In times of volatile markets and uncertain geopolitical developments, gaining an advantage through clever internationalization strategies can be extremely important. Targeted expansion can not only sustainably increase sales, but also efficiently minimize individual risks. Internationalization can therefore make a significant contribution to a company’s long-term competitiveness.
In this article, we explain the objectives of an international strategy and why it is becoming increasingly important in today’s world. SMEs from the DACH region, in particular, have attractive opportunities.
Table of contents
- 1 What are internationalization strategies?
- 2 What is the difference between globalization and internationalization?
- 3 What are the goals of internationalization strategies?
- 4 What are the challenges?
- 5 Conclusion – International companies often have an advantage
- 6 Author and 3i contact
What are internationalization strategies?
Most companies begin their business activities in their home country after their foundation. With growth comes expansion. This is precisely what internationalization strategies are about – expanding business activities to other countries and diversify markets.
For instance, a company that was previously only active in Switzerland can also serve the German and Austrian markets over time. Due to geographical, cultural, and linguistic proximity, expanding internationally may seem like an obvious step for many companies. However, the further away from the home country you go, the more challenging it typically is.
This is because a crucial aspect of internationalization strategies is setting up local production facilities and organizational structures, as well as tailoring the product range to meet local needs. When laws, taxes, and regulations are added to the mix, the undertaking become more complex.
What is the difference between globalization and internationalization?
Nowadays, many companies operate internationally, but only a handful have a truly global presence. During the process of internationalization, it may be sufficient to serve a few selected countries. However, a global strategy aims to potentially target the entire world, which is a feat only achievable by large corporations.
Some examples of this include:
- Nestlé from Switzerland
- McDonalds from the USA
- Volkswagen from Germany
- IKEA from Sweden
- LVMH from France
There is a difference in the definition: internationalization is an economic term, while globalization refers not only to the economic activities of companies but also to a social phenomenon. The increasing networking of supply chains, communication, and culture is bringing everyone in the world closer together.
What are the goals of internationalization strategies?
Companies are increasingly going international in the modern business world for a number of important reasons. Entering new markets can bring numerous advantages, including additional growth potential.
Additional growth potential
At some point, every company reaches a limit in its domestic market beyond which additional growth is hardly possible. Internationalization is then usually the easiest step for additional market development. By expanding into new markets, businesses can tap into previously untapped consumer groups and drive further growth.
There is significant potential for growth in countries that are still considered emerging markets, particularly in Eastern Europe and Asia. With the right internationalization strategies, businesses can achieve noticeable success within a short period of time.
Diversification and risk minimization
The past few years have been a stark reminder of how vulnerable companies can be to crises and global supply chain issues. Production facilities have come to a standstill until they recover, and demand for certain products has been affected for a long time.
Gergrafic diversification and risk minimization can efficiently reduce such drawbacks through internationalization. It reduces the dependence of production and demand on one single market. Instead, risks are diversified across multiple countries to prevent a complete collapse in case of an emergency.
Personnel and cost factors
In Switzerland, Germany, and Austria, there is an shortage of skilled workers, which can result in lower capacities and higher costs.
In contrast, other countries, particularly in Eastern Europe and Asia, do not face such issues or to a lesser extend. Companies can benefit from a large pool of well-trained specialists, ensuring fast and cost-effective production. As a result, outsourcing to Asia is becoming increasingly popular for internationalization.
What are the challenges?
But internationalization strategies do not come without challenges. Quite the opposite – it is often a lengthy learning process before a company can successfully gain a foothold.
The typical pitfalls include:
- Differences in the legal situation in the target country
- Linguistic and cultural misunderstandings
- Different time zones and long distances
- Omission of crucial, additional organizational effort
Many companies underestimate the importance of good personnel and high levels of expertise. Obviously, an experienced interim manager can directly help overcome the challenges in the target country, mitigate or even exclude risks.
Conclusion – International companies often have an advantage
Although there may be initial obstacles, internationalization strategies are a great way to position your company for the future. They offer new growth opportunities in the target country and can also help reduce risks and dependencies over home.