Business Management

CHAPTER 1. INTRODUCTION TO INTERNATIONALIZATION

To start the export path, the company first must reflect on the convenience of exporting
and eliminate doubts about whether it can, should and wants to export. Eliminating
these doubts will allow you to face the necessary actions with the conviction of
following the appropriate process. Below we answer the most common questions that
companies ask about the possibility of exporting:

Can my company export? There are many SMEs that have export capacity and yet
do not access international markets because of the fear that arises from the unknown.
For a good start in export activities it is convenient that not only the company
management is involved in this new activity but it is recommended that all workers,
shareholders, suppliers, etc. get involved to the extent necessary in each case to start
export processes-

How does the culture of the company influence? To take the export initiative, the
management of the company must take into account cultural circumstances that are
linked to the common activity of the company itself. For example, consider the prestige
of bringing the products that the company produces to the world's markets. It would
also influence the fact of having managers who have studied foreign languages and /
or made trips abroad, if the management has a clear perception of the exclusive
characteristics of their products, their technological advantages, quality, price, etc.

Is it difficult to export? It is not difficult to export if you have the right product and pay
attention to the correct way to raise it. Many companies in their sector have succeeded.
We must bear in mind that exporting without the necessary prior preparation can lead
to a loss of money, time and illusions, since positioning in a foreign market takes time
and requires dedication and effort. The completion of the export project requires a
preparation task, in terms of decision making, and in terms of the necessary means
during the entire process.

Who should make the decision to export? It will be the management of the company
that must make the decision to initiate the company in the international arena, after
evaluating the internal (the company, the country, etc.) and external (the markets, etc.)
conditions

How does the expansion of markets affect the company? Expanding markets can
lead to diversification that results in higher sales, an improvement in the organization
and efficiency of the company, less dependence on variations in the internal market
itself, a decrease in the idle capacity of the company, etc. .

Are we prepared to make future production increases? Once the decision to export
is made, it would be necessary to establish what production increases would be and if
we are able to assume them. An increase in production as a result of orders from

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abroad will increase the financial needs of the company. It is convenient to determine
the cost and which institutions, in due course, can provide these resources.

Is there information on the Internet? Normally on the Internet we can find a lot of
useful information when starting the international journey, especially at the level of
searching for information on the markets to which we intend to go, as well as possible
competitors and companies that already operate in it. The topic will be to consider what
information will be useful and reliable and if it will be enough with what was found
through the Internet. Institutions such as ICEX or Chamber of Commerce will help you
find the necessary information.

Will it be necessary to train internal staff? Thinking that it is always convenient to

have trained and updated personnel in relation to the activities they carry out, it would
be necessary to prepare those people within the organization to properly perform the
tasks related to internationalization (knowledge of documentation, languages,
international operations, etc.).

How does the decision to export affect the company? Logically, incorporating
exports will influence all levels of organization of the company since it entails
modifications in the area of production, marketing, advertising, financial, etc. The new
activity will not only affect the organizational structure, it may have to compete with
other projects within the company. It is important to have a budget that allows to
achieve the objectives proposed by the Director of the company and transmit the entire
organization an export culture.

Do we need an export department? Not necessarily, although the new functions will
require dedication, both at the managerial level and to control operations. The decision
and the size of the department will depend on your goals as you can hire almost all
services.

What would be the functions of the export department? In the case of establishing
an export department, the functions that must be performed for its proper functioning
must be clearly established. In general, all those that want to be carried out within the
company related to logistics, collection, agent control, sales promotion, etc. can be
included.

Are there any special issues to consider? Yes, since we know that starting the
export requires dedication and time of the management team. It is essential to know
how to delegate in order to keep on doing the efforts required by the internal market.

How can I reduce the risk of being wrong? Export is a progressive process of
decision making. Institutions Official Programs will help you in your first steps to
increase your chances of success.

And if you don't have the necessary knowledge? Exporting is not a matter of
mastering foreign trade procedures, but of knowing how to make the right decisions
and knowing who and how can support you in each step.

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1.1 Introduction

When you’re working hard to make your business a success, you need to know that
every decision you make is the right one for you, your business and your future. Every
company’s experience of exporting is different. But the good news is that – whatever
your size or sector – the rewards from selling your products and services overseas can
be huge.

There are many reasons why you might not be selling overseas. You might be satisfied
with the level of sales you’re making in your country. Maybe you don’t want to deal with
the perceived hassle of regulations, paperwork and cultural barriers. You could think
exporting is a risky venture in uncertain times. Or you might be interested but just don’t
know where to start.

Each of these is a misconception. Exporting actually reduces risk by spreading it

across a wider range of customers and protecting your business if the local demand for
your product or service falls. Any business venture carries an element of risk and you’ll
need to weigh export opportunities carefully. But trading internationally, if you’re being
smart about it, adds more security than risk to your business.

