What are the key steps to internationalize your company? What are the things to keep in mind? The analyses to run? How to decide the mode of entry? This deck has some data and frameworks to answer these important strategic questions.

1. INTERNATIONALIZATION
Iñigo Gallo
@InigoGallo
igallo@iese.edu

2. 29%
71%
Gone International Still Local
49%51%
Gone International Still Local
number of businesses
(n = 705.329)
sales
(€36.3 billion)
Source: 2017 SBA Fact Sheet – Greece. European Commission

3. important challenges for SMEs
(n=441)
81%
56%
53%
46%
38%
32%
29%
21% 19%
14% 14%
Source: Future of Business Survey. OECD

4. LOCAL
MARKET
NEW
MARKET(S)
pre-
entrance
entrance
post-
entrance

5. LOCAL
MARKET
pre-
entrance
entrance
post-
entrance
should I go
international?1
NEW
MARKET(S)

6. reduce
country risk
economies
of scale
MAKES YOU
STRONGER

7. response to current and emerging business risks
-2%
-6%
-10%
-5%
-16%
-12%
68%
56%
55%
49%
46%
40%
0% 10% 20% 30% 40% 50% 60% 70%-10%-20%
Adjusting product offerings
Reprioritizing geographic markets
Re-sizing organization workforce
Creating new supply chain partners
Making capital expenditures
Undertaking M&A activity
Source: 2017 AFP Risk Survey. Marsh & McLennan.

8. reduce
country risk
economies
of scale
quick
expansion to
more markets
MAKES YOU
STRONGER

9. More than 50
20 to 50 2 1
10 to 20
6 to 10 3 1
3 to 5 7 11 6 2 4
2 1 4 3 13 6 2 1
1 8 3 15 9 11 11 4
0 10 22 56 42 44 34 7
1 2 3
to 5
6
to 10
10
to 20
20
to 50
More
than 50
NO. OF
COUNTRIES
WHERE BUSINESS
IS IN THE MARKET
NO. OF MARKETS WHERE THE BUSINESS SELLS TO
quick expansion into at least 3 countries
Source: Estrategias de entrada en mercados internacionales. IESE.

10. reduce
country risk
economies
of scale
quick
expansion to
more markets
MAKES YOU
STRONGER
HELPS YOU
GROW
build a
stronger brand
additional
revenue
SME success
higher than
average

11. 51
54
41
50
43
50
0
10
20
30
40
50
60
Overall global readiness Business capability Organization and execution
alignment
Large Firms SMEs
SMEs are more agile, able to exploit rapid changes
Source: Global Readiness Survey. IMD and BCG analysis.
(%)

12. reduce
country risk
economies
of scale
quick
expansion to
more markets
MAKES YOU
STRONGER
HELPS YOU
GROW
build a
stronger brand
additional
revenue more margin
(sometimes)
SME success
higher than
average
more interesting
for investors,
suppliers, etc.

13. Priced in €
Better margins
Cost in Thai Baht

14. there’s no free lunch…

15. more things,
same people
first thing:
investment
difficult
alignment
STRETCHES THE
ORGANIZATION

16. global execution does not align with strategies
66%
Leadership gives
high priority to
global activities
48%
Global projects get
sufficient funding
but only…
59%
Management
accountable for global
growth targets
43%
Performance
incentives aligned to
the global strategy
but only…
51%
Head Office
functions support
the global agenda
40%
Best practices are
spread across the
organization
but only…
strategic intent execution
Source: Global Readiness Survey. IMD and BCG analysis.

17. more things,
same people
first thing:
investment
difficult
alignment
STRETCHES THE
ORGANIZATION
80% STRATEGY
80% EXECUTION
full project
in itself
1 key distinction:
PROACTIVE vs.
REACTIVE

19. 14.5%
32.2%
53.3%
REACTIVE:
PROACTIVE:
BOTH:
Total
Responses:
744
Source: Estrategias de entrada en mercados internacionales. IESE.
the choice of a new country is …

