Today, the vast majority of companies, faced with developing a growth strategy, are offered the following advice: “You have to expand internationally”, but … why?

Internationalisation is one of the business strategies that has long been on everyone ‘s lips. It is a growth decision that offers multiple advantages that are difficult to achieve if an organisation only operates at a local or national level such as taking advantage of new opportunities for growth, acquiring and transferring new skills and differential values to new markets, creating a basis for organisational learning, generating a global network.

However, these promises are often difficult to keep for local companies that are quickly immersed in multiple markets, with multinational character and multicultural teams. The transformation from a local company to an international one is not a simple sprint, but rather a long-distance race.

What mistakes do SMEs make when expanding to foreign markets?

There are studies that show this difficulty, and that reveal that around a third of SMEs that export for the first time, fail and end up going bankrupt in the following five years. Of course, this failure should not be associated with the decision to internationalise, but poor timing, lack of resources or the necessary mentality to do so.

What this high failure rate does reveal is that internationalisation is a growth strategy whose difficulties should not be underestimated.

Main difficulties

• Knowing when a company is international

 The boundary between a national and international company is sometimes difficult to ascertain. For example, a company that operates, produces and sells its products locally is obviously local. What happens when the products are sold through partners or distributors abroad? Has it become an international company? And if this company exports abroad only when they receive an order?  

Truthfully, many of these companies internationalise without wanting to or planning for it.  In other words, they are conscious that they have begun an internationalisation process but they haven’t created a strategy for it. They adopt a reactive (not a proactive) attitude towards it, taking advantage of opportunities as they develop. These companies are not really local but neither are they totally international, and neither do they reap all the potential benefits offered by a well thought out and planned internationalisation strategy.

• Cultural and consumer differences

 Although the world is leaning towards globalization, there is a paradoxical situation in foreign markets and in the behaviour of customers in different parts of the world. On the one hand, there is the globalised world where tastes, habits and behaviours of customers are homogenised; a world without borders in which standardisation is queen. On the other, there is “controlled globalization”, where local forces push the other way, trying to preserve local characteristics and identities. The latter makes it difficult for foreign companies to target customers, suppliers, distribution networks, government institutions, and even entire societies with global brands, with identical products and solutions, and with standardised approaches for communication and distribution.

Handling this paradoxical situation is another difficulty when beginning the  internationalization process. Should companies adapt to this distance between cultures? Or should they try to reduce it?

• “Fit and alignment”

Another of the difficulties in internationalisation processes lies in aligning the change in company strategy with the organisation itself. Internationalising companies must first find the most appropriate strategic response to international markets in this complex environment. In other words, they must respond to the challenges posed by internationalisation: adapt to different foreign markets, integrate into the business networks of each country, standardise its global offer or disaggregate its value chain at a regional level.

Once this “adjustment” has been achieved, the company must align its international organisation with its expansion strategy. This implies organisational and operational choices are just as important as those in the internationalisation strategy. However, quickly having relevant answers to these important questions is difficult if you do not have the resources, experience or time to make the right decision. Therefore, having external support such as from an internationalisation consultant at this point is vital to avoid incurring additional costs incurred from lack of knowledge and improvisation.

Source : Chereau, P., & Meschi, P. X. (2017). Strategic Consulting: Tools and methods for successful strategy missions. Springer

Article written by Louisa Criscenti-Brown