Many companies choose to achieve growth by competing in an international foot print. A few of the reasons are domestic market sales have flattened out, achieving lower production costs by outsourcing, managing risks, learning the demographics of foreign customers and matching or fending off competitors who have chosen to tap the international market. The desire to grow sales is one of the most popular reasons why companies want to expand internationally. Many companies enter international markets to seek lower cost inputs or extend the product life of a mature product. Countries like India, China, and Vietnam offer inexpensive labor.
Conducting business in more than one country can spread risk with regards to unexpected changes in the economic, political, regulatory or weather environment in the home country. Two basic strategies of international growth are:
Local responsiveness- Fine tuning your products, marketing and distribution to match up with local customers and customs in a foreign country.Standardization- Standardization of products and processes consistently across different countries a company decides to compete in.
There are four basis ways a company can enter into foreign markets; they range from the simple to the complicated. They are:
- Exporting – Most common, company produces product at a single home location and sells to a foreign customer.
- Licensing & Franchising – Company licenses the right to a foreign company to use or sell a company’s products, technology or processes. For a franchise, the franchisee pays a fee, (royalty) based on the number of units sold to access a company’s proprietary know how or trademarks.
- Alliance & Joint Ventures- Defined as the sharing of resources, risks and rewards with a foreign company. JV, defined as a special type of alliance that involves the legal joint creation of a new company. Most joint ventures involve a 50/50 ownership. If the JV doesn’t work the companies involved will only lose 50% of the overall investment so the investment risk is somewhat mitigated.
- Wholly Owned Subsidiaries- Defined as local companies owned by the company entering into the international market . This type of strategy involves the most risk as the acquiring company has to invest 100% of the cash necessary to complete the transaction.
Financing options for all of the international expansion strategies might include but not be limited to:
- Export & Import Letters of Credit
- Foreign Account Receivable Credit Insurance
- SBA Import & Export Lines of Credit
- Purchase Order Financing
- Conventional Bank Term Loans
- Conventional Bank Lines of Credit
- Foreign Exchange Hedging