In a global marketplace, it’s not just huge companies that need to think about their strategy for competing internationally. Technology has shrunk the world so that even small businesses can now potentially sell their products on the other side of the planet, while international expansion is within easier reach than would have been dreamt of 20 or 30 years ago.
There are several routes that a company can go down when developing an international business strategy. Some of these may concern how to do business globally, while others may be about how to approach working in a particular territory. In all cases, it’s essential to have an understanding of the different legal and tax implications in different territories, as well as cultural, social and religious differences that may affect how your product or service is received.
The Middle East
An increasingly important market for western businesses, the Middle East is really a collection of markets, as the different nations that make up the region all have distinct qualities as well as similarities. For foreign investors, the advantages of excellent logistical connections, energy resources, liberal tax and regulatory frameworks, and the free flow of capital often have to be weighed against the political risks involved.
Despite the presence of conflict and instability, most Middle Eastern states are modernising rapidly and are actively looking to attract outside business investment in order to diversify away from their reliance on oil and gas reserves. Oil still provides a high level of financial security for the region, however, and it is increasingly being more fairly distributed.
A leading figure in international business, Fahad Al Rajaan is the former director general of the Public Institute for Social Security in Kuwait, one of the most effective welfare systems in the world. Al Rajaan realised that Kuwaiti citizens should see social benefits, including extremely generous public pensions, from their nation’s oil wealth. Al Rajaan went on to become chair of Ahli United Bank, the biggest lender in Bahrain and a major international investment bank.
Multinational corporations need to decide on an international strategy in order to sell their products and services worldwide. It’s common for producers of consumer goods to adopt a multi-domestic strategy whereby the content, packaging and promotion of its products are tailored to the different cultural and economic conditions in a particular region.
The opposite of this is a global strategy that offers the same product and promotion across all markets. This is more efficient and cost-effective, particularly if a product has a universal application, for instance, computer software. Some basic changes may still be made, such as using the appropriate language, but all essential features and branding remain the same.
A compromise between these two approaches is known as a transnational strategy. This may involve some products only being available in certain markets, or altering products and services slightly while retaining the same branding and core values. The fact that McDonalds serves wine in France, or rice as a side dish in some Asian markets, is an example of this.
Entering a new market
There are five basic strategies a company can use to enter a new foreign market. They may simply export their product to the country in question, where it is bought by a local firm and sold on to customers. This is the low-cost approach and is ideal for trying out a market, but the original producers don’t retain any control over how their product is sold and marketed, and also lose out in terms of potential profits.
At the other end of the scale, a company may create a wholly-owned subsidiary in a foreign market, thus keeping complete control over sales and marketing, as well as retaining all profits. However, they also take on all the risks, as well as substantial setup costs.
In between these two poles are three other possibilities: licensing, franchising or joint ventures. A manufacturing company may sell the license to exclusively make and sell its products within a certain territory, to a local firm. Similarly, a service company such as a restaurant chain may sell franchises for specific territories. Joint ventures are when a company forms an equal partnership with a locally established firm to their mutual advantage. Decision-making is shared, as are profits and risk.
Each approach has its advantages and disadvantages, and some may be more suitable for certain businesses and situations than others. An international business strategy must be carefully considered and tailored to the market in question. This strategy should also be adaptable, enabling it to change as your business grows and expands into further markets in future times.