Expanding your product sales to international markets offers a highly efficient way to tap into a broader customer base, making the decision to go global an attractive and straightforward choice for most small and medium-sized enterprises (SMEs). However, it's important to approach this exciting journey with careful consideration and preparation. Several crucial factors should be taken into account, and certain essential tasks must be completed before venturing into the global marketplace. By addressing these key aspects, businesses can significantly increase their chances of success and growth on the international stage. Here, we outline some of the most important elements to keep in mind as you embark on your global selling journey.
BEING PREPARED FOR GLOBAL EXPANSION
Global trade continues to grow, even in the face of recent challenges. According to the DHL Global Connectedness Index, global trade in goods surpassed pre-pandemic levels by 10% in 2022. Moreover, research from the DHL Trade Growth Atlas reveals substantial opportunities to further boost trade.
Nevertheless, despite the overall upward trend, world trade is projected to slow down over the next decade. The World Economic Forum predicts that trade growth will reach only 2.3% through 2031, compared to the 2.5% growth forecast for GDP, as per Boston Consulting Group’s Global Trade Model1. This slowdown is attributed to various challenges, including the pandemic, geopolitical conflicts, protectionism, and escalating tensions between China, the US, and China, and the EU.
Before expanding globally, it is prudent to adjust your long-term forecasts to account for this deceleration in growth. Moreover, there is a risk that trade tensions could disrupt your supply chains, which might have seemed unlikely before. Thus, it's essential to proactively address potential issues. For instance, consider having alternative suppliers in place, if needed. Additionally, building up an inventory of at-risk stock or materials can be a proactive measure to ensure you don't disappoint your new overseas customers.
10 ESSENTIAL FACTORS TO RESEARCH BEFORE ENTERING NEW MARKETS
Before making any decisions to enter new markets, thorough research is crucial to assess their potential and viability. Here are 10 key factors to research before making a final decision:
1. Market Size and Growth Potential:
Research the market's size and growth potential by analyzing data from reputable sources such as government reports, industry associations, and market research firms. Look for data on the target market's total addressable market (TAM) and its compound annual growth rate (CAGR) over the past few years. Identify if the market is mature or emerging and assess the potential for your products or services to gain traction.
For example, if you're a technology company specializing in e-commerce solutions, investigate the projected growth of e-commerce in the target market. Explore how many consumers are expected to make online purchases and the value of the e-commerce market over the next five years. This data will provide insights into the market's size and potential demand for your offerings.
Dive into demographic data from government census reports and surveys to understand the target market's population composition. Explore age distribution, household income levels, education levels, and urbanization rates. Analyze how these factors align with your target customer profile.
Suppose you're a cosmetics brand looking to expand into a new market. Research the target market's age group distribution to identify the dominant age segments, as this will help tailor your product offerings and marketing campaigns accordingly.
3. Economic Indicators:
Go beyond GDP growth rate and inflation data and explore additional economic indicators. Look into consumer confidence indexes, purchasing power parity (PPP), and disposable income levels. Assess the stability of the currency and the country's trade balance.
For instance, if you're a luxury goods retailer, analyze the consumer confidence index to gauge if consumers in the target market are willing to make discretionary purchases. Additionally, study the PPP to understand the purchasing power of the local currency in comparison to your home market's currency.
4. Market Demand and Trends:
Gather primary and secondary data on consumer preferences, behavior, and purchasing habits. Conduct surveys, focus groups, and market research to identify trends and emerging customer needs.
As a food and beverage company, research the growing trend of plant-based diets in the target market. Identify the demand for healthier and sustainable food options to tailor your product portfolio and marketing messages to align with the market's preferences.
5. Competitive Landscape:
Conduct a thorough analysis of the competitive landscape in the target market. Identify direct and indirect competitors and study their market share, pricing strategies, distribution channels, and marketing efforts.
For example, if you're a fashion retailer, research the top local and international fashion brands operating in the target market. Understand their pricing strategies, product offerings, and marketing tactics to develop a competitive advantage and unique positioning.
6. Regulatory and Legal Environment:
Delve into the specific regulations governing your industry in the target market. Research import and export regulations, product standards, licensing requirements, and tax policies.
Suppose you're a medical device manufacturer expanding into a new country. Ensure compliance with local regulatory bodies and obtain necessary certifications for your products. Understand any restrictions or requirements related to product testing and labeling.
7. Cultural differences and customer preferences
Conduct cultural research to understand the nuances and preferences of the target market's population. Examine local customs, holidays, and social norms to tailor your marketing campaigns and customer interactions accordingly.
