· In relation to the characteristics relating to the country of destination, the most advisable input mode will vary depending on:
1. The potential for market growth. If the market is small or the possibilities of growth of the market share of the company are low, it is advisable that it starts its process of internationalization with an entry method that involves low risk and investment similar to the exportation. On the other hand, if the country of destination has a high growth projection, the company must consider, if its resources allow it, to settle in the country of destination and to establish production activities in that market in the medium or long term.
2. The competitive structure of the sector to which the company belongs in that new market. The presence of markets with few competitors, as is the case of sectors with situations of a certain oligopoly, favor acquisitions as a method of entry when entering the new market.
3. The quality of the infrastructures. A good network of infrastructures favors export (either through own channels or intermediaries) as a feasible entry method due to its low level of risk and investment, since it promotes an adequate distribution of the company’s products in the country of destination and the possibility of increasing sales as the distribution and logistics system is perfected, with a low cost and an adequate service.
4. The presence of entrance barriers. If there are barriers to entry, it is very likely that the company will not be able to consider as an option exportation, because the tariffs make the product too expensive and not competitive. The company will then be obliged to have to establish some type of establishment that will make some step of the value chain of the product, with sufficient value to qualify the product as originating from the new market, or alternatively, to cede the License to producers of the country of destination. This is the situation that often occurs when you study the Brazilian market, for example
5. The social and cultural peculiarities of that market. The segmentation of potential clients with certain characteristics in the new market, often dictates whether it may be advisable to adopt input methods that allow the company to have more control in the new market, such as direct investments or alliances with local partners.
6. The political risk. In certain markets it is advisable that companies look for a local partner who will provide experience and security in the new market, to reduce this type of risk in markets subject to it, for which it is necessary to study in advance the macroeconomic and regulatory structure of the country.
· In relation to the characteristics related to the country of origin, the chosen mode of entry will depend on:
· The production costs. If the production costs are relatively lower in the country of origin with respect to the country of destination, an advisable form of entry is exportation, so that products made in the country of origin are more competitive abroad. On the other hand, if the costs in the new country are comparatively lower, the company should consider establishing the production in the new country and take advantage of the cost opportunities offered by the new market. This deterritorialization has been the usual practice of Western companies, displacing their production plants to countries with cheaper labor, which is the case in many Asian countries. However, after the drop in wages caused by the crisis and the increases experienced by some of these markets, such as China, some countries have stopped presenting the same attractiveness for certain sectors. It is therefore necessary to previously study the cost structure involved in each market, before making decisions about the relocation of a production.
· The degree of competition in the market of origin of the company. If in the country of origin the sector from which the company comes is characterized by a structure with few competitors, it may be advisable to choose fast entry methods such as acquisitions or the search for reliable partners in the new market.
· In relation to the characteristics related to the company itself, the chosen input mode will depend on:
1. The size. Larger enterprises have more technical capacity to choose between one mode or another; The smaller ones often however can only access the export.
2. The capabilities of the company itself in terms of personnel, competitive capabilities, directives, organizational, etc. These capabilities affect the entry mode when it comes to internationalization. In general terms, Comerciando Global advises as a first stage of the internationalization process, that the company uses entry strategies that do not require large resources, nor entail a lot of risk.
3. The possession of valuable intangible assets such as brands, patents, know-how, etc. In this case, Comerciando Global recommends opting for entry methods that allow the company to have greater control of these assets in the new market, such as direct investment or alliances that allow a high level of control. However, sometimes it is usually the most correct method when you have valuable assets with the potential to be licensed. For example, the transfer of technology is the way of entry we have advised from Comerciando Global to some Spanish companies such as Pascual Quality to start their internationalization strategy, through technology transfer agreements for the manufacture of yoghurts without cold chain. Within our SME clients, we often advise this strategy because it does not demand large sums of money and limits the risk, as was the case with Ipronet.
4. From the level of aversion to risk. A company with a strong aversion to risk must avoid making important investments; the advisable thing will be to use methods of entrance that allow you to take advantage of the knowledge of local market and to share risks, like the cession of licenses, the formation of alliances or methods with little risk, like the export.
5. The objectives that the company wishes to achieve with its internationalization. The company must try to adopt the entry method that allows it to achieve the objectives that are set in the target market. If, for example, a company wants to expose itself to domestic demand, export will be enough. On the other hand, if you want to learn to incorporate differences in tastes and preferences of consumers, you must internationalize marketing, R & D or even production capabilities.
In Comerciando global we develop a diagnosis of the potential of internationalization of your company and we advise on the best strategy to carry out in its process of internationalization in the most appropriate country, depending on the particular characteristics and the needs of your company and those of the target market, starting from the current situation of your company.