One of the most modern things followed by the many companies in the 21st internationalization and where these successful firms venture into the foreign markets. And these companies go global in approach and this covers the flourishing domestic business into multinational enterprises. This helps the company to improve sales and build their brand reputation as well. One of the main functions of an MNC is that it has the company headquarters in one country and the production, as well as operational functions, are set up in many countries.
This is because they get cheap labour sources, raw materials, benefits of tax differences, and protectionist barriers.
You will get many important factors that are adopted by many MNCs like big in size and its international functions which are centrally governed by the parent company. These companies are better able to adapt and then respond to the micro as well as macro-environmental activities like suppliers, competitors, consumers, government, and the stakeholders too. By this, they also get access to the natural resources and potentially unexplored markets and assets, patents, human resources, technical and managerial things as well.
Why do companies go multinational?
There are many reasons as to why a firm decides to take the decision and go international. Companies get ownership benefits which are usually intangible as it can be transferred within the multinational companies at a cheaper rate. The company also possesses monopolistic benefits as that would be easy to get the resources that are usually scarce in the current country where the company is made. The companies also possess the share of the technology and the details from other countries in which expansion takes place. These companies also give advantages to the host economies as it also generates large amounts of employment opportunities. The MNC also helps with high levels of managerial skill and globally employed best latest technology.
If we talk about the advantages of the location then it will be further divided into three factors for a better understanding.
• First is the economic benefits– this one you can relate with the cost and revenue factors like low costs of raw materials, transportation cost will be less, proper storage and distribution so this helps in the development of economies of scale as well as scope.
• Second is the socio-cultural benefits– In this, it includes the ability to adapt to the culture the company wants to operate in the terms of overcoming language as well as cultural barriers too.
• Third is the political benefits– as this includes the nature of the economy, policies by the government, systems, and the bureaucratic setup also. The policies also affect and encourage the inward FDI flow, the intracompany trade, and also international production too.
• The international benefits– the process of internationalization in which the functions are kept directly within the company’s control and the key benefit is that it would decrease the transactional amounts. There will be no threat to the principal-agent problem of the firm also.
How do organizations go multinational?
The Multinational organizations always seek an opportunity to explore the international markets that have considered crucial entry decisions because the markets have high risk as well as uncertainties. The main decisions that a firm contemplates before expanding into the foreign markets also have the decision to which market steps into.
Mode on entry includes some following things
The direct and indirect export in which firms usually begin with the indirect exporting as they have potential benefits such as less risk. Direct exporting where the organization handles its own activities and the first investment as well as the risk which are much higher but also give high returns too. licensing also has one company permitting another one license for a limited period to use its patent and trade secrets or royalty. Franchising is also very similar to this one which involves an agreement between the two companies in which one company allows another one to use its name, advanced technology, and the methods to market as well as produce the items. Many joint ventures are agreements between the company often set up in other countries to operate in cooperation with each other and work as a single corporate entity. They share losses as well as profits through the execution of an undertaking.
Mistakes to avoid global business failure and its factors
- People get failure because of a lack of planning
Planning is really important as part of global business failures involves this. The main goal for firms to go beyond the local levels is to access new capital as well as consumers. Many firms just jump into foreign markets without proper planning. They don’t search properly and don’t ponder the variance in the costs of doing their business globally.
- So for that, you have to make proper plans
First, know if your company is ready to expand to foreign markets and it is stable or not? Make a note of all the weaknesses and your demand for services and products.
Now analyze what factors make a foreign market attractive for your firm and which market you should target.
Know what type of firm and operational processes do you require and do you have the managerial skills which are required.
Now how will you finance your expansion and do you need any resources and what type of return you expect and how.
- Some of the companies do have poor communication also
The communicating factor is a basic need for all the firms and the major challenge for businesses domestically. The burden also gets greater when you come to the markets where the native language is different from your own one. The global firms should consider the effects of communication in hiring the local talent easily, and making global workplaces with virtual teams as well as interacting with the local consumers too.
