5 Steps of Market Selection For International Expansion

pTranslate translation service global email marketing

Written by: pTranslate Contributors

THE GLOBAL ENTREPRENEUR | MARKET ENTRY

Firms contemplating foreign expansion have to make a lot of important decisions. They have to consider the market to enter, the timing of entry, scale of entry, and market entry strategy.

All of these decisions are crucial, and they all have a huge impact on the development of the firm in the later stages of its international expansion. For instance, if the firm chose Indirect Exporting through an Exporting Agent, it may gain immediate access to the untapped market. However, the trade-off is that it won’t be able to control the operations, as all of the decision-making falls into the hands of the agent, not the business owners.

Similarly, if a firm chooses to enter the Asian market, it must make sure that the products fit the culture there. Asian markets are challenging because their culture and behaviors differ tremendously from European countries.

Choosing the wrong market may impact the firm’s other activities and influence its long-term profitability and general performance.

In this article, we will explore several factors that influence a country’s attractiveness as a destination for foreign business.

5 steps to market selection for international expansion

1. Check Economic Stability and Political Stability

There is no tried and true rule of thumb for the best market to enter, although experts do agree that a country’s economic and political stability is one of the first indicators of market potential.

An economy with constant output growth, low and stable inflation is considered economically stable, while an economy with frequent, large-scale recession, pronounced business cycles, high inflation, or frequent financial crises is considered unstable.

Political stability refers to the regularity of political exchanges. The more political changes happen in a country, the less stable it is.

If a country is economically and politically stable, there is high market potential, measured in terms of market size, purchasing power, and currency stability.

On the other hand, in countries with low economic and political stability, there is limited market potential.

Quantitatively measuring the economic and political stability of a country is not easy and should only be undertaken by experts. However, business managers can totally gain access to all of the information about the macroeconomic and political events that happen in a country. They can base their decisions on those events.

5 steps to market selection countries with highest political stability

Countries with the highest level of political stability

Source: The Global Economy

5 steps to market selection countries with lowest political stability

Countries with the lowest level of political stability

Source: The Global Economy

The following key questions can be used as a guide to select a stable market to invest in:

  1. Which international market is of interest to the firm?
  2. Which markets should be excluded because of their political risks?
  3. Which remaining markets have non-favorable regulatory environment?
  4. Which remaining markets have stable inflation and low risk of recession?
  5. Which remaining markets have sustainable growth in recent years?

Once you have answered all of these questions, you should have narrowed your target list to about 10-20 countries. After that, you can start to analyze your firm, brand, or product from various angles to determine the right market for your product.

2. Narrow Your Market Selection With Macro-criteria

Once you have in your hands a list of countries that you think to be most prospective, you can start to narrow your selection with macroeconomic criteria. Although most of these criteria have been included in the Stability index that we discussed in the first section, a second look is more than necessary.

Specifically, we want to look at:

  • GDP Growth: the country’s current GDP, its growth rate, and its performance within the last decade
  • Political Risk: including risks of social unrest
  • Business Freedom: including the degree of intervention by the government into doing business
  • International Relations: including the relationship of that specific country with other countries in its region and the world. Is it perceived in a positive/negative/neutral light by its neighboring/alliances? What are some countries that you should always put on watch once you do business there?
  • Geographic Factors: Is the country situated in a booming/rapidly-growing region? Is there any logistical difficulties when it comes to manufacturing/delivering your products/services?
  • Culture: Is there many similarities between your country and that country? How do the people there think of your country? Are they friendly or hostile towards your country? Is there any cultural differences that you need to be aware of?
  • Business Culture: Business Culture is a part of the umbrella term “culture”, but it still deserves a mention. Is there too big of a difference in management philosophy between your country and that country? What is the approach to doing business in each country? Are there any similarities? How can we reconcile the differences in culture?

Try out a world-class Business Translation service
FOR FREE!

logo ptranslate

3. Decide Whether You Want To Be Specific Or Diverse With Your Market Selection

It’s better to be specific than be broad. But sometimes it’s better to be broad than specific.

There is no true answer to this.

Many entrepreneurs went too broad with their market selection, and try to include a wide range of industries in their offerings, especially service companies.

When you extend your targeted market to many industries, you are essentially upping your potential profit cap. However, that also means you’re allocating your resources to too many areas at the same time.

By carving out a niche for yourself, you’ll have an easier and faster time getting clients, but your cap is definitely lower. They argue that you can always scale your business up later.

That is true, but by being so focused on one industry, you also carry a higher risk of market failure.

“Don’t put your eggs into one basket” is the motto that all investors live by.

Advantages of being specific in your choice of markets:

  • Consolidate your market’s presence in those industries
  • Stronger brand awareness
  • Constant sales growth
  • Gain in-depth knowledge of that market
  • Reduced costs on logistics and management
  • More resources can be dedicated to marketing and production
  • Stronger risk control

When should you go specific with your market selection:

  • Your products and services only serve a very specific set of customers
  • You have a competitive advantage against other competitors in that market
  • Company has limited resources and can only dedicate to one or a few markets at the same time
  • Your company needs time to familiarize itself with the new business environment

Advantages of being diverse in your choice of markets:

  • Rapid sales and growth
  • Price differentiation
  • Risk diversification

When should you go diverse with your market selection:

  • The global demand for your product or service is spread out across many markets
  • High competition and reduced number of customers in each market
  • Product has a long lifecycle
  • Company has large resources that can be dedicated to several areas at once
global mindset a must-have for any global leaders

4. Identify Market Gaps

Every successful business you can think of has served some market gaps in the  market they are in. Market Gaps are essentially untapped potential that your company can wriggle in and take advantage of. They are attractive opportunities that other businesses haven’t realized, and if you managed to find some, it is crucial that you make a quick move to capture the market share.

