internationalisation

• Why Do Businesses Increasingly Want to Target International Markets

  • Reducing dependence on domestic market

  • Accessing faster-growing markets & demand

  • Achieving economies of scale

  • Better serving customers located overseas

  • Building brand value, particularly global brands
• Factors Influencing the Attractiveness of International Markets

  • Size and growth of target customer base

  • Ease of entry to an international market

  • Extent to which product will need to be adapted

  • Existing competitive structure in the target market

  • Economic conditions in the target economy

  • Need for local expertise or partners

  • Consistency with corporate objectives

  • Other external environment factors (e.g. legal)
• Methods of Entering International Markets

  • Exporting direct to international customers

  • Selling via international agents & distributors

  • Opening an operation overseas

  • Joint venture or takeover
• Direct exporting


  Customers located overseas order directly from your business and you send the goods to them, or deliver the service, directly
• Benefits of Exporting Directly

  Uses existing systems – e.g. e-commerce

  Online promotion makes this cost-effective

  Can choose which orders to accept

  Direct customer relationship established

  Entire profit margin remains with the business

  Can choose basis of payment – e.g. terms, currency, delivery options
• Drawbacks of Exporting Directly

  Potentially bureaucratic

  No direct physical contact with customer

  Risk of non-payment

  Customer service processes may need to be extended (e.g. after-sales care in foreign languages)
• Selling Via International Agents / Distributors

  international markets the challenge is to gain access to the best distribution channels in order to reach target customers
• Benefits of Agents / Distributors

  Agent or distributor should have specialist market knowledge and existing customers

  Fewer transactions to handle

  Can be cost effective – commission or distributor margin is a variable cost, not fixed
• Drawbacks of Agents / Distributors

  Loss of profit margin

  Unlikely to be an exclusive arrangement – question mark over agent and distributor commitment & effort

  Harder to manage quality of customer service

  Agent / distributor keeps the customer relationship
• Opening an Overseas Operation

  a much higher degree of risk and a longer-term investment commitment
• Benefits of Overseas Operations

  Local contact with customers & suppliers

  Quickly gain detailed insights into market needs

  Direct control over quality and customer service

  Avoids tariff barriers
• Drawbacks of Overseas Operations

  Significant cost & investment of management time

  Need to understand and comply with local legal and tax issues Higher risk
• Joint Ventures & Overseas Takeovers

  the highest risk approach to international expansion. They tend to be undertaken only by the largest businesses, who have the resources to take such risks.
• Benefits of JV’s & Overseas Takeovers

  Speed & potentially transformational

  Popular way of entering emerging markets

  Reduced risk – shared with joint venture partner

  Buying into existing expertise and market presence

  JVs may be a requirement in some markets
• Drawbacks of JV’s & Overseas Takeovers

  Higher risk, particularly if the wrong JV partner or takeover target is selected

  Significant cost & investment of management time

  Need to understand and comply with local legal and tax issues

  Costly to withdraw if the strategy goes wrong
• Multinational Companies


  a business that has operations in more than one country. Note that a business does not become an MNC simply because it sells its goods and services overseas. The key to being an MNC is that the business has business operations in two or more countries
• key reasons for the emergence of MNCs include

  • Global brands seeking to drive revenue and profit growth in emerging economies (in particularly seeking rising demand from increasingly affluent consumers)

  • The search for economies of scale, to reduce unit costs by concentrating production in a few key international locations

  • The perceived need to supplement relatively weak demand in existing, developed economies

  • The need to operate in many countries to avoid protectionism

  • Increased takeover activity that has built businesses with widespread international operations
• Benefits of MNCs


  • MNCs provide significant employment and training to the labour force in the host country

  • Transfer of skills and expertise, helping to develop the quality of the host labour force

  • MNCs add to the host country GDP through their spending, for example with local suppliers and through capital investment

  • Competition from MNCs acts as an incentive to domestic firms in the host country to improve their competitiveness, perhaps by raising quality and/or efficiency

  • MNCs extend consumer and business choice in the host country
• Drawbacks of MNCs


  • Domestic businesses may not be able to compete with MNCs and some will fail

  • MNCs may not feel that they need to meet the host country expectations for acting ethically and/or in a socially-responsible way

  • MNCs may be accused of imposing their culture on the host country, perhaps at the expense of the richness of local culture.

  • Profits earned by MNCs may be remitted back to the MNC's base country rather than reinvested in the host economy.