Internationalization of business

With the Covid-19 pandemic, several global markets and supply chains have been closed. Faced with this scenario, mid-size companies have chosen to reduce their international ambitions and focus on their domestic markets. And now, we see, this trend is overturning with more companies around the world directing their sales to foreign markets.

The most recent figures from our survey, the International Business Report (IBR), conducted between October and December 2020 with around 5,000 business leaders in 29 countries – including Brazil – to analyze the optimism regarding the economy in the next 12 months, reveal clearly an improvement in mid-sized international business, even with the persistence of the pandemic.

For this year, 47% of Brazilian interview respondents expect an increase in revenue from foreign markets and 50% believe that the number of countries to which they sell will expand – while the global average remained at 34% in both cases.

A significantly larger number of Brazilian business leaders (44%) believe that the proportion of employees focused on non-domestic markets must also increase, even making greater use of international suppliers and third-party (or outsourcing) companies.

For João Rafael Araujo Filho, Lead Transaction Partner at Grant Thornton Brasil, this optimism with a possible heating up of the foreign market is mainly due to the arrival of vaccines against Covid-19. “The perspective of the advent of pandemic control brought a gasp of breath to the market, and Brazilian companies are beginning to see the international market as a very viable alternative, both to consolidate and to expand their business in this period of recovery.”

As we predicted, the focus on the domestic market was short-term

Rodger Flynn, Grant Thornton International regional leader for APAC - network capabilities, has convincingly predicted that the limitations inherent to the local markets will lead mid-size companies to look on a regional level and, then, towards the global market in search of growth opportunities.

The resumption of internationalization, both in sales and supply chains, is likely to be very significant in the positioning of the middle market (or mid-market) for growth during and after the pandemic.

"It is a classic example of the entrepreneurial nature of the mid-market," he explains, Grant Thornton International Ltd. global leader - network capabilities “They may not have the same financial resources as the big ones, but they are able to see trends and quickly adapt to opportunities.”

This international group is made up of a mix of companies. Many of them were active internationally before the pandemic and accelerated or decelerated plans as a direct result of Covid-19, but 20% of Brazilian leaders affirm that they only started to increase their focus on the international markets since the beginning of the pandemic. It is this last group that perhaps best demonstrates the entrepreneurship of the segment. 

Sales opportunities are attracting companies abroad

To understand what is driving this change and how Covid-19 changed the international markets, we asked how the pandemic affected the companies that were internationalized.

The coronavirus pandemic accelerated the internationalization plans of the activities of 35% of surveyed Brazilian companies, an index the same as the global average and close to that of other selected emerging countries, with the exception of Russia.

Better prices and contract terms are offered internationally

Analyzing how the pandemic impacted those who increased the focus in the international supply chain, we see again the opportunity-dominated list. An important factor is the opportunity to obtain better prices and contractual conditions of international suppliers and third-party (outsourced) companies, mentioned by 46% of Brazilian leaders. This will be an optimism factor for various executives of mid-size market that struggle against growing costs during the pandemic.

Then, there are another 27% that identify a better government support during the pandemic for international suppliers and outsourced companies. Scott Wilson, Grant Thornton International Ltd. Consultant, suggests that this factor may be partially related to the conclusions on better prices and contract terms, with funds from the government helping to sustain the companies’ cost bases and allowing to have more flexibility with the customer’s terms.

Probably, it is safer to presume that this preferential price is not going to last very long. But the prices will certainly continue to be benefited through government stimulus, and Rodger observes that the companies that wish to expand the number of countries in their supply chains can enjy real cost benefits. 

Daniel Maranhão, Grant Thornton Brasil CEO, an in turn, evaluates that companies around the world are adapting to this phase of uncertainties and bare predictability imposed by the pandemic. “In periods like this we are going through, companies need to look for alternatives to guarantee their existence and to seek growth. In this sense, the most prepared companies, with products at competitive prices and a vocation for expansion, can find a window of opportunity in the foreign market, usually opened by those companies that are less structured to face the turbulence of the crisis. Unfortunately, it is an opportunity that comes from the high level of indebtedness and/or lack of a strategy for the international markets of some players”, he concludes.

Opportunity to grow internationally

All of these data point to what we believe is a unique opportunity to expand business internationally that all mid-size market leaders should be aware of. Companies that want to exploit these opportunities will need to be ready for growth and to be agile. Agility comes from listening to customers and understanding how thinking is changing, from observing the competitors and seeing what they are doing, keeping themselves always updated, and then being willing to take risks. The aspect of operational agility is discussed in more depth in our series ‘'Business resumption’.

In upcoming insights, we will provide guidance for companies that seek to internationalize themselves, by helping them to navigate through immediate challenges and opportunities of the pandemic and identify changes in the trade that may last beyond the current setting.

If you are looking for support in fulfillment of your international ambitions, contact and talk with one of our consultants.