- Doing proper research is always necessary for your target market which companies don’t do
You require to ensure that you have proper research on understanding the local market. Many firms also skip these major steps and they think that all markets are the same as the local ones. You have to know about the local firm trends and its forecasts as well. you have to know more about the competitors, suppliers as well as your partners. The market dynamic is also one factor which you should look for like distribution channels or marketing channels. Know about the place’s cultures and their traditions. And the last thing which is also important is taxes, legal and customs.
- Understand the importance of cultural differences which many companies don’t do
Many firms that don’t search about the foreign markets of time often create crucial mistakes in their extension. The most common error which companies do is to assume that your business model can be duplicated across the international markets.
- Another mistake firms do is going at this alone
There is no need to enter the market alone and work with a local partner who already knows about it so that you can save a significant amount of time as well as money. And in some situations, it will be beneficial to acquire a well-established local business by allowing you to get the advantage from the existing base and its name. Many firms also try to go into the foreign market thinking that they already have everything they require to establish themselves properly.
- Expecting the return on investment very quickly
The foreign markets are the best source of growth and it’s important to remember that it is a long-term strategy for companies. By expanding the market also has the ability to adapt to the new country and then build a new relationship as well as reputation. You will also get a return on investment within just a few years but that is rare. And this is important to allocate financing to enter a new market with a significant amount. Many firms sometimes underestimate the investment needed as the cost which is unexpected will creep up often. This also has new taxes, intellectual property problems, changes in the economy, and the costs of the asset.
- Many companies also have lack adaptability
You have to adapt to the needs of the local marketplace and the culture will also lead to global failure which is not good. A common problem firms run into is the expectation that many businesses will support. Thus, many firms also enter the global markets and then fail to use the local talents they have, suppliers as well as business partners.
Now if you want better going global strategies and want to keep everything in mind then follow the strategies below
First, you should have the knowledge about the legal systems where you can intend to open up easily. Just take an example if you are working for any US-based global business which was trying to get its European strategy but the firm had a meaningful presence as well as strong sales in Europe. The CEO and his staff have told that during their quarterly sales call were shutting down your French office and also supporting the clients. Now the French bureaucracy has caused a huge embracement to a management staff unskilled in doing things in unfamiliar territory. And by this, you can get an idea of how it all worked.
Another one is to alter your pricing
It is a really understandable belief that a pricing thing works in the US which will work elsewhere. The US is so large where the differences are minimal and well understood as well as accepted too.
Try to empower your regional leaders
As a believer which is successful internationally, you will require to be an international employer by getting more local talent to sit alongside the best local staff you can get easily. As for the head office staff, there will be more certain mistakes and having empowered regional leaders. And with this, you will get a mini CEO effect by driving the sales gains.
Make a note that what you are preparing for is international or multinational
For this, you have to be very sure as some markets are really hard to break and this is important to prepare for anyone rather than international or multinational.
Try to accept the local business customs more
Every market usually has local factors of doing things that are very unique to what you know properly. The global thing is not all the same and that’s the better thing. If you accept the things and go with the local customs then it will help you dial in quickly to the local market values.
You may have known about this line profit is sanity and revenue is vanity.
You have to follow this thing if you want to go global as one of the oldest lines which are relevant in the markets. If you run a net loss for a while as you establish yourself and then run an operating loss. So if you can’t make some profit you require them to fix the issue or move on and fast as well.
You have to avoid international marketing mistakes to go global
If you are taking your firm global then there will be many steps you should create to avoid some mistakes. Everything you are doing should be perfectly customized to the market and learn as much about you can. The main marketing tactic is to localize your content instead of simply translating the language easily. You have to do an imperative study of the culture and the way people will communicate on a day by day basis. And to ensure that the team with you should know about the culture you’re marketing to inside and out to ensure your message will be interpreted in a better manner.
Never publish or share or promote anything on an international platform without cross-referencing the content with anyone from the respective place who is good in the language as well as the culture.
Having made the beginning of his career as an SEO professional, Rajbir Singh currently serves SEO Discovery as its Chief Technical Officer. His journey from an executive to the CTO of a leading firm has enriched him with his proficiency. More than that, it has filled him up with the zeal to share his knowledge. He sees his blogs to be the right medium for that.