20. Source: Estrategias de entrada en mercados internacionales. IESE.
current vs future importance
FUTURE
IMPORTANCE
CURRENT IMPORTANCE
20
20
40
40
60
60
80
80 100 120 140 160
100
120
140
160
●
●
●
●
●
●
●
●
●
●
●
●
Russia
Colombia
China
United States
Germany
Mexico
United
Kingdom
France
Poland
Belgium
Italy
Portugal

21. 58.2%
31.3%
28.7%
18.8% 17.5% 17.0% 15.9% 14.9% 14.4% 13.3% 12.8%
8.9%
3.1%
Source: Estrategias de entrada en mercados internacionales. IESE.
No. of responses: 383
reasons for business failures in a new market

22. 58.2%
31.3%
28.7%
18.8% 17.5% 17.0% 15.9% 14.9% 14.4% 13.3% 12.8%
8.9%
3.1%
Source: Estrategias de entrada en mercados internacionales. IESE.
No. of responses: 383
53%
reasons for business failures in a new market

23. LOCAL
MARKET
pre-
entrance
entrance
post-
entrance
should I go
international?1
which country(ies)
to expand to?2
NEW
MARKET(S)

24. 76.7%
61.9%
40.4%
32.2%
6.1%
Sales
Growth
Brand Image
Margin
Others
objective when entering a new market
No. of responses: 540
46.6%
44.4%
31.8%
27.2%
26.8%
23.3%
18.1%
15.7%
10.7%
Size of market
Expected market growth
Suitable client profile
Development level of market
Required commercial effort
Country Risk
Legal security
Importation barriers
Competitive intensity
criteria in choosing a market
No. of responses: 541
Source: Estrategias de entrada en mercados internacionales. IESE.

25. is it a good market?
can I do a good job?
is there a huge risk in trying?

26. foreign market opportunity assessment Source: Cavusgil, S. Tamer, Tunga Kiyak, and Sengun Yeniyurt.

32. each market comes with its own set of risks

33. the importance of understanding differences

34. Cultural Administrative
Economic Geographic
• Language
• Ethnicity
• Religion
• Work Systems
• Traditions
• Values, social norms
• Per capita income
• Labor costs
• Human resources
• Organizational
capabilities
• Market size
• Colonial ties
• Trade agreements
• Currency
• Legal system
• Political stability
• Visa and work permit
requirements
• Physical distance
• Land borders
• Time zones
• Climate
• Transportation
• Communication channels
CAGE Distance Framework*
*Pankaj Ghemawat

35. Cultural
• Language
• Ethnicity
• Religion
• Work Systems
• Traditions
• Values, social norms
CAGE Distance Framework*
*Pankaj Ghemawat

36. Administrative
• Colonial ties
• Trade agreements
• Currency
• Legal system
• Political stability
• Visa and work permit
requirements
CAGE Distance Framework*
*Pankaj Ghemawat

37. Geographic
• Physical distance
• Land borders
• Time zones
• Climate
• Transportation
• Communication channels
CAGE Distance Framework*
*Pankaj Ghemawat

38. Economic
• Per capita income
• Labor costs
• Human resources
• Organizational
capabilities
• Market size
CAGE Distance Framework*
*Pankaj Ghemawat

39. 66.4% 66.2%
50.9%
34.3%
8.6%
Industry contacts Existing public
information
Internal market
studies
Public studies Others
No. of responses: 536
Source: Estrategias de entrada en mercados internacionales. IESE.
where do SMEs gather information from

42. PRICEPORTFOLIO LOGISTICS
what references
to push?
more margin
more value added
better known internally
travel better
…
at what price?
cost breakdown & margins
local prices
local costs
channel margin
logistics
how to make it
happen?
transportation
tariffs
distribution
inventory
…
research should help answer the key decisions…

43. LOCAL
MARKET
pre-
entrance
entrance
post-
entrance
NEW
MARKET(S)

44. LOCAL
MARKET
pre-
entrance
entrance
post-
entrance
how to enter the
new market?3
NEW
MARKET(S)

45. Going
International
Export
Indirect Direct
Direct Sales
Agents and
Distributors
Concerted
Market
Establishment
Production
Center
Commercial
Subsidiary
New Venture
Merger or
Acquisition
Joint Venture
international modes of entry

46. 3 key decisions to make
forwarder
incoterms
logistics
if “only” indirect exporting