As an online streaming platform, research local entertainment preferences and content consumption habits to ensure your platform offers relevant content that resonates with the target market's cultural sensibilities.
8. Infrastructure and Logistics:
Assess the target market's transportation infrastructure, logistics networks, and distribution channels. Consider the availability of reliable shipping and courier services to ensure smooth order fulfillment.
For example, if you're an e-commerce retailer, research the efficiency of last-mile delivery options and the reach of various logistics providers in the target market. Optimize your logistics strategy to offer seamless delivery experiences to customers.
9. Political and Economic Stability:
Analyze the target market's political climate, stability, and economic outlook. Monitor political developments and assess any potential risks to your business operations.
For instance, if you're a renewable energy company planning to enter a new market, consider the government's stance on renewable energy policies and incentives. Evaluate the stability of regulatory frameworks to make informed decisions.
10. Risk Assessment:
Conduct a comprehensive risk assessment to identify potential challenges and vulnerabilities associated with market entry. Consider currency exchange risks, political instability, supply chain disruptions, and natural disasters.
As a multinational manufacturer, assess the potential impact of supply chain disruptions in the target market due to geopolitical tensions or natural disasters. Develop contingency plans to mitigate risks and ensure business continuity.
By conducting thorough research with detailed information for each key factor, you gain a comprehensive understanding of the potential new market. This data-driven approach empowers you to make well-informed decisions, reduce risks, and create a robust market entry strategy that positions your business for success in the new market.
THE ADVANTAGES OF EXPANDING YOUR BUSINESS GLOBALLY
Expanding your business into global markets offers a myriad of benefits that can propel your company to new heights of success and growth. From accessing a vast customer base and diversified revenue streams to gaining a competitive advantage and strengthening brand recognition, global expansion opens up exciting possibilities. To capitalize on these opportunities, strategic planning, cultural awareness, and a willingness to adapt are essential. With the right approach, going global can be a transformative journey that positions your business for sustainable success in the dynamic global marketplace.
Access to a Vast Customer Base:
Expanding your business into global markets unlocks access to a diverse and expansive customer base that goes beyond the limitations of your domestic market. With over 7.9 billion people worldwide and countless businesses, the potential for reaching new customers is immense. Each region brings unique consumer demographics, preferences, and needs, offering exciting opportunities for customization and tailoring your products or services to suit various markets.
For instance, if you're a fashion retailer, entering international markets allows you to offer seasonal collections that align with different climates, cultural festivities, and fashion trends prevalent in each region. By understanding and catering to these localized preferences, you can establish a stronger connection with your customers and increase brand loyalty.
Diversified Revenue Streams:
Relying solely on one market for revenue can be risky, especially in uncertain economic climates. Global expansion diversifies your revenue streams across multiple markets, reducing the impact of economic downturns or fluctuations in any single country. This diversification can enhance financial stability and provide a safety net during challenging times.
For instance, if your company primarily relies on the domestic market and faces a slowdown due to economic challenges, having revenue streams from international markets can help offset the impact and keep your business afloat.
Increased Revenue and Profit Potential:
Expanding into global markets often leads to increased sales volumes due to a larger customer base and stronger demand. Entering markets with higher purchasing power can also result in higher average transaction values and improved profit margins.
For example, if you're a technology company entering a growing Asian market, such as India or China, where the demand for technology products is high, your potential for increased sales and higher profitability is significant.
Emerging Market Advantage:
Expanding into emerging markets presents unique advantages for businesses seeking rapid growth and market dominance. These markets often experience significant economic expansion and consumer spending growth, creating a fertile ground for market penetration and establishment.
Being an early entrant into emerging markets allows you to build brand recognition, customer loyalty, and strong distribution networks before competitors catch up. As the market matures, your business can solidify its position as a key player, gaining a competitive edge that is hard for latecomers to replicate.
Strengthened Brand Recognition:
Global expansion fosters brand recognition on a global scale, bolstering your company's reputation and credibility. As consumers from different countries interact with your brand, positive experiences and satisfaction can lead to word-of-mouth referrals and increased brand loyalty.
To maximize brand recognition in new markets, invest in culturally appropriate marketing campaigns that resonate with local audiences. This might include using localized advertising, partnering with local influencers, and incorporating cultural elements into your branding.
Expanding internationally can provide a significant competitive advantage over rivals that have not yet ventured into global markets. Your unique product offerings, technological expertise, or innovative solutions can set you apart from competitors in new regions.
To maintain a competitive edge, focus on continuous improvement and innovation. Invest in research and development to refine your products or services to meet the evolving needs of global customers, making it difficult for competitors to replicate your offerings.