The world has become a global community in more ways than one. For example, each country’s economy now relies on a sophisticated network of buyers, sellers, shippers, financial service providers, government agencies, utilities, and others. And linking these essential pieces are vast and complicated computer systems.

Topic: Strategies
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For many companies, expanding globally is essential to achieve success in the 21st century. But determining the best strategy can be difficult. And depending on your goals and level of resources, it may change.

However, by establishing a set of guidelines, selecting the right export markets doesn’t have to be painful. To make your job easier, consider some of our guidelines below.

Study Economic Indicators

Rank your potential country markets by how much of your product they import from the U.S. Then rank each by their total demand (domestic production plus world imports) for the previous three years. From this you can determine market size, its rate of growth, and U.S. market share.

If total demand for your product is increasing, review the country’s growth rate and per capita income. If indicators are positive, it’s likely that demand will continue to rise.

Be Competitive and Adapt

Identify each selected market’s trade barriers. If excessive, they may out-price your product. Know your competitors, their products, prices, distribution methods, consumers, and after-sale service. If intense competition exists, consider smaller markets that may be unattractive for multinationals, but big enough for you.

Sensitivity to foreign cultures is not only polite — it’s good business. Study a culture’s wants and needs. If your product design is not suitable, adapt.

Know Your Risks

Importers with soft currencies or insufficient reserves may find it difficult to pay you. Understand the risks, buy insurance or choose other markets. If you accept foreign currency, guard against fluctuations. Keep abreast of political risk. Civil unrest or policy changes may harm your interests.

Investigate Infrastructure Needs

If your product requires a skilled support staff, make sure it’s available in your target market. If not, you may be forced to provide costly support from back home. The lack of physical infrastructure may also curtail exports. The inability to quickly deliver perishables due to inoperable roads or inaccessibility to refrigerated storage can be a deterrent.

Research Legal Issues

Many countries claim to enforce intellectual property laws, but don’t. Investigate how piracy is handled. If protection isn’t a priority, you may want to avoid this market.

In some countries, the accused is presumed guilty until proven innocent, and judges may unfairly favor domestic sales agents or consumers. Assess each country’s legal practices and investigate safety and environmental regulations.

Welcome Advice and Use It

By acquiring majority interest in a foreign firm, you can dictate policy — but don’t. Respect and value the input provided by existing managers. A sound acquisition strategy asks what management thinks of proposed changes and incorporates the input.

Accurately Weigh Your Own Factors

Do your homework. Establish the factors you feel will best help you determine the markets to pursue — and seriously weigh them. Success is best achieved if you calculate all the costs of doing business and understand the ramifications of each decision. If not, your efforts may turn into losses.

This article appeared in July 1999. (CB)
Topic: Strategies
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In today’s highly competitive business environment, expanding globally can be a very profitable venture. But choosing the right strategy can be a difficult task — whether it’s exporting, establishing a joint venture or strategic alliance in a foreign market, acquiring a firm through direct investment, or by licensing technology abroad.

The benefits and risks associated with each method are contingent on many factors. These include your type of product or service, the need for support, and the foreign economic, political, and cultural environment you are seeking to penetrate.

However, your decision ultimately will be dependent on the level of resources and commitment, and degree of risk you are willing to incur. In addition to exporting, consider the following alternative methods.

Is a Joint Venture Right for You?

A joint venture is a cooperative business venture established by two or more companies. Prior to commencing operations, partners usually allocate resources, consign risks and potential rewards, and delegate operational responsibilities to each other while preserving autonomy. Upon completion of the project, the joint venture is usually disbanded.

This approach may enable you to establish a marketing or manufacturing presence abroad with the assistance of a local foreign partner, who may provide you with knowledge of government workings, regulations, internal markets, and distribution know-how.

A joint venture is an ideal strategy if you have limited capital, manpower and knowledge of the foreign market, or wish to mitigate your risks.

On the downside, your profits will be shared, and disagreements over marketing efforts and management philosophies can create difficulties. Consequently, the level of compatibility between you and your partner is extremely important.

