Q&A - Evaluate the benefits and drawbacks of international expansion options

The four main methods of expanding a business into international markets each have their advantages and drawbacks. Some of the key issues are summarised below:

Exporting direct to international customers

Advantages:

Uses existing systems – e.g. e-commerce
Online promotion makes this cost-effective
Can choose which orders to accept
Direct customer relationship established
Entire profit margin remains with the business
Can choose basis of payment – e.g. terms, currency, delivery options etc

Disadvantages:

Potentially bureaucratic
No direct physical contact with customer
Risk of non-payment
Customer service processes may need to be extended (e.g. after-sales care in foreign languages)

Selling via overseas agents or distributors

Advantages:

Agent of distributor should have specialist market knowledge and existing customers
Fewer transactions to handle
Can be cost effective – commission or distributor margin is a variable cost, not fixed

Disadvantages:

Loss of profit margin
Unlikely to be an exclusive arrangement – question mark over agent and distributor commitment & effort
Harder to manage quality of customer service
Agent / distributor keeps the customer relationship

Opening an operation overseas

Advantages:

Local contact with customers & suppliers
Quickly gain detailed insights into market needs
Direct control over quality and customer service
Avoids tariff barriers

Disadvantages:

Significant cost & investment of management time
Need to understand and comply with local legal and tax issues
Higher risk

Joint venture or buying a business overseas

Advantages:

Popular way of entering emerging markets
Reduced risk – shared with joint venture partner
Buying into existing expertise and market presence

Disadvantages:

Joint ventures often go wrong – difficult to exit too
Risk of buying the wrong business or paying too much for the business
Competitor response may be strong