48. MARKETING
& SALES
CHANNEL
MANAGEMENT
if more than “only” indirect exporting

49. MARKETING
& SALES
CHANNEL
MANAGEMENT
if more than “only” indirect exporting

50. 63.4%
48.9%
40.4%
36.0%
26.1%
3.3%
Right partner
selection
Differentiation
(brand, design,
innovation)
Choice of
country
Choosing an
adequate mode
of entry
Support and
commitment of
local team
Others
No. of responses: 483
Source: Estrategias de entrada en mercados internacionales. IESE.
key success to going international

51. 63.4%
48.9%
40.4%
36.0%
26.1%
3.3%
Right partner
selection
Differentiation
(brand, design,
innovation)
Choice of
country
Choosing an
adequate mode
of entry
Support and
commitment of
local team
Others
No. of responses: 483
Source: Estrategias de entrada en mercados internacionales. IESE.
key success to going international

52. 58.2%
31.3%
28.7%
18.8% 17.5% 17.0% 15.9% 14.9% 14.4% 13.3% 12.8%
8.9%
3.1%
Source: Estrategias de entrada en mercados internacionales. IESE.
No. of responses: 383
reasons for business failure in new market

53. 58.2%
31.3%
28.7%
18.8% 17.5% 17.0% 15.9% 14.9% 14.4% 13.3% 12.8%
8.9%
3.1%
Source: Estrategias de entrada en mercados internacionales. IESE.
No. of responses: 383
reasons for business failure in new market

54. CAPABILITIES
COSTCONTROL
• Market knowledge
• Sales “instinct”
• Information
• Technical support
• Exclusive territories
• Lower prices
• Private labels
Producer vs. Distributor
• Who has the upper hand?
• What makes you stronger?
4c’s of channel management

55. same model in
all markets

56. CONFLICT
CAPABILITIES
COSTCONTROL
• Market knowledge
• Sales “instinct”
• Information
• Technical support
• Exclusive territories
• Lower prices
• Private labels
Producer vs. Distributor
• Who has the upper hand?
• What makes you stronger?
4c’s of channel management

57. MARKETING
& SALES
CHANNEL
MANAGEMENT

58. MARKETING
& SALES
CHANNEL
MANAGEMENT

63. LOCAL
MARKET
pre-
entrance
entrance
post-
entrance
NEW
MARKET(S)

64. LOCAL
MARKET
pre-
entrance
entrance
post-
entrance
I’m in,… now
what?4
NEW
MARKET(S)

66. 6.9%
30.4%
39.4%
9.2%
6.9%
7.3%
1
2
3
4
5
6 & more
years to consolidate the business in
the new market
80.5%
19.5%
YES:
NO:
have you failed in your
international strategy?
No. of responses: 480
No. of responses:
478
Source: Estrategias de entrada en mercados internacionales. IESE.
>60%

67. MARKETING
& SALES
CHANNEL
MANAGEMENT
Channel
Strategy
Warehousing
& Distribution
Partner
Relationship
Planning
Channel
Design
Transportation Brand
Experience
Digital Tools
Sales &
Operations
Planning
Promotions &
Advertising
Revenue
Management
Pricing

68. Source: Estrategias de entrada en mercados internacionales. IESE.
No. of responses: 237
75.9%
46.0%
38.8%
33.8%
29.1% 28.7% 26.6%
23.2%
19.4% 18.1%
5.1%
physical
presence
digital
presence
&
ways to gain awareness

69. 21%
12%
21%
45%
Less than 25%
25% to 49%
50% to 74%
75% or more
No. of responses: 5.461 (worldwide)
Source: Future of Business Survey. OECD
international sales dependent on online tools
physical
presence
digital
presence
&

70. physical
presence
digital
presence
&

71. 57%
20%
18%
4%
Other customers
Physical store
Internet
Connected from
other businesses
key success factors how customers find businesses
No. of responses: 200+ Source: Challenges & Opportunities of SMEs in Greece. ELTRUN.
66%
60%
34%
31%
30%
Customer
satisfaction
Quality of product
Technology
Competitive prices
Easy to find

72. INTERNATIONALIZATION
Iñigo Gallo
@InigoGallo
igallo@iese.edu