You can always do international business on your own or get help of 3rd party service providers. By doing international business on your own you definitely have more control over the situation and keep all profit. However, is there a point on organizing your own international trade unit if this trade is occasional? But even if it is regular, how do you make sure that in-house processes bring maximum return on investment?
A straight simple way to calculate the return on investment (ROI) in international trade would be to use a formula:
ROI = (International Revenue – Variable Costs – Fixed Costs)/ (Variable Costs + Fixed Costs)
When international sales grow variable costs grow at the same pace. Your fixed costs, on the contrary, remain the same in the short run. In the long run, international sales, as your regular business process, generate more fixed costs, including foreign market development costs, wages of international business division employees, etc. Thus, there are following ways of maximization of ROI in international business:
- Expand sales to new foreign markets to generate more revenue;
- Optimize production processes and/or supply chain to cut variable costs;
- Move production to other countries or consider other countries for sourcing to cut variable costs;
- Engage 3rd party service providers for international business development and operations to cut fixed costs.
It is important to have your international sales ROI up-to-date. Recalculate it every quarter and when significant changes come into effect. It will help you to make right decision whether to continue doing international business on your own or outsource it.
Should you have any questions on ROI in International Business or discuss ways of maximizing it, contact Win Global Partners