Investigate a Strategic Alliance

A strategic alliance is similar to a joint venture — yet different. It may be formed by granting a foreign company the authority to exploit your technology, research and development knowledge, marketing rights, etc. It does not create a separate entity.

A simple strategic alliance can be a basic manufacturer-foreign sales representative relationship. To solidify this arrangement, a simple written agreement may suffice. This market entry method is often less formal and used as a preliminary step to creating a joint venture. Importantly, it allows partners to quickly respond to a changing environment and contribute complementary strengths to seize opportunities.

Is a Foreign Company Interested in Your Technology?

Through a strategic alliance or joint venture, you may wish to license your technology, know-how or designs to a foreign company for use in a geographic area for a limited period of time. This may include patents, trademarks, production techniques, and technical, marketing and managerial expertise.

Licensing is particularly attractive to small- and medium-size firms because it affords international expansion while limiting risks. It rarely requires capital investment and does not require the parties to work closely together or demand your continuous attention.

In many cases, licensing is the only viable strategy to securely enter a foreign market that lacks hard currency, severely restricts the repatriation of profits and foreign direct investment, maintains unreasonable trade barriers, and/or is economically or politically unstable.

As with each market-entry method, licensing has its disadvantages. For example, the licensor loses control over the quality, distribution and marketing policies, and essential support services employed for the purpose of selling the product or technology.

If compensation is based on sales volume, the licensor may have to rely on the honesty of the licensee to report units sold.

A typical licensing agreement may call for an up-front fee, royalties based on a percentage of future earnings, and consulting and training assistance. Many licensing agreements evolve into joint ventures, while some joint ventures or strategic alliances are eventually converted to simple licensing agreements when one party’s interests diverge from the original purpose.

Is a Foreign Acquisition Best?

Through foreign direct investment, you can acquire an interest in another firm located abroad. More often, a company will complete a foreign acquisition once a market is proven, usually after years of exporting or if a high degree of success has been experienced through a preexisting joint venture.

If you obtain controlling interests, you’ll have full authority over all policies, including marketing strategies, financing, cost cutting, expansion programs, production, and quality control. However, keep in mind that a very successful acquisition strategy is one where the new owners study preexisting management styles and seek to understand what management thinks of proposed policy changes, and then incorporate this input.

Foreign acquisitions usually require an abundance of resources, and the exposure to risk is higher as compared to other methods of foreign market entry. Thus, changes in government policy can adversely affect your company’s operations. On the other hand, foreign acquisition benefits often exceed other methods of market entry.

Choose The Strategy That Best Satisfies Your Long-Term Needs

Different strategies will satisfy different needs. To determine what may work best for you, study your options on an in-depth basis. This may include seeking legal and/or expert advice on the methods and markets that interest you.

Importantly, look at the long-term ramifications, especially the level of resources required and risks involved, and analyze this in terms of your expected returns. In many cases, a combination of strategies, employed one after another, may be the right mix.

This article appeared in October 1998. (NB)
Topic: Strategies
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Exports are increasingly becoming more important to the success of our local economy and individual companies. And if you're responsible for any international activity, chances are your company's success at exporting will impact your personal job performance — and your value to your organization.

Consequently, identifying, assessing and choosing the right foreign markets to pursue can result in your company exceeding its profit expectations. However, selecting the wrong markets can result in great expense, frustration and even your job.

Depending on your company's level of resources, objectives and product competitiveness, the number of foreign markets to target simultaneously and the selection process used to determine what markets to pursue will differ considerably. For example, if your company is small and new to international trade, your staff and level of resources allocated to pursuing exports may be limited. As a result, it may be wise to focus on fewer foreign markets — one to three — rather than many. This will prevent the spreading of your resources too thin.

Determining a criteria to use when assessing what foreign markets to pursue can be an arduous task — and expensive if pursued in a non-effective manner. To make your job easier, you may wish to consider the following factors:

Study Economic Indicators and Avoid Jumping to Conclusions

Rank the potential country markets by the value of your product they import from the United States. Then rank each by their total demand (domestic production plus world imports) for the previous three years. This will determine market size and its rate of growth, and it will give you U.S. market share and show if it is increasing or decreasing.

