Expanding abroad? Do your homework!
“We’re no longer where we used to be. For years everyone agreed the world was becoming more global. Until the financial crisis in 2008, when indicators showed this was no longer the case,” says Filip Abraham, Professor of International Economics. Globalisation and global businesses. Where do we stand and how should you proceed?
At a cross roads
During and in the aftermath of the financial crisis, globalisation slowed down. Indeed, when the economy is in recession, countries tend to turn in on themselves and focus on local or regional business opportunities. “It’s not yet clear whether this has been a reversal of the trend of increasing globalisation or a steady evolution towards a different type of globalisation, i.e. global regionalisation with increasingly integrated markets within regional trade blocks,” Filip says. “Now that the economy seems to be beginning to improve, the question among policy makers and in literature is whether we’ll see globalisation pick up again as economic recovery continues.”
He adds: “What is certain is this: the way in which globalisation occurs has changed. Rather than entering into multilateral agreements to integrate markets, countries prefer to conclude trading agreements with selected partners, often in the same region. And then there are partnerships between regional trade blocks, such as the Transatlantic Trade and Investment Partnership between the EU and the USA.”
Don’t underestimate the challenges
While there is no single recipe for companies that want to operate abroad, there are common ingredients for success. Filip: “First of all, to be successful in markets other than your domestic market, you need a competitive advantage that allows you to differentiate yourself, e.g. a special product or service, a brand, a reputation, an organisational model or economies of scale. After all, you’ll have to face competition from local players that know the market well, or from other global companies that have been present in that market for some time.”
More often than not, doing business abroad isn’t exactly a walk in the park. Filip’s research on a portfolio of Belgian companies showed that half of them abandoned their internationalisation efforts one year after their start. Why? “For some it was a one-off opportunity all along, but many seemed to have underestimated the many challenges. For companies expanding into other geographical markets, there are several barriers to entry – often regulatory barriers, such as import tariffs, antitrust laws and technical and environmental standards, all of which add to the costs. Some countries require you to have local production capacity and local investments. And again, newcomers don’t know the market as well as established players. Engaging in partnerships with local businesses may be a solution, but partnerships present their own challenges. And then there are cultural differences. While you could appoint mostly local people, there will always be issues of intercultural collaboration to deal with.”
Don’t go on a whim
These problems are not insurmountable, provided you do your homework, as Filip explains. “You should assess all the differences and challenges you expect to encounter and adjust your strategy to be able to deal with them. For example, the more your new target customers differ from your local ones, the more you’ll have to tailor your product. Exporting from Belgium to China isn’t quite the same as from Belgium to the Netherlands. And there are the barriers to entry I’ve already mentioned. So, when you want to move abroad, be prepared, especially if it’s your first international venture.”
“I don’t want to discourage anyone,” he continues, “but be realistic and remember that things might not go exactly as planned. And don’t expect your international business strategy to be successful from day one. It often takes years of investments and networking in order to build a sustainable competitive advantage in foreign markets. It’s a strategic choice and it requires perseverance to implement it.”
The effort pays off, because when companies are present in different geographical markets, it adds to their competitive advantage, or rather, it becomes a competitive advantage in itself, one they can build upon when they enter other markets.
Filip’s advice can be summed up as follows:
- Be prepared, do your homework
- Allow for failure
- Take your time
Want to learn how to successfully do business in an international setting? Then our programme “Operating Business in a Global Economy” might be just the one for you. You’ll find out about macro-economic trends and policies, globalisation strategies and the impact of globalisation on corporate strategy.