Firms can profit by doing business overseas with the right business strategy.
Unlike local businesses, multinational companies have a slew of additional considerations that warrant a separate business strategy. Almost every sector of business is affected by engaging in business overseas including marketing, economics, finance and accounting. Nonetheless, multinational companies can preempt the difficulties of doing business abroad by developing a well-designed business strategy.
Product Implementation
A product that sells well in the company's host country may not churn a profit overseas. The California Raisin Advisory Board experienced setbacks when it attempted to pitch raisins to the Japanese market overseas. Michael White, author of "A Short Course in International Marketing Blunders," states the Board failed to translate the commercials or explain the product. The result was that many Japanese people mistook raisins for potatoes or chocolate candies. Thus, multinational firms must include a strong marketing campaign as part of their overall strategy.
Additionally, firms should test the product overseas to ensure the flavor profile is in line with the unique tastes and preferences of the foreign country's people. If not, the company must redesign the product's flavors, packaging and branding in ways that appeal to the locals. One way to accomplish these objectives is working with a consultant based in the foreign country. These consultants will know the foreign audience well enough to know where to test the product and get the product on the shelves.
Strategic Outsourcing
Multinational firms may choose not to offer the product directly to a foreign audience, but using foreign vendors to reduce costs is becoming increasingly common. Several U.S. companies such as Walmart and Nike offer products assembled from abroad. An integral part of the business strategy is selecting the appropriate country and the best vendor there as well. Firms should settle on the country with the greatest competitive advantage as determined by the nation's factor endowments. K. Aswathappa, author of the textbook, "International Business," explains that factor endowments are resources the country naturally possesses such as an abundance of natural resources or inexpensive labor. For example, a clothing company based in the United States should choose a foreign country with a strong, reliable textile industry such as Thailand or China. Or, a coffee company may want to consider importing its coffee directly from countries with high-quality beans such as Costa Rica or Brazil.
However, temper the foreign vendor's strengths with any apparent weaknesses. For example, a steel production company in Argentina may offer the lowest prices, but the political and economic unrest in the nation could be a threat to the supply chain. Multinational companies should evaluate the tax laws, political and economic environment and any trade barriers imposed by the country as part of the business strategy.
Financial Investment
Doing business in another country mandates a financial strategy. Every multinational company engaging in financial transactions overseas incurs a "transaction exposure," or the appreciation or depreciation of foreign currency. These currency rate fluctuations can have a significant impact on a company's bottom line. Therefore, part of a multinational business strategy should include financial risk management.
One way companies minimize currency exchange risk is by negotiating a forward exchange contract for all business transactions. Richard Schaffer, author of "International Business Law and the Environment," states companies use these contracts to deliver currency at the agreed-upon negotiated exchange rate. Some companies use hedge contracts to cover a lengthy period of time such as five or 10 years. Schaffer also elaborates that some businesses opt to barter goods instead of undergo a currency exchange.
Tags: business strategy, foreign country, business overseas, country with, currency exchange