And there are many reasons to export besides profit. Operating in new markets will
mean you’re more likely to be aware of emerging needs of that market and new
opportunities that may arise. Exporting also enhances your business’s profile, whether
for new clients at home or ones abroad.

If your company has a top-class product or service and an ambition to diversify,

venturing into foreign trade may be the smartest decision you’ll ever make. This can be
true even if you’re not a large company, since size isn’t closely related to success
abroad.

Trading abroad can boost your profile, credibility and bottom line. That goes whether
you’re trading with established partners, such as the EU and USA, or high-growth
markets like Brazil, China, India, Colombia and Vietnam. International markets like
these offer you access to new customers, revenue and ideas. Crucially, they enable
you to spread your business risk, increase the commercial lifespan of your products
and services and secure economies of scale not always possible at home.

Of course, succeeding in foreign markets means dealing with many new challenges of
financing, marketing and logistics. This will take thorough preparation and planning,
together with a long-term commitment to establishing an international presence. But
the payoff for a successful venture into foreign markets can be substantial and, in an
era when the world’s trade is becoming ever more integrated, it can be essential to
survival.

Internationalisation could be define as the process through which a firm expands its
business outside the national (domestic) market.

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1.2 Benefits of doing business abroad

Why would a company that’s already doing well within Spain consider becoming an
exporter? There are several good reasons, including:

Higher profits. If you can cover fixed costs through domestic operations or other types
of financing, your export profits can grow very quickly.
A company operating successfully abroad can expect to see any or all of these benefits:
Increased sales. Domestic markets are relatively small and, depending on your
industry, relatively easy to saturate. This means that exporting or investing abroad may
be the only way to increase your sales. Find foreign niche markets and take advantage
of demand around the world.
Lower market vulnerability. The more diverse your markets, the less vulnerable you
will be to downturns resulting from local or regional business cycles or from seasonal
sales fluctuations. Diminishing sales growth in Spain or in Portugal, for example, can
be countered by new sales elsewhere in the world.
Economies of scale. When you have a larger market base, you can produce on a
scale that lets you make the most of your resources.
Extending the life of your products. Many products have a natural life cycle,
beginning with high sales growth followed by a levelling-off period and then a decline.
But you may be able to take a product that is falling off in sales domestically and
introduce it (with appropriate updating or other changes) in a market where it has never
been available. This strategy could substantially increase the longevity of your product.
New knowledge and experience. The global marketplace abounds with new ideas,
approaches and marketing techniques that could also prove successful in your local
market.
Improving your competitiveness. Because the global market is so competitive, you’ll
need to be very efficient and very focused on quality and innovation in order to succeed.
This can only strengthen your ability to compete at home. In fact, businesses that are
successful internationally often do very well domestically because they have learned so
much abroad.
Domestic competitiveness. If your company succeeds in the global marketplace, it
will ensure your resilience when faced with foreign competition in your own country.

1.3 Challenges of doing business abroad

Getting started in international business and exporting means dealing with many new
and unfamiliar challenges.
You are, after all, marketing your products or services in places where English or
Spanish may not be the language of commerce, where the business culture can be
subtly or even dramatically different, where logistics can be problematic and where
regulations and laws can be opaque. For example:

a) FINANCIAL AND TAX RISKS:

 Fluctuations in exchange rates: it is charged in other currencies and usually a few
months later: it may be that the fluctuations in exchange rates do not charge what
was calculated. The company can also benefit from the situation. You can use
exchange insurance.

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 The different rates of inflation: these make companies in each country more or less
competitive by raising labor costs, primary and financial costs, etc. to a greater or
lesser degree.
 Payment tends to be slower than at home. This can affect your cash flow for the
worse, so you need to plan your financing accordingly. Exchange rates are also a
factor, so you may need to use foreign exchange hedging to protect your profit
margins.
 Limitation on the repatriation of benefits.
 Corporation tax.

b) POLITICAL RISKS:
 Armed conflicts that make sales already contracted impossible to materialize.

c) LEGISLATIVE AND REGULATORY RISKS:

 Contracts are more complex and must be carefully structured to prevent
misunderstandings and the costly litigation or arbitration that can result.
 Local regulations and technical standards that apply to your goods may require you
to modify them before they can be sold in the foreign market.
 Your goods may be subject to customs controls and tariffs.

d) INSTITUTIONAL DIFFERENCES:
 Foreign economic, legal and political systems can also be very different from Spanish
ones, especially in markets whose institutions did not evolve out of European
traditions.
 Capital market, Unions, Organizations and institutions.

e) CULTURAL DIFFERENCES:
 Foreign customers will be quite different from your local buyers, and this extends
beyond the difference in language. Living standards, social norms, business etiquette
and cultural tastes will often diverge in important ways from those in your country.
The old saying that “people are the same everywhere” does not apply to many
aspects of international business. Also you must take into consideration, customs
and shopping habits, different alphabets, taboos, social uses.

