In the context of the process of globalization of the modern economy, an increasing number of companies are striving to master foreign markets, thereby establishing the leading positions in their industry. The entry of a business into the European arena allows attracting new customers, reducing the risk of losses, increasing the competitiveness of the enterprise, and increasing its capitalization.
The decision to organize a business in Europe is preceded by an analysis of the current situation and development prospects of the company, which is expressed in the following questions:
Time
The question concerns not only the desire to get ahead of competitors or become their followers but also the real possibilities of the company, and the availability of favorable conditions for the development of new economic territories.
Scale
Depending on the available resources, the scale of the exit is determined: an aggressive strategy of mass capture or a gradual expansion of the market presence.
Market
The most attractive market segments for the enterprise are established (by costs, risks, and prospects for expansion). Thus, the enterprise lays the foundation for determining the desired exit strategy and developing specific marketing measures to achieve the set business goals.
Choosing a strategy
The choice of expansion method is influenced by the size of the investment, the degree of managerial control over the process, and the service of the market. There are three main groups of strategies that allow an enterprise to master new areas:
Export activity – production of a product in the main market and its supply for sale to other countries:
- Direct export – direct contracts are concluded with foreign intermediaries, and the manufacturing company takes over the search for partners, preparation of documentation, certification, etc;
- Indirect export – in the domestic market, an agreement is concluded with an intermediary who is responsible for selling the product to the foreign market and has its network of dealers;
- Joint export – direct deliveries are established by joining forces with other enterprises (with insufficient production scale or limited resources).
Exports often play the role of an “intelligence” tool for a business, allowing it to “probe” the viability of a product in a new market and consumer interest. The advantage of export is insignificant costs and risks, the minus is the low level of control over the activities of intermediaries.
Mediation is the establishment of interaction with a trading partner company in the external market, sharing responsibility and control:
- Licensing – the transfer of the right to use technologies, patents, etc. to a foreign company. The advantage of licensing is a low level of costs for organization and control, and the ability to set strict conditions for doing business. Minus – difficulties in exercising control, loss of uniqueness;
- Franchising – transfer to a franchise intermediary – the right to conduct business under its trademark. The difference from licensing lies in the imposition of more stringent requirements for the intermediary, its dependence on the parent organization, a limited scope;
- Contract manufacturing – setting up production on the territory of another country while maintaining marketing, distribution, etc. functions for the head enterprise. The advantage of the method is keeping the most important management functions under its jurisdiction, insignificant costs for setting up production, and no problems with adapting the cost of goods to market conditions. Minus – difficulties in finding competent partners and transferring high-tech production, the risk of borrowing intellectual resources (technologies, etc.);
- Joint venture – creation by several enterprises of companies with common income, responsibility, and risks. Plus – mastering new technologies and knowledge, bypassing entry barriers in a highly competitive market. Minus – high costs, the risk of conflict situations with partners.
Hierarchical business structure – the creation of your own company in the foreign market as a branch or an independent enterprise:
- Creating a business from scratch – expanding the company through the construction of a new production facility. Plus – minimal risks while maintaining maximum control. Minus – high financial and time costs;
- Acquisition – gaining control over a foreign company by purchasing a controlling stake or merging. Plus – a decrease in competition, getting a certain market share. The downside is dependence on the professionalism of specialists and the need for comprehensive knowledge in the field of legislative restrictions.
A possible criterion for classifying strategies is the type and level of management risk: the risk of losing control over know-how and basic functions (production, marketing, etc.), as well as a conflict of interests and strategies between the parent and transnational companies.
Regardless of the chosen strategy, the company’s entry into the international market is preceded by detailed research, the development of effective marketing concepts, and the search for reliable partners