Understand Your Competitive Advantage: How can we identify market gaps? You must first know exactly where your strengths lie. Consider the following question:

  1. What makes your product/brand stand out from your competitors?
  2. What do you have that your competitors don’t?
  3. What was the biggest success you have ever had on the journey of developing this brand/product?
  4. What do your past customers/clients have to say about your brand/product?
  5. What are the feedbacks your clients gave you?

Although these questions may seem insignificant, they can actually give you a lot of refreshing insights that can later be used.

Conduct A Thorough Market Research: Once you know what you have to offer, you can conduct a market research to find out if your customers actually want to buy your products.

  1. Who needs what you are offering?
  2. Is there market saturated?
  3. Are there competing firms well entrenched in the market?
  4. Is the market national or regional?
  5. Is your niche well-developed or untapped?
  6. What is your ideal customer?

Many entrepreneurs had to find out the hard way that there was not enough market for them to capture. Others realize that there is indeed a market for them, but it was too small to make anything actually sustainable in the long run. That’s because they don’t know their market size.

Want to have your document translated?

logo ptranslate

pTranslate is a world-class translation and localization agency for businesses worldwide

5. Further Narrow Your Target Market Down With Micro-Criteria

We have been looking only at macro-criteria so far.

Once you get to know your business more clearly, you can start to select markets that suit your company more and more closely.

Consider the following criteria when choosing a suitable market for your business:

  • Modernization Level: does the country have enough technology to support your business?
  • Labor Cost (if you plan to establish a manufacturing business in that country): sometimes, for manufacturing companies, labor cost is the only criterion that they look at when choosing a country to expand into.
  • Labor Quality: in some countries, especially developing countries, labor quality sometimes can’t meet up with the standards of foreign companies. In this scenario, these foreign companies may either leave for another company with higher labor quality, or they’ll stay and invest into labor training if they see that the future benefit is greater.
  • Tax Benefits: governments from many countries offer tax incentives for foreign companies that invest in the high-tech sector, or sectors that aren’t well-developed in their region.
  • Cost of Real Estate: it’s worth your time to learn a thing or two about the real estate law of that country and prepare yourself for the best deals there.
  • Physical Infrastructure
  • Financial Infrastructure
  • Availability of Suppliers
  • Cost of Living
  • Availability of Competitors: once you have determined your market and your niche clearly, you should be able to come up with a list of your competitors. Categorize them into smaller competitors, equal competitors, and bigger competitors. Describe them statistically. Analyze their performance in the last few years, and forecast their growth as well as orientation. Pinpoint some of their most distinguishing factors: prices, channels, market utility, financial positions, development potential, and expansion strategies
  • Crime Rate
  • Utility Cost
  • Connection with other Regions: determine if the specific location that you’re about to expand to is situated in proximity with other high-developing regions or not.
  • Availability of Demand
  • Legal Environment: consider the legal complexities that you may have to get yourself into if you decide to establish a business there. Know the differences between the law in your country and theirs. In some countries, there are very specific and unique regulations as to how you should run a business, and it’s better to learn a thing or two about them. If the country you’re about to enter is heavily bureaucratic, embrace yourself for the lengthy time it takes to simply register your company.
  • Distribution Channel: determine how you’re going to expand in this market. Is there an international distribution channel from your country to their country? If you’re approaching the market with a local production strategy, is the logistics in that country developed enough to handle your demands?

Where Can I Gather Information For Market Selection Analysis?

There is a wide range of sources that you can use to gather the information above for your market selection analysis.

Market selection is a long journey, and Google is going to be a big friend of yours in this journey. Remember to get your information from relevant, credible sources published by trusted organizations.

  • The World Factbook – published by the American Intelligence Agency. The World Factbook provides information on every country in the world. You can find tons of interesting facts you may need, including geography, population, economy, communications, transportation, etc.
  • Encyclopedia Britannica – a massive online resource for all things you need
  • Population Division – published by the United Nations. It gives comprehensive information on studies, publications, population statistics, development and economic programs by region
  • Transparency International – analyses the corruption index for 85 countries
  • Organisation for Economic Cooperation and Development (OECD) – provides data for all types of comparative macroeconomic analysis on a worldwide scale
  • World Tourism Organisation (UNWTO) – the United Nations agency responsible for the promotion of responsible, sustainable and universally accessible tourism
  • World Travel & Tourism Council (WTTC) – the organization that conducts research on the economic impact of Travel and Tourism in 185 countries and related issues
  • European Travel Commission (ETC) – the organisation responsible for promoting Europe as a tourism destination in markets outside the EU

Conclusion

Global expansion is a tricky process. There is no common rule for it, as the strategy varies tremendously by industry and company. As a global business, it’s your job to look at this with a global mindset and make wise decisions.

Feel free to share your thoughts and experience on international expansion in the comment section. pTranslate always welcome input from the experts.

Become a True Global Leader

Subscribe to our Newsletter to receive the latest insights on Global Business 


pTranslate translation service global email marketing

About pTranslate

pTranslate is a translation and localization agency for businesses and individuals. We offer world-class language services at a competitive price and exceptional quality. Our goal is to eliminate the language barriers and connect the world.

Connect The World

Translate your documents, writings, books, and more!

Have any questions?

Discover Our Latest Posts

Subscribe
Notify of
guest
0 Comments
Inline Feedbacks
View all comments