Benefits and risks of internationalisation – Unit 3 – Module 1

Complex Toolbox for Volunteers

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In this unit we will cover the benefits and risks that the internationalisation process brings to an organisation. On the other hand, we will see what a SWOT analysis is and its purpose and also how we could decide which countries to go with our activity.”]In this unit we will cover the benefits and risks that the internationalisation process brings to an organisation. On the other hand, we will see what a SWOT analysis is and its purpose and also how we could decide which countries to go with our activity.
[nextpage title=”Explaining benefits and risks of internationalisation”]

In the learning unit 1 “Defining Internationalisation” we discussed this phenomenon and defined it as the result of the implementation of several different strategies which take into account the resources and capacities of the given organisation/enterprise, as well as its own opportunities (and threats) in its international setting, with the objective of moving its activity, either totally or partially, to that international setting, generating different kinds of flows (knowledge, resources, financial…) between the countries involved. Or or, in other words, to go global.

Globalization is one of the most important terms when talking about internationalisation, as it can be seen as both cause and effect of internationalisation itself, and thus generally share most of its benefits, risks and flaws. Globalisation brought developing countries the chance to access foreign markets as well as to import and export  cheap goods, enhancing economic development through competition and a worldwide market, and increasing the flow of information between countries.

Image by Jan Vašek from Pixabay 

Focusing on internationalisation, as we discussed in previous units, the main benefits can be summarized as the following: internationalisation helps your organisation togain visibility internationally, increasing the awareness of the specific topic attached by your organisation. It also increases the number of potential donors and their engagement with the purpose of the organization, its impact (reaching out to more people needing your work in other countries of your international setting) and the potential income of funds and other resources. It helps your organisation to get to know others with similar or related purposes (creating your own network), and thus gaining access to collaborations, acquiring prestige and international recognition in the process. Economically, it helps to reduce costs and to obtain greater profitability of the use of those funds and resources.

However, with internationalisation also come several risks that have to be taken into account in order to succeed in the process. Regarding the organisational strategy needed to take your activity into another country, a lot of risks can appear: Firstly, the funding forecasted for that project (which, by itself, implies an increase in costs for your organisation) can be wrongly calculated, incurring unbearable unexpected costs. On the other hand, the procedures or way of work of your organisation can lack adaptation to this new country, as well as its policies, laws and culture. You will incur extra costs when sending people from your organisation to the new country and  when researching possibilities of collaboration In general, the costs of management of your organisation will increase exponentially.

Concerning the management of the projects conducted in other countries, your organisation has to be ready to simultaneously bear different situations in different countries, and channels of communication have to be improved and used regularly. Also, it is crucial to be successful when finding partners in that country, enhancing your relations with them and creating effective alliances with some of them. Another crucial aspect is when facing the cultural, political and legal differences between countries. Tax policies may vary substantially, as well as political and economic stability of the destination country. And all of this without taking into account the language and cultural barrier.

We can summarize all this information in the following table, presenting in a visual approach the main benefits and risks of internationalisation:

[nextpage title=”Conducting a SWOT analysis”]

Organisations and SMEs face daily the challenge of becoming more productive and efficient, in order to get more profit from its given resources and achieve their goals. It becomes a continuous process of creating, implementing and evaluating decisions to overcome problems, ensuring the achievement of its objectives. This process is called Strategic Management.

In words of the researchers Emet Gürel and Merba Tat, “strategic management consists of the analysis, decisions, and actions an organisation undertakes in order to create and sustain competitive advantages. The strategic management process is a sequential set of analyses and choices that can increase the likelihood that an organisation will choose ‘good strategy’, that is, that generates competitive advantages”. Every organisation needs to design a long-term strategy at the beginning of its activity, defining its aspirations and identifying possible risks and threats that it should try to avoid during the process.

In order to deal with that, organisations use and external and internal analysis, or the so-called SWOT analysis. SWOT Analysis is a tool that involves four areas into two dimensions. It has four components: Strengths, Weaknesses, Opportunities and Threats. Strengths and Weaknesses are Internal factors and attributes of the organization, while Opportunities and Threats are External factors and attributes of the market setting. This can be easily seen in the following graph:

But, what does each component of the SWOT mean? Let’s analyse them:

  • Strengths: According to professors J.A. Pearce and R.B. Robinson, a strength is a “resource, skill, or other advantage relative to competitors and the needs of the markets an organization serves or expects to serve. It is a distinctive competence that gives the organization a comparative advantage in the marketplace. Strengths may exist with regard to financial resources, image, market leadership, buyer/supplier relations, and other factors”.

