Let’s say a company has never exported before, and it would like to start. Or, maybe, it has a few customers in foreign markets, but the sales are sporadic and insignificant. But now it has decided to act and fully commit to organizing its exports in a strategic way. Let’s say that the company has already decided where to make market entry after making an analysis of a targeted market, and it has made selections ranging from a beginning panel to an entire business check-up. Now the company has just one last task to accomplish: the company’s export organization.

So to do this, the company reviews its strategy underlying the internationalization campaign and the market choice, as factors such as the market intensity and the foreign country’s distance influence organizational choices for the growth plan. However, with a more general comparison between the choice of leveraging internal resources or utilizing an external company, we have built a template to assess the pros and cons of the organizational options between the two solutions: to make or to buy.

Understanding the path: activities necessary to launch an internationalization process

The proper approach to begin an analysis of the two alternatives is to pull forward the list of activities to be carried out in an internationalization project, which are summarized as follows:

• Comprehension of the socio-economic environment (clients, consumption, culture, mentality)
• Market analysis (competitors, channels, trends)
• Partner search (tools, search, selection)
• Travels and meetings (visits, business introductions, gathering information)
• Product promotion (features, functionalities, benchmarks)
• Sales negotiations (customization, services, conditions)
• Operations management (samples, orders, payments)
• Post-sale support to the foreign Partner (training, on site assistance)

It becomes clear by reviewing these steps in process management that international market entry involves not only resources, but also skills and knowledge not always available to obtain in a short period of time. For example, the simple understanding of the socio-economic environment for a foreigner may involve many trips and on-site analyses, interpreting market trends, and finding the tools and methodology of research of international partner. Part of this learning process can be overcome by working with a native person of the targeted country who is capable in analytical and commercial activities. But at this point, if this person is employed in the company, then the travel costs, on-site analyses, and the difficulty of managing commercial activity from a distance (such as the creation of contacts or differences in time zones) may still hinder the potential benefit a company employee can offer. And if the sales employee is working in the targeted market, he will resemble a mixture of the “buy” option and the “make” option, as he holds a position in some ways outside the enterprise while still being an internal resource as a fully committed yet a less flexible option for the company.

“BUY” VS “MAKE”: WHAT IS AN EXTERNAL ORGANIZATION

The option “make” is the option that allows a company to devote personal development and marketing structure in exports to a specific foreign market. On the contrary, the option “buy” is the option that allows a company to outsource these activities by delegating them to an organization (company, institution, professionals) that works semi-independently yet focuses all of their efforts in the business development and management of operations in a new market. In practice, this organization puts in place all of its resources, infrastructure, and networking to help clients enter new markets, and is not only aimed at the search and acquisition of new orders, but also in advancing their management of existing customers.

The option “buy” should not be confused with a business contact. It often happens that a company starts with an export project through a person living in an overseas market that is interested in seeking commercial channels or a distributor that shows interest in first a trial order and then in marketing the product. This is different method than the ”buy” solution, because the “buy” solution resembles a method of leading the company to potential buyers, whereas a business contact is simply a buyer. The external organization differs from a business contact by being organized and systematic, possessing knowledge of specific channels, by acting strategically and through management tools shared within the firm, and for being a mediator between the company and buyers, not a buyer itself, as the sales representative’s objective is to put the company in contact with multiple buyers.

Activities in different phases of export development

All considerations in the previous section refer to the first phase of initiating export activities to an international market. The advantages and disadvantages of the two options change depending on the stage of development of the export route. This is also because time changes the nature of the business: if a start-up phase is focused on analysis and negotiation, then during later stages focuses on development and export consolidation, critical activities shift to areas such as relationship management, the growth of the product, and in the consolidation of marketing activities.

So the issue is not whether to adopt one solution or the other, because the first phase might utilize one solution and then move to the other as time passes. As a matter of fact, there is not a unique answer or solution, but the situation depends on the stage of the company’s internationalization, which can effectively be broken down into three phases:

The following table expresses the association between developmental stages and their key success factors. It can be easily understood how the internationalization path requires investment in time, a variety of skills, and different strategies with the probable change of involved human resources, who have to change activities and leverage specific expertise.

What is the best solution in the end?

In phase one, the company must first assess whether it already has the internal resources necessary for the development of exports in a given market (cultural and market comprehension, linguistic capability, commercial and negotiation skills), by which to gain information quickly on market demand and competitors to promptly start the promotion of its products. If they do not, the simple and immediate path is to find a solution “outside”, that is to seek support from professionals or organizations who operate in the target country. This allows the company to shorten the time to create market entry and to reduce the risks of undesirable management decisions taken perhaps upon a lack of full understanding of the target market.

