Building International Business Networks
Establishing a global network for a local business is absolutely crucial in today’s world. We are so interconnected that SMEs are increasingly becoming involved in international business. As a result, international collaboration is now the smart way of doing business.
In this internationalized era of business, it is possible even for the smallest firms to locate foreign partners quickly, form partnerships with them to enter markets, and maintain complex business relationships across cultural and linguistic boundaries. The emergence of smart phone apps and e-commerce marketplaces has also opened up new opportunities for SMEs.
Entering into strategic partnerships with one or more companies from one or different countries which agree to cooperate to achieve a mutual objective is an effective way to build up international business networks. A firm may seek out other firms with skills or advantages that complement its own and negotiate agreements to work together. Gaining competitive advantage and increasing economic benefits through synergy are also two important considerations for entering into strategic partnerships.
Strategic partnerships may take various forms. It may be between companies, or a public-private venture or an arrangement between the private sector and nongovernmental organisations. Before deciding to form a strategic partnership, critical issues like selection of partners, the form of ownership, and joint management considerations should be taken into account. Compatibility, the nature of the potential partner’s products or services, the relative safeness of the partnership, and the learning potential of the alliance are all important considerations to build a successful strategic partnership.
Companies must decide which methods of internationalisation to pursue. Traditional methods include serving foreign markets by exporting which require working with agents/distributors, entering to join venture agreements with partner overseas or acquiring a foreign company in the target market.
However, recent technological advances and reductions in trade costs have made it possible to fragment production into individual tasks. As a result, whereas firms and countries previously specialised in producing certain goods, they now can specialise in specific tasks within a value chain. For example, the production of iPhones involve China, Japan, other Asian countries and developed economies where conception and production of critical components as well as R&D or marketing efforts are located. Another example of global value chain in action is the production of the Boeing 787 Dreamliner where along with USA, UK, Italy, Korea and Japan, Australia has played a significant role. A vital wing component – the moveable trailing edge – is designed and produced in Melbourne at Boeing Aerostructures Australia.
Global value chains (GVCs) are an integral part of the global economy and according to economist Richard Baldwin, the globalisation has entered a new paradigm because of the significant impact of GVCs. Australian economy is an active participant in this dominant trend. Australian mining services companies that have grown over the years alongside its strong mining industry, such as engineering and environmental management to mining technology access GVCs abroad. Apart from the mining sector, the agri-business industry is also playing their part in GVCs.
However, according to the OECD Report of 2009, Australia’s participation in GVCs is mainly driven by downstream links as other countries intensively use Australian intermediates in their exports. This high degree of forward participation is, among others, closely linked to Australia’s large exports of natural resources. The report notes that the distance from world markets hampers the participation of Australia in GVCs.
Cross-border ecommerce is also increasingly becoming a cost-effective avenue for international market entry, especially in China. As described in Austrade’s publication on Ecommerce in China, “E-commerce brings China’s 332 million online consumers within the reach of even the smallest Australian producers, with lower costs, minimal risks and easier market access compared to traditional exporting.”
Chinese social media platforms are very strong tools for business networking. In fact, as reported in the Australian Financial Review in June 2015, opening a WeChat account is the first step to finding a Chinese business partner to tap into that market.
A Chinese phenomenon of cross-border business networks called dai-gous is another effective way to market your products in China. They are essentially intermediaries between the overseas manufacturers and the customers in mainland China. The thriving word of mouth and “herd” buying culture of China makes a dai-gous’s reach faster and wider. For example, Australian milk producer Bellamy has distributed its milk powder products through the network of dai-gous who are Chinese international students and housewives. As they quickly understood that they can make money selling the products to their Chinese friends and family, they approached Bellamy in response to the advertisements of Bellamy’s products on WeChat. Alternatively, dai-gous may also enter into an arrangement with retail stores or lower level dai-gous may buy them from higher level operators. The extensiveness of the network is quite remarkable.
In an ever-changing international business environment, the need for establishing strategic relationships is more important than ever and building a powerful cross-border network can be an absolute game changer for businesses. The right kind of collaboration is a decisive factor for a business’s ultimate success in a foreign market and therefore it is crucial to get it right.
Author: Saddam Hossain
Saddam is a lawyer by training, with a strong interest in facilitating cross-border trade and investments. He has acquired a comprehensive base of legal knowledge in international law underpinned by a Master of International Law from the University of Technology, Sydney (UTS), a Master of Laws in International Trade Law and a LLB, gained at the University of London.