There are many reasons why internationalization is a very good idea. In entering new markets, you can increase your revenue potential and improve your brand’s recognition. You can also diversify in terms of talent and products, while saving costs. But before you set sail, you’ll want to make sure you are aware of the challenges that companies face when going global.
What does internationalization mean?
Welch and Luostarinen (1988) simply define internationalization as “the process of increasing involvement in international operations.” Experts around the world agree that entrepreneurs are in a time in history where the opportunities for reaching a global public are at their peak. There is increasing literature linking entrepreneurs and the international marketplace. It would seem that after COVID-19, this link has become even more momentous, especially in all things online.
In “The Art of Going Global: A Practical Guide to a Firm’s International Growth”, a book from 2020, the authors argue that the most important step in “going global” is “cultivating a truly international perspective in your senior management team.” Strangely enough, they don’t highlight the importance of doing research into foreign markets, or how to adjust to local laws. It would seem as though there is a subjective side, a psychological dimension that needs to shift, or rather, expand, to be “truly international.”
A recent article by Forbes quotes similar research by Dr. Hao Chen, assistant professor at the department of leadership and organization management at Tsinghua University’s School of Economics and Management in Beijing. Chen argues that many Chinese business leaders need to develop “a global mindset that can help them adapt to foreign cultures…” and she adds: “an inclusive organizational culture helps to connect people from diverse cultures and create stronger bonds.” This would suggest that in order to be truly international, business leaders, entrepreneurs and managers need to develop the knack to be inclusive in their thinking.
Research from GLOBE suggests that a global mindset involves three main competencies: cognitive ability, affective ability and behavioral ability. These three aspects combine the required knowledge about global business, the curiosity and courage to take risks to a reasonable extent, and the skills to build cross-cultural relationships.
What are the business challenges of internationalization?
According to Annushkina and Regazzo, the authors of “The Art of Going Global…” there are five main challenges of internationalization. They each refer to different business areas, from marketing to sales and HR. Here’s a summary of their findings:
1. Selecting foreign markets
Deciding on the foreign markets a company should expand to is a complex process, not only because of the business implications, but mainly because it can become too personal. According to the authors, managers and entrepreneurs often base their market selection on the fact that they “like” the idea of their company expanding to a certain country.
The experts suggest a more rational approach, where objective data and the firm’s priorities, along with final profit margins, are the decision drivers. But even after a decision is made, the most careful approach is to conduct regular checks to determine how that specific market is doing.
2. Adapting your business model
Expansion to new markets means crossing cultural, linguistic, religious and regulatory borders. Adapting your business model to those new territories involves complexities that deeply transcend adjusting to a new currency. Specifically, Annushkina and Regazzo dive deep into the issue of cultural and language differences. They mention the importance of investing in professional translation services to adapt contracts, manuals and branding to the new market.
Translation “is rarely underestimated” as one of the key areas of entering a new market. However, there may be a need to adjust the company language within the same country or region. In Latin America, for example, there are many dialects and Spanish varieties. A good translation services provider should be able to guide your business in adapting to each region appropriately.
3. Managing across cultures
People will be the protagonists of the internationalization process claim the authors. It is their skills, motivation and enthusiasm (or lack of them) that will be behind every inch of success in such an endeavour. People management is, therefore, a crucial piece in the “going global” project. There are no universal recipes, but it is advisable that you consider your company’s culture and approach to authority before making decisions.
Do you support an environment where it is accepted that high ranking staff are the ones making the decisions? Or are employees in your company viewed equally and encouraged to collaborate in decision making? These aspects will determine if you need to hire local managers or send an expatriate from your headquarters to manage the new teams. Again, a truly global mindset will be key in ensuring managers lead by example, creating an inclusive atmosphere.
4. Choosing market entry modes
Choosing how to enter a new market is all about networks. In fact, markets are formed by formal and informal networks of people who know other people. This is why Annushkina and Regazzo focus on “who you know” rather than “what you know.”
With physical businesses, reaching the right ambassadors for your brand or product may take a little longer. For online-based businesses, getting in touch with the right people in the right places involves good data analysis and a strong digital marketing strategy. Transcreation and localization services can be crucial in adapting your message to the new market.
5. Navigating uncertain global markets
Based on previous experience from many large and successful companies, the experts agree that there is no way to predict whether internationalization will lead to greater profit. This uncertainty is one of the key challenges in any attempt to go global. But the good news is that in a digital era, the stakes are much lower. Placing a product up in an online store has relatively low costs and it can quickly help a business determine its market, customer persona and brand differentiators. The rest of the circumnavigation will require a true global mindset. Bon voyage!
Welch, L. S. & Luostarinen, R. K., 1988. Internationalization: Evolution of a Concept. Journal of General Management, 14(2), pp. 36-64