, so it can neither be improvised, nor addressed without a precise strategic design.
- E-commerce, or online sales as a direct channel for managing relations with foreign markets; this method is particularly suitable for niche markets.
Indirect forms of internationalization, on the other hand, involve the development of relationships with intermediate/third parties, such as buyers from large distribution chains, importers and distributors, brokers, export management companies or trading companies. These indirect channels delegate to third parties much of the bureaucratic management and tasks associated with the management of relationships with foreign countries, and so they can represent an easy solution, especially if the company has difficulty in organizing itself to go abroad independently. It is also true, however, that through these indirect channels, contact with the end client is lost, and control of the reference market may be decidedly weak or almost non-existent.
Finally, the various types of partnerships and alliances are an intermediate step away from direct control, or indirect forms of internationalization. Partnerships can be contractual or in the form of equity participation, and are usually between two parties, in this case of different nationalities, who intend to carry out an activity with a common interest. The main points of attention within a partnership process relate primarily to the way in which integration between the two different entities is achieved. Sometimes differences in the strategic vision of the partners, or in the way staff are managed, or in the managerial culture, or at other times opportunistic behavior on the part of one of the parties, can lead to a breakdown of the initial agreement. The main issue is to be able to foresee and clarify all aspects, both strategic and operational, regarding the partnership before the collaboration begins, without taking anything for granted.
It should be emphasized that, in weighing up the choice of one channel over another, there is no right or wrong way to approach the foreign market. On the contrary, there is a need to place the internationalization process within a broad strategic design, where the company is considered in the round, and where there is a precise awareness of its own capabilities in terms of offerings, personnel potentially dedicated to this project, financial capacity to cope with investments, knowledge of the target market, and time horizon within which to achieve the set objectives.