If total demand for your product is increasing, look at the country rate of growth and per capita income. If indicators are positive, it’s likely that your product demand will continue to rise. However, if these indicators are stagnant or down, its likely that the growth in demand for your product will slow.

Can You Be Competitive and Adapt Your Product to Suit Country-Specific Needs?

Identify each selected market’s trade barriers (tariffs, as well as standards, regulations, quotas, labeling requirements, etc.). If excessive, they may make your product too expensive and limit your exports. If manageable, investigate whether any vested interests can bar your product from the market.

Know your competitors, their products, prices, distribution methods, consumers and their ability to provide after-sale service. If intense competition exists, look to smaller markets which may be unattractive for multinationals, but big enough for you.

Sensitivity to foreign cultures is not only polite, it’s good business. Study their tastes. If your designs don’t suit them, make changes or go elsewhere.

Know the Currency and Political Risks

Importers from countries with soft currencies or insufficient reserves may find it difficult to pay you. Understand the risks, buy insurance or choose other markets. Should you accept their currency, guard against wide fluctuations. Keep abreast of political risk. Should a government collapse, disruptive activities may result in your not getting paid.

Investigate Infrastructure

If your product requires a skilled support staff (human infrastructure) make sure it’s available in your target market. If not, you may be forced to provide costly support from your home office. The lack of physical infrastructure may also curtail exports. The inability to quickly deliver perishables due to inoperable roads or inaccessibility to refrigerated storage can be a deterrent.

The shipping costs of heavy merchandise to distant locations may also prove too expensive. In this case, you may wish to consider licensing your technology.

Investigate Intellectual Property Protection and Legal Issues

Many countries claim to enforce intellectual property laws, but don’t. If you sell software, investigate how piracy is handled. If protection isn’t a priority, you may want to avoid this market.

In some countries the accused is presumed guilty until proven innocent, and judges may unfairly favor domestic sales agents or consumers. Carefully assess each country’s legal practices and investigate safety and environmental regulations.

Should a military coup take place, a succeeding government may reverse policy; should social turmoil envelop a nation, the disruption of activities can effectively put you out of business. New governments have been know to reverse policy with regard to a whole range of investment and trade issues.

Additionally, follow the political relationship between the United States and your target countries. Warmer political relations may allow U.S. businesses greater access to the foreign marketplace. Cooler relations can have the opposite effect.

Be Familiar with the Culture

Understanding your buyer's culture and tastes is very important. Product design not adapted to suit cultural preferences may not be accepted. For example, Mexican women prefer bright, splashy prints on their swimsuit that don't sell well in the United States.

Additionally, behavior considered friendly in one country may be considered offensive in another. And be aware that many foreigners believe that to be polite is to agree, not considering the ramifications or their ability to perform.

Understand the Legal System and How It Works

One of the most pressing issues in doing business in some developing countries is the lack of commercial legislation. The absence of civil, commercial and criminal codes can be a major constraint. And confusing and burdensome bureaucratic requirements can tie up valuable time.

Environmental standards greatly differ from country to country. Certain machinery may not meet stringent foreign environmental pollution standards that could prevent product importation. On the other hand, some developing countries may not provide adequate facilities to treat or store toxic by-products generated by a manufacturing process, creating a serious health risk and legal problems.

This article appeared in the Central New York Business Journal, March 1998.
Topic: Strategies
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Companies in record numbers are expanding internationally. Choosing the right strategy to achieve this can really pay off. Choosing the wrong method, however, can result in serious financial loss.

Most companies typically enter foreign markets through exporting, joint ventures (JVs), strategic alliances, licensing technology or through acquisitions that require direct investment. The strategy that is best for you will depend on your commitment, resources and level of the risk you are willing to incur. Of course, your product or service, the degree of technical support, and the economic, political and cultural environment you are penetrating are also critical.

