Resource considerations
It is important to consider a number of things before deciding to trade internationally.
Capital costs
Capital costs relate to the costs of setting up the business. For example, buying or acquiring a business requires significant input of capital but strategies such as licensing or franchising may not be as expensive to set up.
Revenue costs
Revenue costs are the day-to-day costs that a business must pay, e.g. raw materials, rent and workers' wages. Any strategy must take these costs into account.
Expertise and intellectual capital, may be local and/or provided by the incoming business.
Securing intellectual property is important when trading abroad as patents and trademarks are only protected in the country where a business is registered. A business needs to investigate how to protect its intellectual property overseas.
Watch the following video discussing the importance of intellectual property.
Training costs for local work
It is also necessary to consider training the local workforce, especially if the production process or product is new to the country. Some businesses move key workers to their overseas start-ups to help set up the business but this can create friction with the local workforce.
Organisational structure of international businesses
Decisions have to be made about the organisational structure of international businesses including how they will be managed. Control can be concentrated in the home country or control can be devolved to the overseas business.
The advantage of making decisions in the parent company is that the decisions are consistent and the parent company retains control.
However, the parent company is not as familiar with the local area. Devolution of control provides more local knowledge and understanding and this is likely to motivate employees. However, it is a high-risk strategy, with the potential to lose control of activities or creating confusion around company strategies.