After the devastation caused by the Second World War, the great powers would begin a process of international opening known as globalization. Hand in hand with lobalization would come the business internationalization of which we will talk about in today's entry. Specifically about the internationalization process that has taken place in the world of Spanish banking.
Today there are few companies that do not open their doors to the international market. The advantages that internalization offers are undeniable, especially in the world of banking. Spain is a curious case, as it is one of the countries with the highest degree of internalization of banking, but with a geographical diversification that is less than that of the other large European economies and the US.
As we have mentioned in the previous paragraph, the levels of internalization of banking in Spain are high, with 44% of investments coming from the foreign market. But how does this translate into the Spanish economy? What does this mean for our companies? For this, it is necessary to previously explain to you what business internalization consists of, the advantages it offers and its effects and greater representatives within the Spanish economy.
Internalization is the process by which companies open their doors to foreign markets, where they attract new customers for their products and services. Although many might interpret this process as a mere export of products, the reality is that internalization goes much further. It is about settling in another geographical area permanently. Although many initially thought that this business strategy was only possible for large companies, it is currently gaining more and more prominence among SMEs, due to the multiple advantages it offers.
Nowadays there are many companies that decide to implement strategies and policies oriented towards foreign markets, and it is necessary to get rid of the idea that for this it is necessary to open new subsidiaries or spend a great deal on advertising. It is simply necessary a good study of the market and a business plan based on these skills.
To internationalize your company, you only need to use the available resources strategically to take advantage of the different opportunities offered by new markets. There are two ways to do this: position your own products or services already existing in another country or develop new products or services to enter it.
However, when taking such a risky step, it is first necessary to have a good organization in which to assess the various risks and how to deal with them. That is why it is advisable to divide your internalization process into the following phases:
- The creation of an international department: This will be in charge of everything related to the opening of new markets in other countries, leaving the operations of the other departments free.
- Internal analysis: Before beginning the internalization process as such, it is necessary to carry out an analysis of the internal functioning of the company through the SWOT variables (Strengths, Weaknesses, Opportunities, and Threats). This will help the company to better understand your situation and thus decide the best strategy to follow.
- Creation of business objectives: Once the analysis has been carried out, it is convenient to establish the objectives that are to be met.
- Study of the financial situation: The company must carry out a self-diagnosis of the financial situation in which it finds itself.
- Analysis of financial risks: It is necessary to take into account that the opening to foreign markets can bring with it a large number of risks. For this reason, it is necessary to analyze the existing risks, which can be various, from risks related to the country's political situation to regulations that unfavorably affect the company's activity or government actions that cause adverse changes for it.
- Choosing a new market: The time has finally come to decide which market you want to expand your company into. There are several options for this: strategic countries, which offer the greatest opportunities, but may bring a greater number of risks, or complementary countries, where it is only necessary to make use of surplus resources to make a progressive entry into them.
- Creation of a commercial strategy: The commercial department determines the strategy to be followed in the country of internationalization and the different sales channels to be able to distribute the products or services.
- Implementation: Once all the previous steps have been completed, only the implementation in the country remains. The following phases are distinguished: landing, growth and consolidation.
Once the internalization process and its phases have been explained, we would like to show you the advantages that this entails in such a way that you can better understand its popularity in recent decades. Among its main advantages are:
- Increased competitiveness: Companies that export products and services obtain higher productivity rates that can increase their turnover by up to 50%. Specifically, in the case of Spanish banking, it was found that in 2018, compared to a return on equity (ROE) in the banking business in Spain of 5.7%, that same indicator increased 2.5 points percentages (pp), up to 8.2%, when the Spanish banking business abroad was included. This result only confirms once again that diversification reduces risk and that the profitability of Spanish banks is greater than the profitability of banks in Spain.
- A more qualified and better paid job: As they are more competitive companies and with a greater volume of business, the employment they generate is greater and with better qualifications.
- Greater resistance to crisis cycles: A company that has managed to diversify its market is better prepared to face adverse economic cycles.
- New business opportunities: By going to other countries, it is more likely to find new opportunities in markets with greater growth potential.
- Transfer of productive activity to countries with lower production costs.
- Reinforcement of the brand's position: Potential customers feel more attracted to the best-known international brands.
It is not surprising then that companies like the Inditex group, perhaps the best-known example in terms of internalization of the Spanish brand, acquire numerous benefits and is one of the most prominent textile groups today. The same occurs in banking, where banks such as la Caixa or BBVA are some of the most successful entities in their field, with clients throughout the world, especially in Latin America.
And you? Do you have a small business? Are you interested in business internalization? Are you a customer of any of these banks?