The term internationalization is used to designate the ability of a company to be able to market its products or locate in another country in the world, other than its country of origin.
Internationalization allows access to other markets, which enables economic growth. It intensifies the process of exchange of any type of good between the different countries of the world.
In the international economy there are related and flows of information, people, capital and merchandise. Therefore, internationalization is a way that allows increasing income, by participating in the international market, by expanding into other geographic areas that can be great business opportunities.
Requirements for internationalization
In order for an internationalization process to take place, the following is required:
- Knowledge of the international market: It is important to have knowledge of the clients or target market to which we intend to address, since in each country we find consumers with different tastes, preferences, values and purchasing power.
It is also important to know the competitors we are going to face, to take into account our risks and opportunities in that specific market.
- Knowledge of trade regulations: When entering another market, we must be clear that each country manages its own legal regulations and these are different from one country to another. What is most interesting to know is the obstacles and barriers to international trade, especially if the country applies protectionist policies.
- Knowledge of business partners: Internationalization requires the support of business partners or distributors, who facilitate our entry into different markets. For that reason, it is also necessary to have reliable information about our potential partners or distributors.
- Knowledge of qualified personnel: In this process you need the advice of specialized people in different areas such as the legal, commercial, marketing and financial aspects of the country in which you want to enter. We must investigate if we have these types of people who can help us in our work.
Types of companies that go international
Companies that enter and participate in the international market can be classified as follows
- Exporter: it is the company that offers and sells its goods and services in the foreign market, its income is obtained with the currencies that it is paid when buying products.
Companies benefit from exports because they increase their income by not depending only on their national market, their brand and product becomes known internationally and is better positioned in the market.
- Transnational: these are large companies that have a parent company in their country of origin and then expand branches in other countries of the world, to produce and market their goods and services. Due to their large dimensions, they are companies that have a great influence on international trade, due to the advanced use of the technology they use in their production and marketing operations.
The transnationals seek to locate in the countries that offer them the best returns, by acquiring inputs or cheap labor. It may also be that the market where they are located is a large market or with high purchasing power, which ensures a high level of demand.
- Global: The global company considers the world market as a single market, having the possibility to enter and act in any country in the world. Although they have a decision-making unit to make global strategies, the goods and services they produce are adapted to each market, according to the needs and expectations of each local consumer. Its products are different in each market.
- Multinational: It is the company that has assets or facilities in one or more other countries in the world, other than that of its national market. They generally have production processes and personnel in all the countries where they operate, but the global business strategy and action is coordinated from a central headquarters. One such company is Nestlé.
This situation makes their products very similar or the same, regardless of the country where they are produced or sold.
Advantages and disadvantages of internationalization
Companies that internationalize obtain the following advantages.
- Increased competitiveness: International competition makes companies expand their productive capacity and acquire more information to achieve better levels of productivity and sales volumes
- Greater growth: By targeting and focusing on larger markets, it makes companies grow and increase their level of production, to meet the demand of those new markets. By entering more markets, its growth potential is greater.
- Consolidate your products and brands: Internationalization allows your products and brands to enjoy a greater presence in the world market. Its products are more trustworthy for customers.
- Lower costs: By producing for larger markets, the use of the principle of economy of scale is optimized, with more production volume, costs are reduced.
Now, we can also find disadvantages:
- It is not an easy process: it requires a lot of knowledge and information to properly focus on each market, which has very peculiar characteristics in the legal, cultural and consumer preferences.
- Differences of each country: Each country has a different economic, social and political situation, which can put the success of the company at risk.
Finally, we can say that a globalized world is almost a requirement that companies internationalize. Internationalization is considered as a business strategy that allows the expansion of your business beyond the local market. In general, companies that internationalize become more competitive and grow more; its products and brands are more trustworthy for the consumer.