In other words, the strengths of a project, organisation or enterprise are the specific competences and values that have the potential to make a difference in its “market”, giving it different advantages against its competitors and an efficient use of its resources. Obviously, when talking about non-profit organisations, we are not speaking about competition inside a “market”, but the potential to bring something fresh and new to an existing setting: a different approach to a social problem, an innovative method to attach that problem, etc. Also, financial resources can make a huge difference as a strength of your organisation, and therefore a proper use of resources and funds, together with good dissemination efforts, can serve as one of the main strengths for your projects.

Photo by Victor Freitas on Unsplash

  • Weaknesses: This component mainly works as the opposite of Strengths, as it refers to the disadvantages and lack of competency of an organisation or project. It is a situation where the current capacities of an organisation are surpassed by its competitors, giving it a disadvantage against them, and being less efficient and effective than them.

These aspects negatively affect the organizational performance and weakens the organization among its competitors. Consequently, the organization is not able to respond to a possible problem or opportunity and cannot adapt to changes. It is crucial for any organisation to acknowledge and identify its weaknesses as soon as possible, in order to prevent long term issues and difficulties, and to properly forecast the future of its projects. Neither planning nor creating strategies should be done without taking into account current and future weaknesses, as they are as important as strengths (if not more!).

  • Opportunities: This component is the first external factor to take into account when analysing your international setting / market setting. An opportunity is nothing but a chance to take advantage of a specific current or future situation, which characteristics are favourable are suitable for an action to take place. This action can be a new project, the creation of an organisation, the development of a new approach to a specific problem, etc.

Looking for opportunities in different countries is the key to internationalisation, as we will see next. Analysing the situation of a country and identifying opportunities and chances for your organisation to be useful is a must before beginning internationalisation projects, and a wrong forecast of it can lead into their failure, as well as threats.

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  • Threats: A threat is the risk of a disadvantageous situation to happen and affect negatively your project/organisation, complicating its way to achieving its proposed goals, or even making them impossible to achieve. When talking about internationalisation, the threats for our organisation are going to be highly dependent on each country that we decide to go. This is why both topics, SWOT analysis and countries, are deeply related to each other, as we will see next.

In order to overcome these threats, it is crucial to assure our strengths and prepare our organisation/project for those threats to become realities. Internationalisation often involves working in dangerous and unstable countries, where political, social, demographic, cultural, legal and economic systems can change rapidly and violently, endangering our goals.

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As it can be easily noticed reading through the previous section of this unit, while the Strengths and Weaknesses depend strictly of our organisation, the other two components do not: neither the Opportunities nor the Threats are in control of our organisation, so our efforts cannot be aimed at changing those environments (such as creating opportunities or fighting threats), but on improving the internal factors provided by the SWOT analysis and conducting a proper external factors analysis, so as  then to assess the most suitable countries to go to.

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That is why we went through the SWOT analysis before going into this section, as it is exactly what we have to do in order to decide which countries to go to. Obviously, there are different approaches to this topic, and the specific characteristics of your own organisation (and even your own personal preferences) may influence this decision quite a lot. However, conducting a SWOT analysis (or a similar type of analysis method) can help you decide which countries are perfect for your organisation to bring its activity to

As previously stated, there are two factors to consider here: Opportunities and Threats. We have to try and find the perfect balance between those two factors in order to find the most suitable country for our organisation. Obviously, perfect situations may not exist, with no threats and lots of opportunities in the same country, but comparing these two factors is the key to success in this search.

The first thing that we should do is look for Opportunities outside our country. Depending on the type of organisation that you are managing, its target group, purpose, financial capability and resources, opportunities may appear in countries where others do not find, and vice versa??? What does this sentence mean???. It is recommended that you define your priorities first and then start your search. Opportunities can appear in the form of partner organisations, target groups, language compatibility, governmental aid, financial opportunities. As mentionedas said, it depends highly on your own organisation.

Subsequently,, the most crucial part is to detect potential Threats in that list of apparently suitable countries. We mentioned a few of them before, but you will have to look for economic, political and social stability, a target group willing to get engaged with your project, access to resources, financial capability and a well-designed dissemination plan. It depends, again, highly on your own organisation. But this analysis is even more complex than the previous one, as you will to take into account the existence of unavoidable risks and predict in a long-term future the possibility and impact that they could have in your project.

[nextpage title=”EXTERNAL RESOURCES”] – Interesting article concerning SWOT analysis. – The pros and cons of Globalization – Benefits and risks of Globalization: Challenges for developing countries – Dealing with the benefits and costs of internationalisation: the example of the Korean Won – The Internationalization of the Nonprofit Sector