How AI Can Change the Way Companies Go Global

For decades, expanding into foreign markets meant making a major investment in physical presence – setting up local offices and conducting in-depth market research to understand regional consumer preferences. Now, AI is allowing digital firms to go global without ever setting foot in a new market.

No need for foreign direct investment (FDI) to build local market knowledge, firms can now use AI to analyse user behaviour remotely. In a recent research paper, my co-author Peter Williamson of Cambridge Judge Business School and I examine how companies like TikTok use AI to infer revealed preferences – what users actually engage with – rather than relying on demographic or geographic indicators.

While TikTok faces scrutiny over data privacy and national security concerns, our research focuses instead on how they successfully leveraged AI to internationalise and create value across borders. 

It doesn’t matter where you’re from

TikTok’s algorithm curates a personalised video feed by analysing how users interact with content, tracking behaviours such as time spent watching, the speed of swiping to the next video and replays to infer revealed preferences. 

Unlike platforms that recommend content based on a user’s social networks or geography, TikTok learns from each user’s engagement with content itself, continuously refining its recommendations while streaming. 

Additionally, both content creators and consumers interact within the same digital space. The AI not only analyses user preferences but also categorises and recommends new content based on its detailed attributes rather than the creator’s popularity.

TikTok’s recommendation algorithms were recognised by MIT Technology Review, which listed them as one of the 10 Breakthrough Technologies of 2021 alongside mRNA vaccines and GPT-3.

The power of data network effects

AI enables firms to build competitive advantages through data network effects – the more users engage, the better AI learns from the data it collects on users, and the more valuable the platform becomes to each user.

As engagement grows, AI improves at identifying users with similar preferences. The more data available to link content popularity with user characteristics, the greater the likelihood of accurately matching every user to their interests.

For TikTok, this means that as more people interact with more videos, the algorithm becomes better at predicting content that will keep users engaged. This advantage grows exponentially, making it difficult for competitors to replicate TikTok’s level of personalisation without similar access to vast amounts of user interaction data.

Competitors like Instagram Reels and YouTube Shorts have recognised the importance of personalised content recommendations and followed TikTok by enhancing their algorithms to better engage users.

AI is transforming the business world—but are companies truly leveraging its full potential?

Which companies can adopt this strategy?

Digital companies best suited for AI-driven internationalisation share three traits: frequent repeat purchases, many user interactions and a wide variety of offerings. These conditions give AI enough data to personalise recommendations and create data network effects.

A great example is Spotify, which continuously refines its recommendations based on frequent user interactions. However, unlike TikTok, these individual preferences do not directly influence the activities of content producers because record labels and other distributors decide what content to offer. Certain businesses within Apple or Amazon’s diversified portfolios, such as their music and video streaming units, share similar characteristics and potential.

Fast-fashion companies like Shein and cosmetics brands like Sephora can also use AI to personalise offerings. However, their ability to translate imputed preferences into customised physical products is limited by the economics of manufacturing at scale.

General e-commerce platforms like Amazon Marketplace have lower personalisation potential because diverse categories mean they have fewer opportunities to collect data on user preferences. B2B firms, where purchasers repeatedly buy the same specific item, have even fewer opportunities to benefit from AI-driven personalisation.

Do we still need FDI?

While AI reduces the need for market-seeking FDI, particularly in learning about consumer preferences, it does not eliminate the need for FDI altogether. Digital firms still require a local presence for regulatory compliance, content moderation and value capture. TikTok has local staff in the United States and elsewhere to detect and mitigate harmful or inappropriate content as per local regulations as well as local customs and norms.

Governments in regions such as the European Union, China and the US increasingly mandate that user data be stored locally, necessitating investments in data centres and legal entities. Digital firms may also require teams on the ground to engage advertisers and manage stakeholder relationships.

While regulatory and operational requirements demand a local presence, the core driver of global expansion is shifting. In a world where AI can personalise experiences at a granular level, success in global markets will depend less on understanding countries and more on understanding individuals, one digital interaction at a time.

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