What Is a Joint Venture and a Strategic Alliance?

A JV is simply a cooperative business venture by two or more companies. Typically, partners will allocate resources, risks, potential rewards, and delegate responsibilities while preserving autonomy.

An international JV can enable you to establish a presence abroad with the assistance of a foreign partner who may provide knowledge of government workings, regulations, internal markets and distribution. This can be particularly valuable to you in unfamiliar territory.

A strategic alliance is similar, yet very different. It may be formed when a company gives authority to another to exploit technology, R&D, or marketing rights, but does not create a separate entity. A typical example is the manufacturer-independent sales rep relationship.

To solidify this arrangement, a handshake or simple written agreement may suffice. It is often less formal and a preliminary step to creating a JV. Consequently, both would allow you to quickly respond to a rapidly changing environment and complement strengths in order to seize opportunities.

Limit Your Risks and Compromise

A small company with limited capital, manpower and the need to limit risks often find a JV ideal. It’s generally safer than an acquisition, especially if a host government legislates policies negatively affecting your business. Or, as a result of social unrest, a coup results in business loss.

On the down side, profits are shared. Various factors can also lead to disagreements over efforts, marketing strategies or differences in management philosophies. Your ability to compromise is essential.

You Can Share Your Technology

Through a licensing agreement, you can authorize a foreign company to use your technology or intellectual property in a market over a certain time period. This may include patents, trademarks and production techniques; or technical, marketing and managerial expertise.

Licensing is particularly attractive to small firms because it affords international expansion while significantly limiting risks. It also usually requires a smaller effort than other strategies. It rarely demands capital investment and does not necessitate that the parties work closely together.

In cases where the foreign market lacks hard currency, restricts the repatriation of profits or direct investment, has high trade barriers, or is politically unstable, licensing may be the only viable strategy.

Licensing also has its disadvantages. You can easily lose control of quality, distribution and marketing policies and support services. If compensation is based on sales volume, you may have to rely on the honesty of the licensee to report units sold. Additionally, earnings are usually less than those provided by most other entry methods.

A typical agreement requires an up-front fee, royalties based on earnings, and consulting or training assistance. Many evolve into JVs, while some JVs or strategic alliances are eventually converted to licensing agreements when interests change.

Foreign Acquisitions Require Sizable Resources — But Offer Large Rewards

Through foreign direct investment, you can acquire an interest in a company in your target market. This method is usually chosen after years of exporting or success has been achieved through a pre-existing JV.

Foreign acquisitions usually require an abundance of resources and the exposure to risk is considerably higher. As a result, large companies are usually better suited.

By the end of 1994, U.S. companies had cumulative direct investments of $612.1 billion in foreign countries. The largest investment destination was the U.K., followed by Canada, Germany, Japan, Switzerland, Bermuda, France, Netherlands, Austria and Brazil.

If you desire controlling interests, your stock purchase will range from 51% to 100%. If successful, the revenue can often exceed profits obtained through other types of expansion methods. Ownership can also put you in the position to accept lucrative government incentives.

Perceptions, Reliable Service and Cultural Affinity Make a Difference

It sometimes makes sense to acquire a manufacturing presence in your target country to satisfy consumers’ demand for domestically produced goods. And because of proximity, both acquisitions and JVs generally allow for effective servicing of their products resulting in satisfied customers that are confident in your company and products.

Establishing a foreign base to service a particular region is also beneficial for cultural reasons. It’s predicted that more U.S. companies operating in Mexico will use the country as a base to service smaller Latin countries. The cultural affinity among the Mexicans and Central and South Americans can make assimilation less difficult and sales easier.

Secure Your Future

Regardless of which method of expansion you choose, mistakes will undoubtedly occur. Expanding internationally can be difficult and costly — but very financially rewarding.

Expanding globally has become a primary key to economic growth in the years to come. But this can’t be achieved without a sufficient level of commitment on your part to cope with the new and rapidly evolving global environment.

This article appeared in July 1997. (PN)
Topic: Strategies
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