Feature

Look before you leap

Professor Alan Rugman, Head of International Business and Strategy at Henley Business School, reveals the importance of preparation before entering into an international business deal.

“Moving your business overseas is not a decision which should be taken lightly, and the further away the country from your home market, the greater the ‘liability of foreignness’. If a UK-based company is seeking to expand into Europe, for instance, it will find this far easier than expanding into a market such as China. With EU nations, there is a reciprocity of regulatory systems, together with simpler logistics – the importance of which shouldn’t be underestimated. If you move outside the EU, then you are looking at fundamentally changing the nature of your business and must carefully calculate the risk against what you feel it will bring your business in the long-term.

“To be truly successful abroad, you must have certain robust firm-specific advantages, and these should add up to be greater than the liability of foreignness – offsetting the risk involved. Also, it sounds obvious, but you will most likely have to change or adapt your business model to move successfully overseas. If you want to set up a foreign subsidiary, you will have foreign nationals working for you, therefore you must understand in depth the laws around health and safety, and other labour-related legislation. If you choose the route of a joint venture, there is the element of trust to be considered, taking into account the potential for an overseas partner to appropriate your firm-specific advantages. This is more of a problem in some countries than others.

“What is key, then, is in-depth preparation, involving extensive market research, and repeat visits to the markets you are looking to expand into. Any relationships you are seeking to make with foreign businesses or representatives should be built over time – there is no benefit to be had in rushing into things.

“Even large multinationals make mistakes. For instance, Google’s services were blocked in China because, essentially, the company didn’t understand that the regulatory and cultural environment in China was not suited to open information flows. Another firm which has had a problem moving from its home market is Microsoft – fined consistently by the European Competition Commissioner for keeping out other rivals, whereas in the US it settled anti-trust suits years ago – the European regulation is simply different. If you have a world-leading product or technology, you might feel you can sell it successfully anywhere in the world. But there isn’t a free ride to overseas expansion, it has a cost.

“My advice is to move slowly, carefully, step-by-step, starting close to your home market. For the UK, you could start with expanding into France, then the Nordic countries, before you move further into the EU, then the Middle East, perhaps America and Canada, and finally Asia.

“Don’t believe in the simplistic rhetoric of globalisation – moving your business overseas is not easy, but done properly it can be very rewarding.”

For more information about Professor Alan Rugman and Henley Business School visit: www.henley.ac.uk

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