The lack of entrepreneurship in internationalization

We recently heard: “As soon as I have four or five international contracts that can support my structure abroad, I will start setting up my operations overseas.”

Everything is wrong! In this way, those contracts will probably never come. This issue touches on fundamental concepts.

Build structure, because structure creates business. Don’t try to do business without structure!

This was one of my guiding principles when I set up my business nearly 20 years ago. It has consistently proven relevant to this day. It stands in direct opposition to the initial claim that business comes before structure.

When it comes to internationalization, this principle is even more relevant. The creation of adequate, proprietary international structures is a fundamental condition for business performance in the target market.

Believing that you can secure multiple international deals without making even a minimal investment in the necessary structure—isn’t that a foolish idea?

Establishing international structures through foreign direct investment (FDI) is an essential aspect of successful internationalization. The absence of international structures substantially compromises any internationalization project.

FDI may sound like something immeasurable and reserved for large corporations. It is not! Let’s look at the numbers: in some cases, where a virtual commercial representation office can be considered without establishing a legal entity, we are talking about around R$1,500 per month—that is, less than what a family spends monthly on groceries. Maintaining an incorporated company abroad (incubation, back office, and accounting) can start at around R$5,000 per month. And this is in Germany, Europe’s leading economy.

Now imagine the following situation: you are a customer in Europe. You are interested in a particular product or service. Whom will you prefer? You have the option to hire:

• a supplier close to you, within your own environment, offering legal security, international maturity, clear communication, and better logistics; or

• a supplier on the other side of the world, whose continuity is uncertain, who may become a headache if any issue arises, and who appears to lack commitment to the client.

The answer is obvious! It is astonishing that there are still Brazilian companies trying to win international markets and clients through the second option.

However, this difference only becomes clear when one shifts perspective and evaluates the situation from the client’s point of view. Many companies seem to disregard the client’s perspective and promote international activities based on a flawed self-assessment. What is the point of considering your company “the best of all” if, in the international environment, it is perceived as a small, backyard operation?

Additionally, different international environments carry their own reputations. Put yourself again in the position of a European client. Which company would you consider more reliable in honoring its commitments: a Swedish company or a Bangladeshi company? Where do you think a Brazilian company would fall within a European perception—closer to Sweden or closer to Bangladesh?

A company that is properly internationalized through its own structures abroad, in turn, is perceived as a national entity within the same environment as the client. In this case, a Brazilian company with a European branch is perceived as a European entity, which greatly facilitates business execution and corporate communication.

This business psychology definitely exists, and attempting to ignore it—based on an incorrect perception of one’s actual capabilities in the foreign market—can be considered a beginner’s mistake.

The errors highlighted are typical of companies that have never had international experience and do not understand the client’s perspective in the context of international activities. The lack of an internationalization culture among Brazilian companies, however, leads to mistakes like these.

Brazilian companies need to overcome the inertia resulting from their focus on the domestic market. The principles of physics can be applied to the internationalization process. Newton’s law of inertia states that a body remains at rest unless acted upon by a force. There is also the principle that every reaction requires a prior action.

In the context of business internationalization, this means that companies will not internationalize as long as they remain in the comfort zone of the domestic market. At the same time, any results from internationalization depend on prior and adequate investment.

The previous crisis that began in 2013 was already identified as a force that compelled some Brazilian companies to abandon their international inertia. Perhaps the next economic crisis—likely to arise as a consequence of the COVID-19 pandemic—will be the necessary force for Brazilian companies to overcome it once and for all. In this sense, crisis can be understood as an opportunity for the internationalization process of Brazilian companies.

Internationalization requires investment. Build structure, because structure creates business. Do not attempt to conduct international business without investing in international structure!

Paulo Henrique Boelter – International Representative of IBREI in Berlin