Selecting a global market for expansion is a crucial strategic decision as successful international marketing rests on factors like product fit, leverage, and opportunity. There is a famous marketing adage about Bata’s entry inthe African markets. It is said that when Africa was opening up as a market, many shoe manufacturing companies sent their representatives to Africa to analyze if there was an opportunity for shoes in the African market. All representatives came back with the answer “Nobody wears shoes in Africa so, there is no market for shoes in Africa” whereas the Bata representatives came back saying, ‘Nobody wears shoes in Africa so, there’s a big market opportunity for Bata products in Africa!’ Bata got the first mover advantage and is referred as the “shoes of Africa”.
The first step in selecting an international market is to determine the company’s strategy for international expansion. The company needs to lay down the clear selection criteria for evaluation of different international markets. Some of these selection criteria are company’s resources, the size of the market, language and culture of the market, availability of raw material, availability of human resources, nature of competition, currency exchange rates, government policies, and political risks.
Market Size. Market size indicates the attractiveness of the market and the companies need to know that large and attractive markets are usually very competitive. The factors to be considered while calculating the market size are the size of the population, per capita income, the average age of the population, literacy rate, technological advancements, disposable income, and economic condition.
Market Structure. It is important to understand the market structure and also identify the major competitors and their marketing strategies like product features, pricing strategies, promotional expenses, distribution structure, financial position, and future expansion strategy. The company must also analyze the market maturity and product life cycle of its products.
Pricing. Pricing is a major factor in international marketing. It is important to price the products according to the host country’s demographics and economic condition. For example, Unilever has a low-cost detergent, Wheel, in India. Many pharmaceutical companies sell low-priced products in developing countries by changing their brand names, For example, Novartis has low-priced painkiller Voveran in India, but the same medicine is sold at a different price in the United States and the United Kingdom under the brand names Voltaren and Voltarol, respectively.
Host country language. Language is an important aspect of international marketing, and cross-cultural communication can be challenging. It is important to connect the brand name, positioning statements, and advertisements in the host language.
Cultural perspective. Good understanding of the specialties and similarities of foreign cultures is an essential component of international marketing. It is important to take care of the host country culture before selecting any country for international expansion. Successful marketing strategies must connect with host country culture and consumer behavior. For example, McDonald’s responded to cultural differences in France by adding beer and wine to its menus. Similarly, when the company entered India, they launched products according to the Indian culture and taste preferences like the Maharaja burger. Culture is also necessary for the communication and negotiation with the different stakeholders.
Availability of raw materials. Availability of raw materials in the foreign country at an economical price is critical for the success of a company going for international marketing. The scarcity of raw materials can affect the pricing strategy and the bottom line of the company.
Human Resources. Human resources is a critical success factor for the success of any company. The availability of human resources in the foreign country is an important criterion while selecting an international market and shortage of skilled workforce can affect operational efficiency of an organization.
Foreign laws and regulations. Companies in international marketing need to follow the rules and regulations of the country where they want to do the business. It is vital to follow the tax laws, import restrictions, customs regulations, labor laws, and other laws. Airbnb was fined of €30,000 for breaching local tourism laws in Barcelona in 2014. This fine was overturned by a Spanish court in 2016.
Currency Exchange Rates. Currency exchange rates have an important role in the exports from a country. Also, currency exchange rate affects the cost of production and marketing. The devaluation of Indian currency against the dollar has helped to increase the export opportunities and earnings of many companies in the IT, textile, and pharmaceutical sectors. It is important to keep an eye on exchange rates for any adverse impact. Many companies in international marketing prefer to hedge as it can reduce the adverse impact of currency fluctuations.
Political Risks. Political uncertainty and instability is a significant risk in international marketing. It is important to perform a risk assessment of the economic and political scenario of the country before entering into it. Changes in local governments can impact the business policies and regulations. Also, the increasing proclivity among nations to look inwards for economic growth could mean hostility towards international businesses.
It is best to monitor political developments and plan accordingly to mitigate political risks of doing business abroad.
In addition to the above points, many Indian companies going abroad also look at the Indian diaspora in the different countries before selecting the countries for the international expansion.
Source: Richard R. Still, Edward W. Cundliff, Normal A. P Govoni, Sandeep Puri (2017), Sales and Distribution Management: Decisions, Strategies, and Cases, Pearson; Sixth edition.