“The greatest motivation is to grow, learn, and take part in more exciting and challenging projects,” said Roberto Rosenblatt, MBA, during the videoconference titled “The Internationalization of Uruguayan Companies.”
The event, organized by the Graduate School of the Faculty of Administration and Social Sciences, was held via Zoom on Thursday, September 3, 2020. It was part of the Universidad ORT Uruguay Management and Business Lecture Series.
Rosenblatt is an aeronautical engineer and holds an MBA from ORT. He served as new product development manager at Conatel SA, and in 1990—together with engineer Daniel Ascher—he founded Darko Lighting, a company specializing in technical lighting projects and control systems, which began its international expansion in 2002 by establishing subsidiaries in Costa Rica, Argentina, Spain, Colombia, and Mexico.
The rationale behind internationalization and the minimum requirements
Rosenblatt noted the Uruguayan tendency to operate solely within a limited market, even when they possess the necessary expertise to expand, and pointed out that “Uruguay is a small market with relatively low purchasing power,” comparable to the Argentine city of Rosario.
To commit to international expansion, it is necessary to actively seek out suitable markets where there is some initial advantage to get started.
“The biggest motivation for not staying put in our city is to grow, learn, and get involved in projects that are often more appealing and challenging than those we can find in our own country, simply because of economic factors,” he said.
The process of internationalization for any company involves meeting a series of necessary conditions to reduce the likelihood of failure and increase the chances of success. “It all starts with a business plan,” explained Rosenblatt, who believes it is essential to understand all the elements that make up the plan and to have a clear vision of what you want the project to achieve.
The minimum requirements for beginning the internationalization process are:
- Know-how. Possessing knowledge, a product, or a service that is competitive, unique, and has proven successful in the local market, and understanding which elements can be adapted for other markets.
- A strong will to succeed and perseverance. It is important to have a “mindset that refuses to give up in the face of problems that may arise along the way.”
- The right team. The team must be aligned with the project's objectives and possess the skills to address various areas of the business.
- Sufficient working capital. This is essential for getting through the initial period of setting up in a new country, when it will likely be difficult to attract customers.
Market selection and team building
According to Rosenblatt, there are several factors that must be evaluated when deciding the direction of the business, including the choice of market in which to establish operations. “We don’t have a set formula,” he clarified, adding that for a Uruguayan company, countries like Argentina or Paraguay are the most accessible options, both because of their proximity and the language. The latter is a factor that often leads to Brazil being ruled out as a destination.
The criteria for selecting a market are:
- The proximity criterion. The proximity or distance of a market can affect installation costs and timelines, though this does not mean that distant markets should be ruled out. Rosenblatt’s experience includes a failed attempt to win a public tender in Dublin (Ireland), which encouraged him to continue trying his luck in other markets—with success.
- Market size. Defining the project’s catchment area is very important. On this point, Rosenblatt shared details about the development of his business in Almería (Spain) in 2003. “We focused our efforts on potential customers in that area and didn’t spread ourselves too thin across a region that was impossible to cover with our infrastructure,” he explained.
- Market research. “We can’t be naive and just move to a city we like to see what happens. We have to understand how the business works in that area and make the appropriate decisions based on that.”
There are also other factors that Rosenblatt considers essential for a successful internationalization process. Every team needs a captain to lead the project abroad throughout all its phases.
“There aren’t many people like that,” he said, noting that it is often the business owners themselves who take on this role, which is highly demanding because there is no room for fatigue, vacations, or distractions, and because it is a long-term challenge.
Another consideration is whether to work with local partners or hire employees. Rosenblatt believes it is important to have a local partner with contacts and an understanding of regional dynamics, although the company can also encourage employee growth from within. “It’s important to have people who can help us communicate with the local community,” he said regarding the formation of work teams.
It is also advisable to have a contact who, in addition to guiding us on basic matters, can vouch for the company’s expertise with local stakeholders. Rosenblatt noted that, with the exception of Argentina, his company had such a contact in all the other countries where it operates.
Furthermore, it is vital to understand local regulations. “We should never assume that things are the same as in Uruguay. They are completely different—in terms of customs, the involvement of local stakeholders, regulations, and how the market is structured,” he said. “We have to approach that market with a very humble mindset.”
Key barriers to internationalization and requirements for success
Every market has barriers to entry, which greatly limit the ability to compete. The main ones are:
- Import Regulations
- Regulations on capital inflows and outflows. “There are markets that are very open to capital inflows and outflows and are therefore much more attractive for starting a business,” he said.
- Competitive structure. It is necessary to determine whether the structure can be established locally or whether it must be imported.
- Reliability of potential customers.
- Differences related to local conditions (languages, access to credit, difficulties in hiring suitable staff)
There are also exit barriers, such as labor laws regarding layoffs, the closure of bank accounts, and regulations governing the dissolution of companies, which are particularly complex when foreign partners are involved.
Finally, Rosenblatt shared some key factors for a project’s success. First, it is necessary to define what success means. “What does success mean to us? What are our expectations for our project?” he asked. “The first thing we need to achieve is a positive cash flow,” he said; only then can we move on to other stages, such as expanding the structure and scope.
It is also essential to understand the market and its dynamics, as well as the competition, including their strengths and weaknesses. “We can’t be naive about these kinds of things,” he said, noting that, statistically, nine out of ten startups fail. “We have to understand our weaknesses and address them.”