Classification of investments in an internationalization project: 3 types to analyze before making a full commitment

The most common way of reflecting the investment in a company is by measuring its assets. The total assets of a company show the total investment, the liabilities and equity show the amounts invested by those who finance the company; when these are made by the company’s partners, this financing is called equity, and when they are financed by third parties, this financing is called liabilities.

The investments that a company makes can be grouped according to the objective they pursue, in this sense they are classified as: working capital, fixed investments, and investments in research and development.

Before committing to the internationalization project, the entrepreneur must analyze the profitability of the project, the starting point being the definition of the investments to be made, classifying them according to the structure mentioned above.

Investments in research and development

These are investments that the company makes, among other reasons, to better understand the conditions of a market, to explore the possibilities of a new product, to test and develop new products.

Expansion into international markets requires investments that include concepts such as investments for the formulation of the project, to prepare the company to compete in international markets, and to ensure the execution of the internationalization project.

The company must make these investments in order to know its target markets, identify its potential customers in those markets, understand their motivations, demands and reasons for purchasing. To this end, the company invests in market studies aimed at establishing the conditions for access to the target countries, studies that are complemented with exploratory trips to the target countries and participation as an observer or exporter in trade fairs and trade missions, events from which the entrepreneur obtains information that allows him to define strategies for entering, remaining in and consolidating foreign markets.

The use of this information for the entrepreneur’s purposes may lead to new investments to adapt products and services to the conditions required by the target markets. The analysis of the conditions of access to destination countries, together with the review of the company’s position, contributes to the definition of its competitive position in international markets and the definition of improvement strategies to ensure success in these markets.

These strategies focus on strengthening each of the company’s areas, which are traditionally defined in functional terms and include commercial, technical-operational, administrative and financial aspects. During this phase of the company’s preparation, investments are made in fixed assets, adjustments, training, etc., most of which are of a medium or long-term nature, whether tangible or intangible.

In the execution of the project, the company makes investments to implement the defined strategies, which include the development of channels, trips to maintain commercial relationships, and in many cases the opening of offices abroad.

Working capital investments

These are classified as those required for the daily operation of the company, i.e., for the development of its day-to-day activities; Included in this concept are the acquisition of inventories, payment to suppliers, financing of the portfolio, payment of payroll, payment of public services, payment of leases and administration, payment of taxes, hosting and Web domain rights and in general all payments other than the meeting of financial obligations and the acquisition of fixed assets, long-term intangible assets or investments for profit; this type is usually distinguished because its consumption is made in the term of one year or less. In the company’s financial statements these are reflected in current assets.

Fixed investments

Fixed investments are classified as those related to the acquisition of fixed assets of a productive nature, the acquisition of intangible assets necessary for the operation of the company and the acquisition of assets for profit.

Productive assets are understood as assets used in the operation of the company such as machinery, physical facilities, furniture, computers and communication equipment, delivery vehicles and vehicles used by the company’s management, among others.

Examples of intangible assets necessary for the operation of the company are general application software and specialized software, the acquisition of franchises, rights of use, patents, etc.

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