In phase two, the company may begin to adopt a mixed solution, and continue to rely on an external organization, guaranteeing growth through on-site support, while at the same time, however, the company should begin investing in acquiring market know-how and relationships independently. This action allows the company to remain flexible in order to launch the process of a progressive internationalization of business activities and sales management of the foreign network.

Eventually, in phase three, with the consolidation and security of a market position, the company should strategically oversee all operations directly. It is likely that revenue growth has been made followed by investments in infrastructure such as showrooms, representative offices, foreign branches, warehouses, and production units. The “buy” solution can also be maintained, but at this point it is more efficient to utilize the company’s own internal team, at least in a way that is integrated with the external company.

The parameters to be evaluated for a comparison between the two solutions

In the previous section we analyzed the three steps associated with the development of an export project, a scenario showing the different factors that can ensure optimum conditions for business success, which brought out a few notes that highlight the effectiveness of internal versus external solutions. At the end of a thorough comparative analysis, we may summarize the variables to be examined between the solutions “make” or “buy”.

1. Effectiveness is the variable that may shift the skills and resources that one solution has over the other for commercial optimization (market knowledge, management skills, and a commercial understanding of local culture);
2. Speed ​​is the time factor, often decisive, and emphasizes that a solution may have an immediate answer. After a period of analysis and definition of strategy, market timing is essential. Furthermore, because of the economic environment, competition and legislation may quickly change, altering the scenario and the conditions for development.
3. Cost is perhaps the parameter with the greatest impact when assessing the factors behind an enterprise’s decision. By all means, the company should try to adopt a business strategy (and the resulting organizational choices) that allow the company to minimize underlying investment costs. This is the correct theoretical approach, but in practice it can lead to errors in judgment as it is virtually impossible to start an export project without investments.

We must also dispel two myths which are often perceived by the entrepreneur who starts a foreign sales development project. The first myth is that it is better to seek an individual myself to pay on the basis of new orders (agent with variable remuneration), and the second is that it would be the most economically sound to manage the process internally. Here’s why:

• Performing the project alone would prove to have little variable costs. The international action, if implemented correctly, leads to costs: devoted human resources, the cost of managing contacts (phone calls, meetings, travel), and the commitment to the customization and preparation of goods or samples. A mediator who offers such services without reimbursement (as in, only paid in the acquisition of orders) often times already has open channels and infrastructure that can be used for the company’s products, and is generally more effective in generating export opportunities over an organized and systematic entry of a new brand in a foreign market. In fact, operating alone is likely to trigger only a small turnover, strongly tied to mediation contacts in a channel, and without guarantees to acquire consolidation of export sales in a practical time.
• Internal solutions have no additional cost. Namely, the verification of internal resources and expertise to support the feasibility of project management does not have obvious additional costs. This error occurs repeatedly in cases where the company has some skills (like the knowledge of the language) or staff (like a new employee that could be employed in the project), and the company ends up leveraging these resources, despite the lack of other resources (like the understanding of local culture or possessing negotiation skills). The company may start the project, but its potential is compromised by factors that may hinder further processes, leaving the company stranded mid-project and forcing the company to make investments in time and resources yet still is unsuccessful in finalizing the undertaken commercial action. In addition, care should be taken to avoid sunk costs of an internal investment, typically in terms of time and the impact across an organization. These factors should be added to estimates of the action’s direct costs: travels, visits, the participation in exhibitions and events, the marketing and communication expenses, and all under the consideration of the time it takes to acquire of the company’s first international orders.

Conclusions

It is evident that there is not the best solution between “make” or “buy” in the process of internationalization of a company. This study is only aimed at providing a framework for the variable analysis to be considered for a complete evaluation of alternatives. It is important to illustrate how this process is dynamic and that things change according to the stage of the company’s development in the targeted market. However, as a general rule, it is recommended that in each case the company should carefully evaluate early adoption of an internal solution, so as to not minimize the need for adequate resources and costs tied to the internationalization campaign that is often overestimated, which easily leads to situations that can generate unexpected costs and compromise the overall effectiveness of commercial enterprises. After careful consideration, an enterprise should probably then structure its organization for strategic and competitive necessities and then be fully able to control their space in a foreign market, if not during the expansion phase, then after their acquisition of a gained market position.