Why go international.
Why Go International?
Firms often have more than one motive for international expansion. Some motives are strategic; others are reactive. An example of a strategic, or proactive, motive is to tap foreign market opportunities or acquire new knowledge. An example of a reactive motive is the need to serve a key customer who has expanded abroad.
Other motives may include:
* Seek opportunities for growth through market diversification;
* Earn higher margins and profits;
* Gain new ideas about products, services and business methods;
* Better serve key customers that have relocated abroad;
* Be closer to supply sources, benefit from global sourcing advantages, or gain flexibility in the sourcing of products;
* Gain access to lower-cost or better-value factors of production;
* Develop economies of scale in sourcing, production, marketing, and R&D;
* Confront international competitors more effectively or thwart the growth of competition in the home market; and
* Invest in a potentially rewarding relationship with a foreign partner.
At the broadest level, companies internationalize to enhance their competitive advantage and to seek growth and profit opportunities. (1)
Expect and Respect the Differences
A word of caution is needed. Do not overestimate the attractiveness of foreign markets. The size of its untapped potential can be so dazzling that you lose sight of the vast difficulties in pioneering new, often different territories. (2) You must balance potential sales against costs and risks of doing business in the new markets. Cultures and languages are different.
In addition, certifications, standards, measurement systems, materials, regulations, etc., can vary widely from country to country and even from one location to another within the same country. The engineering specifications for a project in Switzerland may need to be translated into German, French or Italian. A client in Qatar may request the plans with dimensions in meters but equipment schedules that are in Btus and cfms.
Some differences may not only be inconvenient, but hazardous to your business, such as the lack of intellectual property protection. In such cases, you must be creative in dealing with these differences. One possible approach in such cases is to bundle your products or services differently or to target some niche markets initially.
One safe bet is to start with current domestic customers, who are expanding internationally and looking to work with familiar suppliers. This option mitigates payment problems and may lessen cultural or language issues as typically you work with your usual headquarters personnel.
Make sure not to attack local competitors' strongholds head-on. Instead, initially target niches that may be in the blind spot of the locals. (3) As you gain experience, local reputation and market share, you can pursue other domains where local suppliers have previously resided.
Keep in mind you may need to form a separate "international team" to cater to the special needs of your global customers' base. Also, you need to decide who should lead this team.
The Spearhead Role
It's important to appoint a leader who is culturally conscious, willing to listen and learn. This individual should be competent in technical, financial and operational aspects, but also willing to take risks, go on adventures and be away from home for extended periods.
Putting people in foreign settings doesn't automatically imbue new attitudes, and it is attitudes rather than experiences that make a culture global. We have all met people who speak three or four languages yet still have a narrow view of the world. At the same time, we have come across people who speak only English but have a real passion and curiosity about the world and who are effective in different cultures. (4)
The spearhead person should pay attention to beliefs and customs, but avoid stereotyping individuals. The leader should know and respect local customs and beliefs but should also beware of making assumptions about individuals. The attitudes, interests, and other characteristics of an individual often are different from those of the group to which they may belong. (5)
Equally important, the spearhead person should be open-minded to different market requirements. This takes us to the next point.
Crown Jewels and Sacred Cows
Be ready to "let go." The experience, product knowledge, success and failure stories in the local market may, or may not, be relevant in the new international market. The flagship energy-efficient chiller plant design back home may be irrelevant in the international market. You must be ready to drop such a crown-jewel.
On the other hand, you should also be aware of sacred cows in your domestic project experience. These may be items such as control sequences or system designs you tend to do (or not do) in the domestic markets that may need minor or major adaptations in the international marketplace.
Once again, you must keep an open mind to grasp the needs in each international market. Then, you can address them with designs for the individual marketplace.
Enjoy the Trip
There's still more to think about in your international journey. How to organize your international operations? Do you go by function or by business? How can you arbitrage, aggregate and adapt to the differences in the diverse markets? Which markets to target? What are the potential tax implications and finance options? How to avoid branding and segmentation conflicts between the domestic and international markets? How to deal with multinational clients that are present in different markets? What contingency plans do you need? How do you make sure that by globalizing your operations you are not increasing your risk exposure? How do you develop global accounts and make them profitable?
The Norwegian-American sociologist and economist Thorstein Bunde Veblen (1857-1929) once said the outcome of any serious research only can be to make two questions grow where only one grew before. If this article raised more questions, then it has achieved its goal, as now you know what questions to ask to succeed in your next international project.
(1.) Cavusgil, S., G. Knight, J. Riesenberger. 2008. International Business: Strategy, Management, and the New Realities, pp. 16 - 18. Upper Saddle River, N.J.: Prentice Hall.
(2.) Ghemawat, P. 2001. "Distance still matters--the hard reality of global expansion." Harvard Business Review (9):137 - 147.
(3.) Bryce, D. and J. Dyer. 2007. "Strategies to crack well-guarded markets." Harvard Business Review (5):84 - 92.
(4.) Hassan, F., et. al. 2003. "In search of global leaders." Harvard Business Review (8):38 -45.
(5.) Fisher, R., W Ury. 1991. Getting to Yes: Negotiating Agreement Without Giving In. p.167. New York: Penguin.
By Ramez Naguib, P.E., Member ASHRAE
Ramez Naguib, P.E., is the vice president sales and marketing with Harsco Industrial Patterson-Kelley in Pennsylvania.
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|Title Annotation:||BUSINESS AND MANAGEMENT|
|Date:||Jan 1, 2011|
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