Even with the uncertainty in the worldwide economy, expanding into international markets is still a viable strategy for U.S. companies. In the 1970s international business accounted for less than 1 percent of the U.S. gross domestic product, but that number has jumped to more than 26 percent today.
“Businesses that are involved internationally tend to be more profitable, grow faster, pay higher salaries, and add more jobs than firms that are involved in merely domestic activity,” says Lance Brouthers, professor of management and entrepreneurship and research director of the DBA program at Kennesaw State University, Coles College of Business.
Smart Business spoke with Brouthers about how to prepare your business for the change, strategies to put in place to start doing business overseas, and things you should be aware of in international business negotiations.
How can leaders prepare their companies for international business?
They need to think about their products and markets. They need to ask themselves what is unique about their product. What is their sustainable competitive advantage? What’s their unique selling proposition? Developing superior product quality is one strategy; companies should then identify the right markets where there is a demand for their particular product. Most state governments have foreign trade offices and sponsor trade shows and trade missions, and some states have overseas offices to help businesses establish contacts within certain target countries.
What are strategies leaders can implement to start doing business internationally?
They should try to identify a product or set of products that they think are good quality, somewhat unique, and aren’t easily imitated in the foreign marketplace. Another way they can go abroad is in developing their brands. Brand equity tends to be fairly universal. So if you’re in an emerging market and have some wealth, you want to buy the same brands that people in the U.S. want to buy. Larger businesses can look for countries where the tariffs are high. You wouldn’t think they would want to look for high tariffs, because the tariffs act as trade barriers. But when a country imposes high tariffs, it’s because it doesn’t believe its domestic products can compete with international products. So it’s like waving a big red flag.
What should leaders be aware of when doing business internationally?
When you leave the country, you’re not in the U.S. anymore, and the laws and protections that apply in the U.S. may or may not apply depending on what country you pick. If you pick Western Europe or Canada, most of the same laws tend to apply. But the more culturally distant the country is from the U.S., the less applicable the laws and customs are. You have to realize that the local indigenous businesses in a foreign country are going to know their markets, rules and regulations better than you are. So you’re going to have to have some kind of intrinsic advantage in your product that more than outweighs all of these liabilities of foreignness that are associated with doing business overseas.
How can leaders adjust to and prepare for the cultural differences of international business?
They probably want to contract someone to help with negotiations rather than doing them on their own. One of the fundamental differences between U.S. businesses and most of the rest of the world is that American business tends to be short term and contract specific. Most of the rest of the countries tend to do business based on relationships, so it takes longer to develop these relationships. One of the problems that American businesses have in doing business internationally is they tend to move their personnel around a lot, and when you’re doing business-to-business types of sales, people in other countries like to do business with the person more than a company. Not all firms overseas have the same goals as American businesses. We tend to have short-term, profit-oriented goals here. They tend to have much longer-term interests in mind.
Gift giving is also an important part of negotiations in international business. Take the time to find out what the hobbies and interests are of the people you’re negotiating with, and bring them little gifts that show that you have taken the time to understand them. American businesses, particularly smaller and less-experienced ones, tend to be at a disadvantage in these international negotiations. They tend to alienate potential business partners or targets of opportunity because of their lack of sensitivity to these kinds of issues.
LANCE BROUTHERS is a professor of management and entrepreneurship and research director for the new DBA program at Kennesaw State University, Coles College of Business. Reach him at (770) 423-6972 or email@example.com.