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Multinational companies will want to reduce costs and maximise resources within a single, integrated structure. Things to consider when determining the best structure include:

Political, economic and other factors affecting stability. If the operating environment is unstable, then the best solution may be to provide direct support.

Resources: human, financial and so on.

The purpose, size and complexity of the operation. Generally, the more sophisticated and complex the organisation, the more autonomy is required. But good communications between local operations and overseas headquarters are always important.

Communicating. When building an international business, all those with a stake in the company, especially shareholders, providers of finance and employees, should be informed of what is happening, what the advantages are and what it means for them. Without an explanation, people often fear the worst. Without a convincing explanation, they worry that the management has not thought things through and may be making a strategic error.

Analysing the available options will highlight the best approach and inform the way in which it is executed. A strategy to expand internationally requires a champion, someone with dynamism and commitment, and ideally with local expertise or expertise in setting up a similar expansion elsewhere. Such a champion must be flexible enough to make adjustments as necessary to make the new strategy succeed, and must have (or have a subordinate who has) good project management skills in order to provide focus and prioritise actions and aims.

Structuring international operations. It can be unproductive and a waste of resources to make a new international firm fit existing systems and procedures. But core management issues such as communications, structure and leadership are best resolved early. Managers must ensure that information and expertise flow freely throughout the organisation.

In particular, best-practice information should be widely disseminated and available for everyone in the organisation. Deciding the degree of autonomy given to international business units is fundamental. Reporting structures, responsibilities and authority levels need to be clear. An organisation benefits from being integrated and cohesive and should be fair and consistent in its practices and with its employees. Local factors should be taken into account, but an organisation should be true to its values. Co-ordination and control are important; if left to drift, international operations become disconnected from the rest of the organisation, even in conflict with it.

Leading and motivating people, setting direction and making decisions are all made more difficult across borders. Empowerment often provides a solution, enabling people to work within clearly defined areas of responsibility. Mentoring schemes can provide individuals with support and coaching, helping to integrate international business units into the organisation as a whole.

There are many areas where an overseas expansion can run into difficulty. Are employees prepared, motivated, trained and equipped to do business internationally? What practical difficulties and barriers to expansion are there in the short and medium term? Another area requiring consideration is the communication of the decision. How will existing customers, employees and shareholders react to the decision to expand overseas? Are there opportunities to raise the profile of the organisation and facilitate its entry into the new market? To better understand such organisational issues, it makes sense to use external advisers with experience of the market. Government agencies and trade associations can also provide help and so, too, can other, non-competing businesses. Local personnel with expertise in the market can be recruited to advise on the best way of succeeding in a new market.

Many firms think that they understand a foreign market when they do not. There are a number of examples of British firms (Marks & Spencer and emap are two) going into the United States and getting it badly wrong. You need to understand how progress is made, how things are done and what the principal issues, including cultural ones, are. How will the organisation be perceived? Is everyone involved prepared for doing business in an environment that may be different? As discussed in previous posts cultural issues are particularly significant in cross-border mergers or acquisitions. One lesson from successful mergers is that it is often best to recognise cultural differences, show flexibility and compromise, and work hard at developing a unitary set of values. Common systems and integrated objectives can help achieve this.

The first priority is to be clear about what your international strategy can and cannot achieve. There should also be clearly defined success criteria: many firms stage the implementation of their international expansion, only committing additional resources when initial objectives have been achieved. A helpful question to ask might be: “What level of achievement would be acceptable to the business, regardless of how the market is perceived?” Other questions include the following:

• How does the international strategy help to achieve the overall aims of the organisation?
• What are the priorities (cross-selling or improving service for existing customers, attracting new clients, attacking current or potential competitors, reducing costs, gaining information and experience, or something else)?
• What are the options? For example, should the firm set up an overseas office or subsidiary, or would acquisition, a joint venture, franchising or licensing be better approaches?
• Where are the potential pitfalls and how will the risk be managed?
• Does the organisational structure need to be altered to take full advantage of the international operations? If so, how?

Some firms expand abroad because their market as a whole is an international one, as it is for such industries as entertainment, publishing, pharmaceuticals and telecoms. Or it may be because the domestic market is too small, as it is for such industries as aerospace, shipbuilding and automotive manufacturing.

However, decisions to expand internationally are probably driven by less rational factors or by conjecture. International expansion may result from a desire to exploit a much larger market, which can then be justified with spurious interpretations of data. There is prima facie evidence of this from two sources. The first is the dotcom explosion that occurred during the 1990s, when many entrepreneurs and their backers believed that a global market existed for whatever was being sold. The key was simply to get online, drive traffic to the site and gain market share. The internet came to be seen as a fast track to securing a strong global position. The second is the keenness of firms to expand into China during the 1980s and 1990s. Many saw China as the most promising market in the world, and many have so far been sorely disappointed.

Pursuing foreign markets is invariably much more complex than it may appear at first sight. It can also be largely untried.