How many
companies do you know that operate internationally? There are so many that it
is actually really difficult to come up with a list of them. There are the
obvious ones like Coca-Cola, McDonald’s, Samsung, and Apple. You probably have
engaged with more than one of these companies in one way or another in your
life. However, there are a number of not so-obvious (check out this list on Forbes. For my purposes the numbers don’t
matter, just look at the number of small companies operating internationally)
ones, too. How do all of these companies, big and small, decide to go
international, though? How do they grasp the attention of people from different
places with the same products? Bottom line, the decision for a company to
operate internationally is one of the biggest decisions a company can make, and
it can be for better or worse.
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With so many choices, how do you know which market to enter? |
It may seem to
you like jumping into the international marketplace will provide you with
endless opportunities for growth, and to a certain extent it does. I am here to
say, “Whoa there, ke-mo sah-bee, tap the brakes. These are treacherous waters
that you are about to navigate here. It is best to be as prepared as possible
before making the call to enter the international market.” There are a number
of factors that come into play when attempting to understand the international
marketplace. Some of the main factors include the international trade system, the
economic environment, the political-legal environment, and the culturalenvironment. All of these factors should be considered when deciding to make
the plunge into foreign markets.
What I want to
do, though, because it interests me the most, is to focus my discussion on the
economic environment. I have provided links to the other three factors (in the
previous paragraph) that I mentioned so that you can explore those a little
more if you so desire. While economics is a very complex field, I believe that
analyzing the economic environment of a foreign market when deciding whether or
not to enter that market is much simpler than analyzing the cultural
environment of that market from the perspective of a foreigner. In addition, the
political-legal environment can be jargon-laden and tough to navigate and
comprehend. Within the economic environment, there are two main factors that aid
in deciding whether or not to enter a foreign market. These factors are
industrial structure and income distribution.
Income
distribution is fairly straightforward: do most people in the market have low,
medium, or high incomes? Is the low class growing or shrinking? Is there a large
wealth disparity? These questions all play into the decision making process
when entering foreign markets. Should you raise or lower your price in the new
market? Should you keep it the same? How similar is your domestic income
distribution to that of the new market? These are many of the questions that
come into play when considering income distribution.
What really
interests me within the economic environment is industrial structure. What
types of business drive the economy of the marketplace that you are looking at?
There are at least four types of industrial structures, and they are:
subsistence economies, raw material exporting economies, emerging economies,
and industrial economies. You can probably make some educated guesses about
what these four structures specialize in. Subsistence economies focus mainly on
agriculture while raw material exporting economies focus on exporting natural
resources. Emerging economies experience fast manufacturing growth leading to
overall growth and industrial economies are well established economies that are
major exporters of many goods and services. Where do you think the United
States fits in? China?
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What the average day in a subsistence economy may look like |
Along with the habits
of the industrial structures that I have just described comes certain types of
people with certain income distributions, cultures, and expectations. This is
what makes the decision to enter a new market so complex. It is hard to know if
a product that is wildly successful Mexico will be wildly successful in Sweden.
However, with the right analysis and restructuring of marketing strategies,
that successful Mexican product can become wildly successful in Sweden.
Entering new markets is all about balancing the risks and the rewards. The
risks are often high, yes, but you will never know of the success you may have
in a new market if you never go there. The question to ask yourself is: “Is the
risk too much for me?”