Are plans to take your business global underway?
There’s no doubt that operating globally opens up your business to new markets, which means more customers, and consequently a fatter bottom line. It allows you to join the league of major corporations.
However, as much as owning an international business has significant benefits, running it has its fair share of challenges. In fact, it’s possible that expanding a business internationally can lead to its failure.
To improve your chance of making your global business successful, you need to have an intricate understanding of the principles of international business.
Here, we dive into some of these principles.
Modes of Entry
You don’t just wake up one morning and decide to expand your business into foreign territory. A lot of things could go wrong if you don’t have an elaborate expansion strategy.
One of the aspects of expansion you need to understand is there are different modes of entry you can utilize. What works for country A might not work for country B.
There are five common modes of entry: direct export, licensing and franchising, joint ventures, strategic acquisitions, and foreign direct investment.
You must assess each country and determine the mode of entry that will give your business the best chance of success (path of least resistance.).
Every country has its own established culture. This culture influences consumer behavior.
When running an international business, you need to understand how cultural differences will affect your business. At the very extreme, it’s possible that you might be selling a product that the people of a certain country don’t consume. For example, if your business sells pork products, you might want to think twice about expanding into a country that’s largely Muslim, because Muslims don’t eat pork.
There are language barriers you need to take into account. Fortunately, these are easy to overcome. A translation service, for example, can help bridge the gap in communication.
Foreign Currency Exchange
Operating an international business means you’ll deal in different currencies. However, at the end of the day, you’ll typically need to convert the money into your home currency.
Fluctuations in foreign exchange rates can significantly affect your business. For instance, as an American company, you have to understand the implications of running a branch in Europe, where the euro is the trading currency. If the euro appreciates significantly against the USD, you’ll be at a disadvantage. These fluctuations can eat into your profit margins.
When choosing a country to expand to, consider the stability of its currency. Is it prone to political manipulation? You want to do business in countries with established, stable currencies.
Understand the Principles of International Business
Running an international business is no small feat. Doing business in the USA alone is already challenging enough, you can imagine what it means to do business in multiple countries. But it’s something you can hack.
As long as you have a good understanding of the various principles of international business and apply them correctly, you’ll be on your way to success.
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