Besides these handicaps, operating abroad exposes you to far wider and more intense
competition than at home and Logistics are more complicated and more prone to
delays. In general, the complexity of foreign trade will add significantly to your
management tasks.

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1.4. Getting ready for international trade

Before you commit any major resources to becoming an exporter, you should carefully
evaluate your business to make sure it can measure up to the demands of international
trade. Even if you have a product or service that is very likely to sell well abroad, your
company may not actually be ready to export it.

Most non-exporting firms don’t yet have everything they need to be viable abroad. Your
business may not have enough financial resources to sustain its cash flow until its
exports begin to turn a profit, or it may need capital investments to ensure that it can
produce enough to meet demand from abroad. It’s very likely, therefore, that you’ll
need to fill in some gaps before you can ship that first container to another country.

Your first step is to think about the resources and knowledge your business already
has. The following sections can help you decide where those gaps are and whether it’s
realistically possible for you to close them. Consider the following as a starting point

Your expectations — do you have:

• Clear and achievable export objectives
• A realistic idea of what exporting entails and the timelines for results
• An openness to new ways of doing business
• An understanding of what is required to succeed in the international marketplace

HR requirements — do you have:

• The capacity to handle the extra demand associated with exporting
• Senior management committed to exporting
• Efficient ways of responding quickly to customer inquiries
• Personnel with culturally-sensitive marketing skills
• Ways of dealing with language barriers

Financial and legal resources — can you:

• Obtain enough capital or lines of credit to produce the product or service
• Find ways to reduce the financial risks of international trade
• Find people to advise you on the legal and tax implications of exporting
• Deal effectively with different monetary systems and ensure protection of your
intellectual property

Competitiveness — do you have:

• A product or service that is potentially viable in your target market
• Resources to do market research on the exportability of your product or service
• Proven, sophisticated market-entry methods

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1.5 Getting ready to sell overseas

Good preparation makes for great exporting. Making sure you have the right resources
and skills in place before you start saves time and reduces your workload in the long
run. It can also lead to larger profits and less risk for your company.

It’s important to understand what’s involved in selling overseas, but preparations can
be made bit by bit and you don’t have to be an expert on anything. There are many
support organisations and existing exporters out there who are ready and willing to
help you.

1.5.1 Product ready

First establish whether there are opportunities for your product or service outside your
country. This includes determining which countries offer the biggest demand for your
product. Think about your unique selling point and what features of your product and
service will really appeal to customers in the market you’re targeting.

Consider also the most suitable route to market for your product or service. For
example, if you’re a small giftware company, selling online may be a good way to
introduce your product to a market with less complexity and risk.

You’ll need to also consider any modifications to satisfy overseas requirements – from
legal ones like standards, to labelling and packaging, to differing tastes.

You should be prepared to research one or several markets. You can do this online but
market visits might be worth the outlay. Trade missions are a very effective way to do
this. Trade representatives at Spanish Embassies may be able to help with activities
related to trade missions, as well as with market research and market visits.

1.5.2 Team ready

Exporting requires commitment and enthusiasm from staff across your company, not
just top level management and sales. Consider how you’ll communicate developments
and spread enthusiasm across your business for exporting.

Think about whether your company currently has the right management skills and
expertise to develop and service export markets.

You may need extra staff or at least extra staff time for:

 market research
 international sales and marketing (consider what might make your marketing
content, including your website, fit for purpose in a foreign market)
 business culture and language knowledge – effective communication in a
foreign language market will require at least a small amount of language skills
 finance, documentation and logistics
 finding and managing partners

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Remember that you can get support and services in many of these areas, some of it
free or at a low cost, from partner organisations, your local Chambers of Commerce
and international trade advisers in the Department for International Trade’s regional
network.

1.5.3 Finances ready

You may need extra financial resources to develop overseas markets, and the flexibility
and capital to scale up if export orders are coming in quickly. Don’t forget to factor any
overseas travel, marketing and product modification into your budget.

You’ll want to have staff and processes in place to deal with:

 export enquiries
 international sales
 managing overseas contracts
 getting paid

As you research, you also need to identify how ready your business is to export. You
need to ask yourself:

1. What are my unique selling points? Is there a demand for my product or service in
this market?
2. What are the legal issues I need to consider?
3. Where in the market (country, region, sector or segment) should I start?
4. Do I have the resources (finance, time, expenses and skills) I need to deliver this
project?
5. Who will be leading this project in my company?
6. Do I need to work with an overseas partner to succeed? Can I communicate with
them effectively?
7. Have I evaluated the potential business risks (e.g.protected my intellectual property),
completed my research and conducted due diligence?
8. What do I need to do to get paid and deliver my products on time?