Blog Post #10: You Want the Risk? Can You Handle It?

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.

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?

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?”