Setting the company's international objectives

With regard to international expansion, the company's objectives involve three important questions:

1. Why go international? The answer will determine the strategic approach 2. What profits do we expect over what timescale and with what risk? 3. Waht commitment is needed and will be given by the top management team?
Why go international? There are at least four reasons: Desire to acquire overseas resources such as minerals or oil that are not available in the home country Need to generate growth beyond the home market Seeking greater cost reduction and efficiency from areas such as economies of scale and scope Searching for strategic assets, such as attractive takeover targets, to deliver market share and branding

In addition to the above (which come from the late Professor John Dunning), there are at least two more reasons that come from more recent experience: Fierce competition in the home market, making overseas expansion more attractive World wide web availability, making it easier and cheaper to sell across the world.

What profitability, over what timescale and with what risk?

In early 2010, Ryanair - the European budget airline - announced that it had made a loss of 10.9 million Euros ( US$ 15.3 million) during the period October to December 2009. However, it was also the fastest growing airline in Europe. Moreover, it was still anticipating making a net profit of 275 million Euros for the full year based mainly on its highly profitable Summer business activity. From an international strategy perspective, the company was quite prepared to accept a short-term loss as it continued to build market share - a classic example of careful consideration of profit objectives in relation to time-scale.

Each organisation will have its own measures, e.g. profitability, market share, earnings per share, the time period over each will be delivered Important to clarify these at an early stage to select opportunities Note that international development is probably more risky than developing at home because there are greater unknowns - lack of knowledge of overseas market, political risks, etc. This means that it may be better to set higher, more demanding objectives than for the home market It's quite complex to balance the various considerations - see Lynch 'Polygon of Purpose' page 225 of 5th edition 'Strategic Management.'

What commitment from top management? Plenty of research to show that this is essential for successful international expansion Means that the Chief Executive must be convinced and actively support international initiatives Note the importance of the pressures on individual leaders in managing an international or global operation - the need to visit worldwide locations puts pressure on personal life, for example Also important to consider the personal human resource characteristics of the individual leader or senior manager - more likely to be successful if she or he is open, flexible and able to work with groups from many different cultures.

Conclusion: Essential to identify why the organisation wishes to go international or global, over what timescale and with what resources.

Choosing markets and how to enter them: 'market entry and mode'
The strategy for international expansion depends on two main topics:

1. Method of entry 2. Country (or region of world) selected

Importantly, the process of resolving these issues is circular, i.e. the choice of one will influence the choice of the other. For example, it might be that the best method of entering a country might be to acquire a company. But the acquisition may be expensive and risky and therefore it might be better to select another country. These two topics are explained separately below but the results may need to be reconsidered as a whole afterwards. Method of entry According to the classic work of Johanson and Vahlne 1977 and 1990, the method of entry can be considered a long a continuum of opportunities and risks:

Export: make in home country Set up an overseas office: this will provide a permanent presence in a country selling a product or service Begin the first overseas manufacture: this is a big step because it required the recruitment of local people and the commitment of major finance to a country or region Develop multinational operations: invest in several countries or a region of the world, e.g. Europe or China. Develop a global operation: not just manufacturing in various countries but true, integrated cooperation, as explored in the definitions earlier.

In principle at least, each of the above categories involves greater risk and therefore should also deliver higher rewards (more profits). 'Develop multinational operations' is not necessarily a simple task. It may involve an acquisition, a joint venture with a local company or some other form of co-operation. This may arise because of barriers to entry, lack of local knowledge, existing dominance of a local company and many other factors. These issues are explained and explored in more depth in the Expansion Method Matrix in the section on this website entitled: 'How does Strategic Management link with Global Strategy?' Choosing the country or geographic region Some basic considerations involved in the choice of countries include the following: Population size, density and distribution Political issues: 'dictatorship versus democracy' and 'left wing versus right wing' are simplistic but a start. The degree of change and the stability of politics are probably just as important as the political stance of the country. Trading issues: country membership of trade groups, the barriers to entry into the nation and the ability to export not just good from the nation but profits back to the home country Financial and tax issues: Taxes imposed, the banking and financial structures, insurance, legal ownership of assets like factories, ownership of intellectual property like patents and brands Nature of economic activity: largely rural? degree of urbanisation? Methods of distribution, e.g. small shops or supermarkets, roads and transport infrastructure and investment Telecommunications and the availability of the internet Culture and language Education and training: levels, apprenticeships, higher levels of education Religeous and ethical issues: these are important and must be respected Marketing and communications: how to promote the product? what media available? at what cost?

In choosing a country, it is often appropriate to begin by collecting basic country comparative data on such topics as: Growth in national wealth, measured both as total wealth (GPD) and also as wealth per head of the population Balance of payments data Price inflation and impact on currency Unemployment rate Export and import trade statistics Growth of money supply Areas and levels of economic activity Basic political and economic stability

This data can often be assembled quite quickly from the web: United Nations, World Bank, UNCTAD, national government data, European Union, commercial websites, etc. Links to these institutions and data are shown in the section on Globalization: What are the main global institutions?

Essentially, the above general data can be used to build a shorter list of countries to be examined in more depth. In practice, gathering such data on a large number of countries is quick using the web but rapidly becomes too much to consider in any depth. For example, we once assembled data on all the countries in South America. We found that the data was too much to examine in sufficient depth to make investment decisions. We then reduced the list to just three countries - Brazil, Argentina and Chile - in order to examine them further. We used some simple criteria to establish this list - population size, economic stability and wealth per head of the population. This was no disrespect to the other countries but they were not appropriate for our range of products at that time.

The last part of this process - developing the product or service offering - is a somewhat large topic. It is therefore explored as a separate section on this website.