Internationalization: Why and How?
by: Armand Cacacho, FICD
Business international expansion refers to the process in which a company extends its operations beyond its home or domestic market. It involves various activities that include deploying strategies with the goal of establishing presence in foreign markets and exploiting new opportunities, diversifying risks, and achieving sustainable growth.
The process begins by conducting market research and analysis to identify attractive foreign markets and assessing factors such as market size, potential for growth, competition, regulatory, and cultural factors.
There are several reasons why a company might choose to expand into foreign countries. International expansion allows a company to tap into new markets and develop those markets that will eventually bring additional revenue streams to the company. Operating in multiple markets can help mitigate risks associated with economic downturns or market saturation in one region where the company operates. Internationalization can provide a competitive advantage by allowing a company to leverage unique capabilities, resources, and technologies that may be valuable in other countries. Another reason why companies internationalize is that it can extend the life cycle of a product where the product is reaching maturity or decline in demand in its home market but may still be in demand in a foreign market. Internationalization may also provide access to new resources, talent, raw materials, technology, and in some cases capital that are not readily available in a company’s home market. Successful execution of international expansion can improve a company’s brand, reputation, and credibility as it sends a signal to both consumers and investors that a company is internationally recognized and respected in its industry. Additionally, internationalization can facilitate strategic alliances with foreign companies that may lead to joint ventures, knowledge exchange, and access to complementary markets and resources.
One approach that a company can utilize in its international expansion analysis is called the R-A-T and C-A-T framework. This refers to the competencies that the company possesses that it is seeking to exploit in international markets. R: Are the competencies Relevant in other countries? A: Are the competencies Appropriable? Can the company create value in another country? T: Are the competencies Transferable? Can the company capture that value in that other country? C-A-T refers to the competencies that the company can use and develop in another country that it can later use to enhance its capabilities in its home market. C: Are the competencies Complementary? A: Are they Appropriable? T: And are they transferable?
In order for capabilities and competencies to matter, they must provide a competitive advantage by satisfying four criteria: 1) they must create value that increases customers’ willingness to pay for the product or service, and/or reduce the cost of producing/supplying the product or service, 2) they must be rare, 3) they must be difficult to imitate, and 4) the company must be able to employ these capabilities effectively.
Leaders of companies that are seeking to expand into international markets need to ask themselves what competencies do they have that they seek to exploit internationally. Do they pass the R-A-T test with the target foreign country?
One company that has successfully executed this corporate strategy framework is Shimano, Inc., a Japanese manufacturing company in the cycling, fishing, and other outdoor sports equipment industry that has grown to become a multinational company.
Shimano was founded in Osaka, Japan in 1921 by Shozaburo Shimano. He started the company by producing bicycle components and expanded into other outdoor sports products such as fishing equipment and rowing equipment. The company expanded into markets throughout Asia in the 1930s, to the USA in the 1950s, to Europe in the 1960s, and has continuously developed various innovative technologies.
In a recent message from its President, he said that it is an urgent task for Shimano to “radically innovate its manufacturing systems and improve its business efficiency by thoroughly adopting digital technologies.” He also mentioned that leadership will work to sustain Shimano as a “value creating company”.
In summary, internationalization can be a strategy for companies that are seeking opportunities for growth, diversification, and competitive advantage in an interconnected global economy. However, it also poses risks that must be assessed, monitored, and managed to ensure long-term success in international markets.
Armand Cacacho is an Adjunct Professor at AIM and a Fellow and faculty member of the Institute of Corporate Directors Philippines. An entrepreneur in San Francisco, California for 17 years and a former Fortune 200 executive, he completed executive programs in business innovation strategies at Harvard Business School and Stanford Graduate School of Business, and in Exponential Technologies at Singularity University in Silicon Valley. He holds the Senior Accredited Board Director designation from the Singapore Institute of Directors, and a Member of the National Association of Corporate Directors USA and completed its Director Professionalism Program.
Disclaimer:
On April 9, 2024, “Internationalization: Why and How?” was published. It was authored by Armand Cacacho, A Fellow of the Institute of Corporate Directors
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