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International expansion strategy

Going international is a vital way for businesses to grow. International expansion is a project that can take several forms and follow various paths: from e-commerce to mergers and acquisitions.

Are you looking to expand internationally? It could be a way for your business to achieve significant growth and it’s an undeniable source of opportunities in terms of increasing your sales, boosting your innovation or becoming more resilient. After a thorough check-up of your current situation, an inevitable question arises: which strategy should you adopt to realise your plans? There’s no magic formula or predetermined route: in reality, a number of methods and strategies are involved. However, we can identify some major avenues: each has its pros and cons. Whatever your decision, it must be part of a holistic discussion about your business and in line with the present and future of your organisation. The aim is to maximise the chances of success while controlling risks as much as possible.

1. Direct and indirect exports

This is obviously one of the strategies often used to capture markets in other countries. You sell your products abroad through one or more channels:

• E-commerce: a quick and accessible solution that takes you a long way with limited resources. Although online sales have boomed in recent years, they will increase your logistical workload. In addition to technological and compliance issues, you need to think about your commercial strategy: you’re a long way from the target market and you’ll be facing competitors from all continents. The internet knows no borders, which can be both a blessing and a curse.

• A local intermediary: this is a low-risk option, because you’ll be using a local sales force. The agent places orders with local customers and passes them on to you. The appeal is that you benefit from their knowledge of the foreign market, both in terms of consumption habits and consumer expectations. Although it doesn’t require significant investments, because the agent is paid on commission, this strategy is not without its pitfalls. The success of the project relies exclusively on the local resources, making you highly dependent on your partner’s reliability.
• Commercial distribution: this is a similar approach to entering a foreign market. It’s relatively quick to implement, and depends on collaboration with independent distributors established in the target territory. They buy goods to sell locally, and you benefit from their expertise and networks. Unlike an intermediary, a distributor takes on certain tasks (billing, invoice collection, marketing costs and import fees). But the thorny issues of choosing the right partners and contract terms remain: the project's success depends on them!
  
  
• Patents or technology licensing: this is a way to extract value from your know-how or technologies rather than your products. The foreign entity gets the right to use your methods or innovations under an agreement that specifies the geographical area, duration etc. It’s an international development option that allows you to outsource production, marketing and distribution. But defining the terms of the agreement is one of main difficulties with this option.

2. Establish a local presence

Another major model of international expansion involves setting up shop yourself in a foreign country. The aim could be to establish your entire value chain there or just produce, distribute or market your products yourself. This geographical proximity requires greater investment but also gives you more local firepower. It's also a way to increase your resilience: financial and commercial risks, such as pressure on your value chain, are spread across several territories. It’s worth noting that over the years, more agile approaches have developed to enable businesses to move more flexibly depending on the international context. Again, several options are possible:

• Subsidiary or branch: in both cases, you lay down strong and lasting roots in the local market. The project must be based on solid foundations and a long-term vision. It’s important to decide which legal status your outpost will have: subsidiary or branch. The decision must take into account several factors: the desired degree of autonomy, decentralisation or concentration, legal and tax implications, whether or not to produce locally (to benefit from cheaper raw materials, for example), the financial resources you have available and so forth. Whatever the case, it's a good way of applying the well known strategy: "think globally and act locally".
• International joint venture: this principle is based on creating synergies. You partner with a company that already has a local presence to take advantage of the good fit between your businesses. Each party benefits from the other's strengths while sharing risks, control and costs of your combined activities. A joint venture often requires a tailored legal vehicle. As you can imagine, forming a "marriage" like this is not easy and requires you to find the right partner. You’ll also need to reach agreement on each party’s contributions and responsibilities.
• Mergers and acquisitions: this is a growth strategy that has certain advantages. First and foremost, it’s a way to consolidate and diversify your business. It's also a quick way to establish yourself in a new market by taking over the competitive advantages of the local company (technological, commercial, etc.). But the strategy involves risks that are proportional to the potential benefits: you could misidentify value creation sources, make mistakes when assessing risks, encounter integration difficulties and so forth.

So the success of your international expansion project depends on many factors. And above all, it depends on your strategic choices and ability to develop a clear vision of what you want to achieve. From creating a network of commercial partners to setting up a sustainable local presence: there are a multitude of options that deserve careful consideration and professional support.