Internationalization: Why and how?

BUSINESS international exM pansion@ refers@ to@ the@ process@ in which a company extends its operations beyond its home or domestic market. It involves various activities that include deM ploying strategies with the goal of establishing@a@presence@in@foreign@ markets and exploiting new opM portunities, diversifying risks, and achieving sustainable growth.

The process begins by conductM ing market research and analysis to identify attractive foreign markets and assessing factors such as marM ket size, potential for growth, comM petition, regulations and culture.

There are several reasons why a company might choose to expand into foreign countries. InternationM al 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 reaM son companies internationalize is that it can extend the life cycle of@a@product@…here@it@is@reaching@ maturity or declining 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 is not readily available in a comM pany’s home market. Successful exM ecution 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. AdditionM ally, internationalization can faciliM tate@ strategic@ alliances @… i th@ foreign@ companies that may lead to joint ventures, knowledge exchange, and access to complementary markets and resources.

One approach a company can utilize in its international expanM sion analysis is the R-A-T and CA-T framework. This refers to the competencies that the company possesses that it is seeking to exM ploit in international markets. R: Are the competencies Relevant to other countries? A: Are the comM petencies 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 comM petencies 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 ComplemenM tary? A: Are they Appropriable? T: And are they Transferable?

For capabilities and competencies to matter, they must provide a comM petitive 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 O 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 seeking to exM pand into international markets need to ask themselves what competencies 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 sucM cessfully executed this corporate strategy framework is Shimano Inc., a Japanese manufacturing company in the cycling, fishing and other outdoor sports equipM ment industry that has grown to become a multinational company.

Shimano was founded in Osaka, Japan, in 1921 by Shozaburo ShiM mano. He started the company by producing bicycle components and expanded into other outdoor sports@ products@ such@ as@ fishing@ equipment and rowing equipM ment. The company expanded into markets throughout Asia in the 1930s, to the US in the 1950s, to Europe in the 1960s, and has continuously developed various innovative technologies.

In a recent message from the company’s president, he said it is an urgent task for Shimano to “radically innovate its manufacturing systems and improve its business efficiency by thoroughly adopting digital technoloM gies.” He also mentioned that leaderM ship will work to sustain Shimano as a “value-creating company.”

In summary, internationalizaM tion can be a strategy for comM panies@ seeking@ opportunities@ for@ growth, diversification and comM petitive advantage in an interconM nected global economy. However, it also poses risks that must be assessed, monitored, and manM aged 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 inM novation strategies at Harvard BusiM ness School and Stanford Graduate School of Business and in ExpoM nential Technologies at Singularity University in Silicon Valley.