Aamu Partners has been involved in the internationalization processes of several dozen Finnish SMEs, and along the way, we have witnessed many successes as well as some failures. Often, SME owners and management have an overly eager and optimistic attitude towards internationalization, which can easily lead to pitfalls. They fail to recognize and accept the challenges of internationalization.
In this blog post, we discuss a few topics that should be considered before embarking on internationalization.
Even if You Prepare for Surprises, You Will Be Surprised
Just as the grass seems greener on the other side of the fence, foreign markets attract growing SME entrepreneurs. However, from this side of the fence, it’s not easy to see all the small stones hidden in the grass, nor the challenges that internationalization brings.
When an SME reaches the stage in its life cycle where internationalization becomes relevant, the company has likely succeeded in its domestic market. This success can make the CEO believe that internationalization will be smooth as well. However, even though the basic principles of business operations and the company’s revenue logic remain the same, the playing field changes significantly in international markets.
Business environment changes require extensive adaptation from the company in terms of organizational structure, corporate law and governance, regulatory reporting, HR matters, and external operations, including understanding the differences in customer base and sales and marketing channels in the new market.
The challenges and opportunities that come with internationalization differ greatly from those in domestic markets. It’s almost as if the entrepreneur has to start from scratch in many ways, going back to the early stages of the company’s life cycle when understanding the business environment and developing operations were still in the planning stages.
If You Want Profitability, Don’t Go International
For many SMEs, improving profitability is a crucial part of business development. And understandably so, as profitability directly affects the owners’ cash flows and the value of the company. However, internationalization often eats into profitability for several years.
Every company and internationalization project is different, but it’s generally good to think of internationalization as a multi-year investment in business development. Before operations are stabilized abroad, one cannot expect high profitability or dividends. If it took ten years to establish and grow the business in Finland, how long will it take abroad?
Internationalization is Slow
Establishing operations abroad can take even longer than in the home country. If you have already been building your business in Finland for ten years, are you ready for another ten years abroad? Even if you have built efficient production and logistics in Finland, operations and processes are rarely transferable to foreign countries as they are. Just the thorough mapping and planning of internationalization often cost thousands, and the process can take from months to years.
However, thorough mapping and planning are essential. It’s better to play it safe and pay ten thousand for a study that recommends not to internationalize, rather than paying a hundred thousand for a failed internationalization attempt.
Summary of Internationalization
Do not embark on internationalization unless you are ready to invest a lot of time, effort, and your company’s resources into this project. Internationalization is a significant investment in business development and can consume the company’s profitability for years. Thorough mappings and plans are crucial as they can potentially prevent the company’s bankruptcy. However, it’s important to remember that even with thorough planning and mapping, surprises will always occur.
As part of the Clarity service partnership, Aamu Partners has supported numerous companies in their internationalization process. We have also recently productized our internationalization services into a separate package that any SME can purchase.
If you are still interested in internationalization, please contact us using the form below.