Advantages and Disadvantages of Internationalization
Internationalization can present a variety of advantages and disadvantages for companies. Before taking the plunge into international business, companies must conduct research to determine the specific needs of a foreign customer base. In addition, companies should weigh the pros and cons of international expansion carefully to determine whether it’s the right move for their business.
Advantages of Internationalization
Less Expensive Labor
Using less expensive labor is one of the many advantages of globalization. It allows businesses to reach a new customer base and create new revenue streams. As a result, companies are looking for innovative ways to expand their business internationally. Thankfully, international professional employer organizations now make it easier for businesses to employ workers from other countries. In addition, these organizations help companies understand local laws and ensure compliance.
Increased Brand Awareness
Internationalization is a great way to increase brand awareness and create a global reach for your business. Brand awareness is the foundation for growth and can create an opportunity to unearth new insights and drive sales. It can also help you build an audience and cultivate leads. You may focus on building brand awareness in the early stages of internationalization. This is the first step of the marketing funnel. Brand awareness aims to keep your brand in front of your audience so they are familiar with it and feel comfortable with it.
While internationalization can be an added expense and procedure for a company, it can be a worthwhile investment for businesses that are ready to expand their customer base and boost revenues. One example is the case of a women’s shoe company that wanted to create brand awareness and boost sales in foreign markets. To promote their brand, they tapped YouTube beauty vlogger Blair Fowler. As a result, a viral video promoting a giveaway campaign by Fowler garnered more than 750,000 views and 15,000 comments. The video also received coverage in The Wall Street Journal and helped the company grow sales by 30%.
Internationalization also improves the company’s image and credibility. As a result, companies can introduce new products and services to new markets and still maintain a positive revenue stream. Internationalization also allows companies to diversify their markets and create brand awareness in markets that competitors have not yet entered.
The reduction of risk associated with internationalization is a crucial component of a successful internationalization strategy. The risks involved in globalization vary by country, and the factors affecting them differ for emerging and developed economies. These include monetary risk, country risk, and cultural risk. To achieve its internationalization goals, a multinational company must be aware of the various risk factors associated with different countries and markets.
For an early-stage company, it can be difficult to determine the risks and opportunities of a foreign market. The lack of information can make a company feel more uncertain and at increased risk. Hence, a company must acquire a comprehensive package of information in order to make the best decisions at different levels of international activities, such as engagement in new markets and developing global strategies.
In addition, political risks must also be taken into consideration. These are largely based on the changing policies of different countries, which can adversely impact a business. However, a company can mitigate these risks by adopting hedging strategies or purchasing political risk insurance. Moreover, a company should be aware of the political risk in the country it is considering for internationalization, including changes in government policies. For this, a firm should study the country’s political environment and ensure that there are no major changes in its political or economic environment.
Risk assessment depends on the perspective of an entrepreneur-manager and the industry or target market. The degree of risk affects the decisions made and actions undertaken.
Importance of Learning About Local Cultures
Learning about the local cultures is a key part of the process of internationalization. This can help you understand the differences between different cultures and understand what others are experiencing. It is also useful to understand how different languages and cultures influence each other. For example, you may study the influence of the French language on Japan’s culture or the influence of the Japanese arts on German culture.
Internationalization builds on the priorities of local, national, and regional communities. Its goal is to enhance and extend the local dimension, not to subvert it. Ultimately, the objective is to increase educational equity and improve the quality of education for all students. But how can internationalization be made more inclusive?
The first step in internationalizing your institution is learning about local cultures. While learning about international cultures is critical to internationalization, it is especially important to understand the local context in which your institution operates. For example, the English curriculum should incorporate local languages, which can enrich the student experience.
Learning about local cultures should be part of the curriculum at any university. In addition, a strong internationalization program is aimed at inculcating cultural diversity and helping students develop a global mindset.
Disadvantages of Internationalization
Cost of Establishing and Termination of an Entity
You need to be ready to account for both setting up and shutting down costs, whether planning a long-term expansion or simply testing a market. For example, building infrastructure, establishing a corporate entity, and paying local employees can be quite expensive. Not to mention, it takes a lot of time.
The way that each nation’s government functions vary. Therefore, you might need to hire attorneys, local tax accountants, and foreign HR professionals in order to work legally and compliantly. Additionally, continuing expenses are necessary to keep the firm properly operating.
Once more, if things don’t go as planned, you could want to stop the business. But, depending on the country, ceasing operations can be costly and time-consuming, sometimes taking up to two years.
New market entry might be challenging. A company must make necessary adjustments and run its operations in accordance with local laws when entering a new market. These laws might not be at all like those in your country. As a result, it’s crucial to collaborate with the proper individuals who will support your compliance efforts and guarantee that the right business practices are implemented from the start.
For worldwide expansion to be effective, compliance must be maintained. Serious cases and expenses may result if you don’t maintain compliance.
Business Practices and Cultural Barriers
Every nation has a different culture, which can make doing business there challenging. Therefore, it is best to get cultural training in their business procedures and social norms if you are expanding to a country with a different corporate culture than your own.
Problems can also arise from linguistic concerns. Therefore, it is advantageous to comprehend the local tongue. Additionally, this will make the transfer of growing into the new nation easier.
Managing International Employees
Internationalization has several benefits. However, hiring foreign workers requires higher HR administration and support. You will have to outsource if your company lacks the necessary skills.
As was previously indicated, business and employment laws may differ from those in your own nation. Therefore, it’s critical that you collaborate with a global HR specialist that will guarantee that your employees are able to work legally and in compliance.
What are the advantages of Internationalisation?
Market diversity is one of the major benefits of international trade. You can reduce the risk in your primary market by diversifying your sources of revenue. Companies would have the chance to boost their brand recognition in a market where their rivals have not yet established a presence.
What are the disadvantages of international business?
Negative economic effects: International trade has an impact on the economies of different nations. Large-scale exports also impede the industrial growth of the receiving nation. As a result, the importing nation’s economy suffers.