The optimal choice: regional strategy or global orientation?
Ralph is a CEO of a start-up. His company provides a specialized software for recycling industry. His local market is growing well and he decided it is time to go global. He asked Sabine who is a management consultant to help him define his internationalisation strategy. Ralph and Sabine have today their regular meeting today and the topic of the meeting is the choice for Ralph’s start-up of the path to take on global markets.
Ralph’s start-up is located in France and he has some very good contacts in neighboring countries such as Germany, Belgium and Italy. Great news, but Sabine is advising him to look at all the global markets and choose the strongest potential for his company as Italy or Germany might not be the optimal choice.
Ralph is a big defender of focusing on Europe and regional strategy which means adopting a strategy which focuses on the geographically and culturally close countries firstly and secondly approaching other more distant countries. Sabine insists on global orientation strategy meaning that the company should expand internationally according to the strongest potential market first independently of their geographical or cultural distance. Her approach is often called as well a “born-global” approach.
Why should you consider the international arena as your market?
According to Statista, Austria and Germany are boasting the highest recycling rates in 2015 worldwide at 63 and 62 percent, respectively. Taiwan recycled the third largest proportion of municipal waste, putting the country on par with international leaders. Singapore and Belgium are coming in fourth and fifth. Surprisingly, two of the more developed countries, Canada and Japan, fell to the bottom of the table, reaching only 27 and 21 percent of recycling rates.
In the end, all comes down to the numbers and the efficiency of the internationalization route. Ralph’s start-up operates in a technology-based industry and the technology he developed has a very short life-cycle and high competition. This is a strong argument for Sabine to push the company to consider the international arena as their market. Ralph is focused on a global niche market and he can leverage their technological and knowledge-based assets which are easy transferable across countries. In addition to that, Ralph is a very agile manager and she is confident he will be able to adapt his resources to markets he does not know.
Export performance approach
Ralph agrees that the market study he has conducted has indicated such markets as Taiwan and Singapore as higher potential for his software. These 2 markets have lower competition levels and higher adoption degree of new technologies. To defend her argument on global approach, Sabine mentioned to Ralph a very interesting study conducted in Italy based on 180 companies mainly technological start-ups and with an average of 40 employees. The study proved that international expansion within the home region is indeed easier to achieve as the partners are from countries characterized by greater similarities. But in terms of performance and profitability, once the companies succeed to overcome the differences and penetrate markets outside the home region, their profitability increases. Companies with ‘born-global’ strategy show better performance.
Highlights of advantages for born-global strategy:
- Higher performance
- Risk reduction
- Stabilization of firm earnings
- Greater flexibility
Ralph is in a very interesting and challenging situation and he needs to take the best decision for his start-up. What would be your suggestion to him?