The decision to create a business abroad is rarely accompanied by a prior investigation that takes into account the conditions and peculiarities of the reference market, the possibilities, risks and potential procedures to be implemented so that a commercial expansion strategy can be carried out. In concrete terms, however, internationalisation requires careful evaluation.
This analysis should focus on two main areas:
an area within the company;
an area outside the company, attributable to the "target market" or the market in which you intend to operate.
With regard to the internal environment, the entrepreneur must learn to critically analyse the strengths and weaknesses of his company. Errors of judgement are not uncommon in such cases. A company that creates a product of quality and excellence in a local or national territory may consider that the product in question can be easily sold within any market. But quality is not everything. Price can be a prohibitive factor with respect to product access on the market. Certain products may not attract any interest in the reference market because they are too expensive or, on the contrary, because their low cost could lead to competitiveness with highly desirable local products. In any event, the choice of price at which the product is sold is an essential parameter. Furthermore, the choice of price is related to the degree of substitutability of the product on the reference market. Of course, if the product is unique, the choice of price can be directly proportional to the quality. However, in most cases, there are competing products, so a market survey covering rival products and their market shares will have to be carried out before the possibility of success can be assessed. The company must read first in its balance sheets and in its production cycles whether it is capable of dealing with the demand of a foreign market. If not, the choice of starting a business with certain countries should be carefully reconsidered. Countries like the United States or Japan are important markets and if you are not able to sustain the demand it would be a mistake to think that you can sell inferior quantities available. The US distributor will abandon the product if it cannot ensure the quantity the market requires.
As for the external area of analysis, if you want to start an export business or sale or production abroad, you will first have to ask yourself about:
- what is the regulatory framework on the relevant market;
- what is the degree of competition of the product offered and which are the main competitors on that market;
- what is the negotiating power of the main operators (customers and suppliers) on the reference market;
- whether customs barriers exist or not;
- how "large" the reference market is (understanding the value of the market in terms of money and market shares held by competitors in a given sector);
- what are the current trends in the market in terms of consumption rates and economic performance of the country.
The choice to enter the foreign market does not necessarily imply to invest substantial capital nor it does involve the obligation to turn to companies that are leaders in market analysis. Starting an export business does not often require significant investments, compared to this business model: the entrepreneur himself can carry out the analysis with the help of tools available on the web, in trade associations and chambers of commerce.
Another important assessment of the decision to start a business abroad is the availability of financial resources to access the reference market. For this purpose, it is almost always appropriate and recommended that the company, as a first step, adopts a Business Plan, as an indispensable tool for planning.
There are several ways to do business abroad:
- one of the most common approaches to the foreign market is to initially entrust an agent or local representative with the product to ensure its distribution on the reference market;
- another approach, often consequent and subsequent to the export one just described, consists in creating a direct presence on the market that can take place in a "filtered" way: through the establishment of a representative office in the foreign country, or, instead, the creation of an on-site company, independent or affiliated or subsidiary of the Italian company;
- and thus, you can set up joint ventures or decide to sell your products "worldwide" through websites and online platforms.
The choice between these business models, however, is not a neutral choice or of little importance. Very different initial costs are associated with each of these options and for each of them there are relevant pros and cons to take into account.
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