International expansion offers exciting growth and development opportunities for companies of all sizes and industries. However, choosing the most promising foreign markets for internationalization expansion is a crucial strategic decision requiring careful analysis and planning.
In an ever-changing globalized economic landscape, understanding how to find the countries with the greatest potential for our company is essential for success abroad. Read on to find out how to choose the optimal foreign markets for your company expansion in three phases.
How to choose the most promising foreign markets
Choosing the most promising foreign markets is essential for optimizing the resources to invest in business internationalization.
To evaluate the attractiveness of a foreign market we must gather information on the country at a macroeconomic, social and cultural level and know about tastes and habits, without forgetting to monitor trends and pay attention to tax, legal and customs restrictions. The goal is to define where it is possible to sell our products or services on an on-going basis.
We can divide this process into three stages. Let’s have a look at them.
1. Target country analysis.
The first, fundamental phase involves the collection of information on the reference market. It’s about gathering information on the country at a macroeconomic, social, cultural level and to know about its tastes and habits.
Factors to consider:
- attractiveness;
- relevance of its sector;
- presence of opportunities for the company.
but also:
- solvency;
- transaction security;
- political stability.
The attractiveness of a foreign market must always be related to your own company and product. Furthermore, in this phase it is advisable to analyze a maximum of three or four countries, and then pick one to start with.
2. Competitor analysis
It is vital to study how competitors present themselves on the market to verify that our segment is not already saturated and that there is room for growth. Competitor analysis also serves to understand what the successful marketing strategies are, which can be quite different from those adopted in our domestic market.
The web can help a lot in identifying the success factors of our competitors: tracing their offers and activities allows you to quickly understand how to differentiate yourself and propose customized solutions.
3. Entry barriers analysis.
Often, there are government barriers in place limiting access to a foreign market, such as those protecting the local market, which can be tariff or non-tariff ones.
Among government tariff barriers there are customs duties, indirect taxes on the value of imported goods. To reduce duties, the company may decide to transfer some components of the product or carry out all production locally.
Among the non-tariff barriers we can find:
- quantitative barriers, which limit the imported quantity of certain goods;
- voluntary restrictions, or agreements affecting the importing country with a voluntary limitation of exports by the exporting country;
- formal administrative barriers, i.e. laws and regulations of the importing country, including standards, technical standards and consumer protection policies, administrative rules and customs procedures;
- other barriers such as foreign government regulations or peculiar cultural differences.
When it comes to choosing the most promising foreign markets for your company, therefore, you need to carefully consider the potential impact of such barriers.
Furthermore, setting up a new company abroad involves not only bureaucratic and tax obligations, but also other general costs, which it is important to figure out in advance perhaps by asking for a business internationalization advice to an industry professional.
To expand your business abroad you also need to know HR regulations, the most common types of commercial contracts and tax deadlines.
Once all these aspects have been considered, you will concretely have the necessary elements to evaluate the attractiveness of a foreign market and decide if a country is the right one to expand your business.
Focus on the markets with the best probability-investment ratio
After carrying out the just described detailed analysis, in evaluating the attractiveness of a foreign market the logic is to focus on countries with the best expected probability-investment ratio and leave unprofitable or risky markets apart.
To do this, choosing the critical success factors for our company and placing them in order of importance based on the specificity of the segment, product and market context is a necessary step. Typically, the three most relevant critical factors are:
- proximity of the target country, which implies greater possibility of controlling costs, actions and culture;
- reduced export complexity and ease of reaching customers;
- appeal to the market of our products.
Having done that, we can assign a score to all these criteria, to then carry out an ad hoc analysis and identify the two or three markets that maximize the probability of success in relation to the investment.
How about getting some professional support in choosing the foreign markets to expand your business internationally?