The 3 golden rules for the internationalization of a company

Network, business model, cultural respect

Let's start from a fundamental assumption: business internationalization is not just for large industrial groups. Until the 1980s, it was certainly like this: only large groups could afford, in a world that was not yet globalised, to undertake huge investments abroad. Today, however, this is no longer the case. The phenomenon, in fact, also involves small and medium-sized businesses, particularly in the manufacturing industry.

Despite the years of global crisis that we have experienced - and are still experiencing - the flows of capital and goods (import-export) have not stopped. This is stated in the Statistical Yearbook of Foreign Trade and International Business Activity for 2023 edited by Istat and ICE (Agency for the promotion abroad and the internationalization of Italian companies).

The task, at this moment, of professionals and consultants like us at Malerba&Partners but also of public entities is to support companies in expanding their business abroad through a solid network and above all a well-studied expansion strategy.

Possible paths for business internationalization

One of the first steps towards the internationalization of the company is the export of goods and services. It is important because it begins to take the pulse of the foreign market, through direct or indirect export (i.e. through intermediaries/resellers). Close to export is certainly e-commerce, i.e. the possibility of selling directly to the user online. The advantage of direct export, through intermediaries or resellers or even e-commerce, is that of being able to gradually enter the foreign market with a relatively low investment rate: no branded distribution structures, out-of-pocket costs such as premises or utilities, etc. are necessary.

Another possibility, more penetrating in the reference market than simple export, is that of Joint Ventures or strategic alliances which allow the company to pool resources and skills with international partners. The advantage, in this case, is to have a partner already present and established in the target country, capable of receiving information more quickly and above all better informed about local legislation.

Foreign Direct Investments (so-called FDI) instead allow you to control commercial activities in a foreign country through the acquisition or creation of a new entity.

Without a doubt the most penetrating hypothesis on the market is that of Franchising or Licensing. In this case, companies are allowed to expand by exploiting existing brands, technologies or business systems, gaining an advantage in terms of promotion and notoriety.

The first golden rule: networking

As seen, the Italian company that wants to enter a foreign market for the first time is not known and cannot leverage its national reputation or the word of mouth that is often generated by this. The first golden rule is, therefore, networking, that is, joining a network of professionals capable of studying the foreign market as best as possible, knowing its rules and exploiting its potential. From this point of view, licensing is certainly the best way to make yourself known, with the only disadvantage of being a roadquite expensive to travel.

The second golden rule: business model

When you decide to invest abroad, it is necessary to have a business model capable of withstanding the competition.

The business model is important - indeed fundamental - to avoid being caught unprepared. The same rules already seen in the article dedicated to Industrial and Financial Plans apply [link embedded in article].

However, it is useful to summarize some fundamental information and documents here:

• Market Selection

Identification of the most advantageous markets in which to invest. The choice falls on a market already evaluated/studied in the context of internal demand, economic growth factors and cultural affinity - we will return to this point below talking about the third golden rule, "respect"

• Market Analysis

A complete evaluation of the conditions of the "host" market, of the competitors, of the regulations in force in the sector

• Strategy and Financial Planning

Both visionary (i.e. a real Industrial Plan) and financial (Financial Economic Plan) capable of predicting market movements, tracing the path and finding funds (projection of costs, revenues and profits, sources of financing etc.)

The third golden rule: respect

When entering a country other than the one of origin, one of the first tools to achieve the success of the initiative is knowledge of laws and social norms, of the culture of the place, of its history and of the sensitivity that competitors, consumers and public authorities could demonstrate towards the new internationalized business activity.

It is an important factor not only in strategic terms (to make the promotional message and strategy more accepted and avoid accidents and misunderstandings) but also in terms of sustainable medium-long term growth. We also talk about this on our page dedicated to Sustainability, in particular social and environmental.

Establishing good social relations with those in the foreign country means creating connections capable of supporting the company not only today, but tomorrow, enabling it to seize otherwise difficult opportunities. Let's go back to the importance of the first rule, networking, and realize how interdependent these three rules are.

Potential and risks of business internationalization

It is clear that, like any type of investment, internationalization also poses risks for the company. One of these may be that linked to local regulations. Each state has a unique regulatory framework which can represent a complex challenge for a company that wants to internationalize. This is also why our Legal Consultancy service has the capabilities and network to overcome possible negative repercussions. The same goes for economic risks, i.e. those linked to the economic-political stability of the country and currency fluctuations, and for operational risks, logistical obstacles that could increase costs and complicate management. In our business, we respond to these two risks with the professionals of Corporate, Organizational Consulting and Strategic Planning.

Finally, it is good to remember once again the risks linked to cultural differences which could create obstacles in the management of business and relationships with the network.

All these risks, however, are certainly balanced and, indeed, overcome, by the potential of internationalisation.

Without a doubt, among the potential of this strategy we find the opportunities to access new markets, new consumers, a new "public" capable of appreciating our product and/or service. This also leads to the possibility of exploiting the phenomenon of the economy of scale, increasing production and decreasing costs, thus lightening the company's coffers.

The potential for economic diversification should not be underestimated: betting everything on a single market, a single country system, makes business activity highly dependent on the macro economic performance of that State; on the other hand, entering different markets reduces dependence and related risks, being able to exploit economic fluctuations.

It is then necessary to underline how internationalisation, by its very essence, leads the company to broaden its views, makes it possible to come into contact with technologies and innovations different from the usual ones, making it accumulate a know-how that is difficult to achieve without this type of activity.