29 Sep Choosing a target foreign market
Companies that want to internationalise have to consider many factors. These factors are the different variables which are related to geographical, demographic and economic factors as well as, and perhaps above all, cultural factors.
That is why it is so important to conduct a thorough analysis of foreign markets, including in terms of cultural differences in relation to the market of origin.
How can we do this? In order to choose a new market, we need to adopt a systematic approach.
When choosing a target foreign market, we should analyse two elements:
- The attractiveness of the market, i.e. the likelihood of finding operators interested in the products or services offered by the company
- The accessibility of the market, i.e. the opportunity for the company to manage the new market while continuing business relations
When choosing a market, though, we cannot simply consider the geographical and cultural “distance” between the company’s country of origin and its country of destination.
This “distance” also entails differences with regard to language, culture, political systems, the level of industrial development, business management methods, the level of economic development, etc. We have to carefully evaluate many variables.
The macro-economic variables
The variables we should take into account in the initial screening phase of a target foreign market can be divided into three main categories:
Geographic indicators:
- the size of a country
- climate
- morphological features
Demographic indicators:
- demographic development
- number of inhabitants
- stratification of the population by age group
- population density
Economic indicators:
- Gross Domestic Product (GDP)
- GDP per capita
- availability of per-capita expenditure for personal consumption
- income distribution
These indicators help us broadly understand the economic characteristics and size of the target foreign market. But we need to integrate this information with data coming from a proper market research: an in-depth analysis that combines the general aspects of a market with a specific study into the sector of interest, including studies into:
- Size of the market
- Market features and functioning
- Type of consumers
- Distribution network, i.e. what are the existing distribution channels (buyers/importers, agents, franchising, branch sales offices, FDI – Foreign Direct Investment)
- Sales prices and profit margins of operators
- Competitors
- Analysis of legal, tax and customs issues
- Trade fairs of special interest
Furthermore, it is worth analysing: the features of production that is already present on the market, i.e. local competitors; the distribution of market share among different manufacturers and the geographical coverage of the various players; the range of models and the types of promotion carried out; reference prices and terms of payment used; the guarantees offered; local regulations for certification; technical and health regulations; local regulations for labels; instruction manuals.
Market research is useful, in particular, to define the export price of a company’s product on the basis of the following elements: the market price of competitor goods, any import tariffs or local taxes and any commissions for agents or mark-ups for importers and distributors.
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