9.2 Export Ready Organizations

In order for an organization to determine if it is ready for international business, it has to analyze its current state and find out if the following criteria are being met:

Competitive Capabilities in Domestic Markets

The criteria of competitive capabilities in domestic markets are best explained by a powerful framework provided by Michael Porter (Porter, 1990). The framework is also known as “the diamond model.” According to the model, the ability of the firms in an industry whose origin is in a particular country to be successful in the international arena is shaped by four factors: their country’s demand conditions, their home country’s endowment factor, related and supported industries within their home country, and strategy, structure, and rivalry among their domestic competitors.

Demand Conditions

Demand conditions refer to the nature and volume of domestic customers. When domestic customers have high expectations, firms try to live up to those expectations and produce high-quality products. As a result, they gain competitive advantage. For example, Japanese consumers are known for their expectations of quality and reliability. Japanese automakers such as Nissan, Toyota, and Honda have to work hard to satisfy their domestic customers, and in doing so, they are prepared to offer high-quality products internationally.

Factor Conditions

Factor conditions refer to the country’s endowments in terms of natural resources raw materials, and other inputs, including qualified labour, that firms need to create goods and services. For example, companies in Canada and the United States have access to plenty of natural resources and skilled labour forces. They also benefit from a developed transportation system and highly sophisticated capital markets. All these factors help them to be successful and is giving them a competitive advantage. The manufacturing sector in China is another example, where having access to cheap labour and cheap capital helped the sector to grow excessively in recent years.

Related and Supporting Industries

Related and supporting industries refer to the upstream and downstream industries that facilitate the firm’s activities. The availability of top complementors, firms that provide products or services, can lead to creating added value. The added value could be in terms of quality or efficiency. For Italian shoemakers such as Salvatore, Prada, Gucci, and Versace, for example, the availability of top-quality leather within their home country translates into efficiency. If they relied on imported leather, they would have lost some of their speed and flexibility.

Firm Strategy, Structure, and Rivalry

Companies that face stronger competition in their domestic market tend to perform well on the global level. The Olympics offer a great analogy to illustrate the positive impact of fierce competition on a firm’s global performance. If an athlete competes against a strong competitor to make the national team, that athlete would push herself/himself to the best of their abilities and train hard. On the other hand, when domestic competition is weak, the athlete does not have to try very hard. When competing on the world level, the athlete who made the national team by training hard will have a better chance of competing against others and is likely to succeed.

Commitment of Owners and Top Managers

It may take at least two to three years before a company becomes profitable when entering the international market for the first time. It is important that the management of the company is prepared and understands that they are in for the long run and they are willing to invest the time, the personnel, and the required capital to fund the export program.

Experience and Training, Skills, Knowledge, and Resources

There are several factors an organization needs to assess before they decide to launch an international venture. Those who are new to international trade will need to do a much more in-depth analysis than those who already have some experience. Some of the key factors that should be considered when assessing their current state are:

Financing

When expanding to international markets, organizations need to treat their financing needs and cash flow planning differently than those that operate domestically. There are many additional costs associated with international transactions that should be determined at the early stages of the process for two reasons: First those costs will help with determining the product price correctly; secondly, and more importantly, organizations will be able to determine their financing needs accurately.

In assessing their financial needs and addressing gaps, organizations need to look at the following:

• Budget capacity to produce the product for overseas markets – without straining domestic market commitments.
• A steady cash flow from day-to-day sales as well as financing sources.
• Access to sufficient financial reserve and funding to support international operations for at least two years or until becoming profitable (Export Finance Australia, n.d.).
• The financial capability to compete with international competitors in terms of cost and quality.
• The knowledge and understanding of ways to reduce financial risk associated with international markets.
• Ask external third-party experts for professional advice on managing financial risk if such experts are not available internally (FIIT Team, 2017; Global Expansion, n.d.).

People

When expanding internationally, organizations require skills and experiences that will address the needs of their new venture. Human resources assessment enables businesses to better understand their current workforce and identify skills gap in critical roles. When assessing their human resources needs, organizations should consider the following:

• Is there a management team that has the skills and capabilities to develop a comprehensive export plan – have they done it before?
• Does the management team, especially those in critical roles, possess the skills and knowledge to satisfy the needs of the new venture or does the organization have the capacity to hire or contract staff for those roles?
• Personnel with culturally sensitive marketing skills and experience in buying and selling abroad or the firm has the ability to hire qualified people. The alternative is to use intermediaries (agents, distributors, or trading organizations) with the required expertise.
• Have a local contact or “go to” person and have ways to deal with language barriers (FIIT Team, 2017; Guide to Exporting, 2021; Global Expansion, n.d.).

Capacity

To make a proper assessment of production resources and capacity, organizations need to focus on their own internal production capacity as well as the capacity of their suppliers. Factors that should be examined and addressed are:

• Make sure that suppliers are able to deliver components and raw materials required to fulfill their obligations to both international and domestic customers.
• Be prepared to modify and manufacture versions of products and services to meet the cultural, regulatory and certification standards of the international market.
• Ensure the availability of spare production capacity or the ability to create extra capacity for unexpected growth in domestic and international markets demand (FIIT Team, 2017; TCC-Guide to Exporting, 2021).

Logistics

It is one thing to fulfill an order, and it is another to deliver it on time and in the expected condition. Export logistics are complicated and require professional management and expertise at every step of the process. Organizations must make sure that:

• They have the necessary skills and knowledge of the exporting process and know what it takes to ship products to international markets.
• They have staff with adequate knowledge of logistics procedures for international shipping.
• They have a staff that is capable of troubleshooting problems in a quick and efficient manner (FIIT Team, 2017).

For small or even medium-sized firms, it will be cost-effective to seek the help of outside experts, and freight forwarding agencies.

References

Export Finance Australia (n.d.) Export for Global Growth: What you need to know. Australian Government. https://www.exportfinance.gov.au/resources/articles/three-things-australian-businesses-wish-they-knew-before-they-started-exporting/

FITT Team (December 5, 2017). Considering global expansion? You might be ready to export if…Trade Ready. https://www.tradeready.ca/2017/topics/researchdevelopment/considering-global-expansion-you-might-be-ready-to-export-if/

Global Expansion team (n.d.). The definitive guide to global expansion. Global Expansion. https://www.globalexpansion.com/the-definitive-guide-to-global-expansion

Porter, M. E. (1990). The competitive advantage of nations. New York, NY: Free Press.

Attributions

“Competitive Capabilities in Domestic Markets” is adapted from “ Drivers of Success and Failure When Competing in International Markets ” from Mastering Strategic Management – 1st Canadian Edition by Janice Edwards is licensed under a Creative Commons Attribution-NonCommercial-ShareAlike 4.0 International License, except where otherwise noted.