In order to harness the increased opportunities for international trade in the 21st century, many companies have decided to take their business to international markets. The evolution of information and communications technologies associated with the development of more efficient global logistics systems has allowed companies of any size to operate in a global market.
It is no longer impossible for small and medium enterprises (SMEs) to sell and source their products and services on a global basis, as if the world were one large market.
What is glocalisation?
Taking into account regional and local differences, many companies adopt a so-called glocalisation strategy when operating internationally.
Glocalisation refers to the ‘think global, act local’ paradigm. It is about thinking on the world as a global market, but taking into account the assumptions, concepts, values, and practices shared in the local market.
Developing knowledge about the industry structure of your business sector is key. Entering international markets requires careful analysis within organised frameworks that will help you to develop a better understanding of the markets you decide to enter.
Porter's Five Forces
A useful framework for analysing the near environment of your business abroad is the Porter’s five forces model, which was developed by Professor Michael Porter from the Harvard Business School.
The near environment includes stakeholders such as customers, contractors, suppliers, competitors, etc. whose actions influence yours, and which in turn are influenced by your organisation and its actions.
The Porter’s five forces model indicates that there are five main forces affecting the profitability of industries:
- the industry structure, which reflects the intensity of competition between current competitors, and is affected by:...
- threat of new entrants;
- bargaining power of customers;
- bargaining power of suppliers, and
- threat of substitute products or services.
Porter suggests that the intensity of competition in an industry depends on the number and strength of competitors, the rate of market growth, the similarity of products, which makes it simple and easy for consumers to switch from one brand to another, the level of fixed costs, and the level of exit barriers, which are the factors that may prevent companies leaving the industry sector.
In addition, your company, as well as all stakeholders in the near environment, are subject to the changes in the economy, social trends, technological innovations, and other factors which comprise the macro or the far environment that embraces the near environment. The far environment refers to factors that can be neither controlled nor influenced from within the organisation.
The STEEP model
The STEEP model is a helpful framework to analyse the far environment of your business.
STEEP is an acronym indicating the following factors:
- Social (e.g. demographic changes, patterns of work, patterns of consumption, household structure, gender roles)
- Technological (e.g. information, communication, and processing technologies)
- Economic (e.g. rate of economic growth, interest rates, inflation, raw material prices, exchange rates, level of unemployment)
- Environmental (e.g. environmental legislation, pollution control, waste disposal, ‘green’ investors, pressure groups)
- Political (e.g. government legislation, regulation, taxation, trade relationships, embargoes, level of public services)
In short, it is fundamental to identify and develop a good knowledge about the key forces or conditions that determine the intensity of competition and the industry infrastructure of your business sector in the new market you are thinking about entering.
A key point is to recognise that your business environment continually changes in response to the forces mentioned above. Your organisation’s environment affects, and even defines, your management task.
The three countries
Learn more about the companies, the markets they'll be heading to - and some tips for doing business in the three countries.
The whole story
Join Theo Paphitis as he follows nine companies seeking to expand their overseas markets: Theo's Adventure Capitalists.