VALUING AN INTERNATIONAL MARKET
3rd January 2018
In the last fifteen years or so UK businesses have been encouraged to start trading (or to increase trade with) global market groupings or markets specific to different regions of the world. Acronyms abound: CIVETS, BRICS and MINT being those that have been the most widely reported, but there are more. As I write this, UK ministers are looking either at building a trade partnership with TPP (you know, the Trans-Pacific Partnership that the USA pulled out of shortly after Donald Trump was elected President) or joining this distant club as our country extricates itself from a much more influential one on its doorstep.
When you look at the member states under each of these acronyms, it becomes clear that while opportunities undoubtedly exist in many of these countries there are often considerable challenges in developing geographically and psychologically distant markets, not least the cost of market entry. I am not a great believer in these market groups (trade blocs yes, but not these convenient inventions), and believe that clever acronyms are unhelpful in guiding businesses to the right markets for their products and services. The Acronym culture for exporters is largely a political diversion, with businesses encouraged to travel to them under incentivised government schemes, when actually new export business may either lie closer to home or in markets for which there is less funding and support.
There are multiple reasons why companies make the market selections that they do, and I name here just ten from a very long list:
- Traditional market
- Origin of current export orders
- Trade Show, advertising or general enquiries
- Language and cultural familiarity
- Currency and financial compatibility
- Geographical proximity
- Regulatory and technical conformity
- Legal compatibility
- Location of international industry sector
- Location of key customers
You can also use selection tools such as PESTLE (or is it STEEPLE these days now there is an extra ‘E’?) to analyse the likely compatibility of a potential export market, but really the key to market selection is in research. We can all troop off to overseas Trade Shows or participate in Trade Missions, but if our products and services are in some way incompatible with the local market, then they aren’t going to sell anyway.
A deliberate omission from the above list is ‘location of international competition’, because years of experience consulting companies dictates that not enough UK exporters give this sufficient consideration. You can either take the view that because your competitors are embedded in a market place, there is a clear market for your goods and services, or you can take the view that because that market already appears to be saturated it is better to ply your trade elsewhere. The reality is that until you have researched the market you will not know, and both market research and any marketing exercises that follow will carry an additional cost, especially if you are trying to take market share from a competitor on territory they consider to be their own.
When a company is looking at a new market, they already have a good idea of their own strengths and resources both internally and in respect of the new market. Every company will have different resource, different targets, goals and ambitions, and different reasons for considering their export markets. But if exporting is to be a long term success it also needs to be profitable, therefore a good starting point is to add ‘location of international competition’ and ‘marketing and logistical costs’ to the above list of ten and consider the potential costs in each of these areas for your selected market(s). Because there are costs in servicing a market however close it may be, in terms of market visits, the supply of marketing material, training selling partners, attracting new customers and bidding for large contracts etc. There are never guarantees but careful planning and an initial understanding of potential costs will provide a solid foundation for a successful market entry.
Without question new exporters or new market entrants will find staggeringly different costs and challenges for trading with Bulgaria than Brazil, Romania than Russia, Italy rather than India, Croatia than China, and Slovenia than South Africa. Accepting that these comparisons are a little dubious, I think my point is well made. Exporters should not bite off more than they can chew unless there is a compelling opportunity that has led them to select one of the larger markets. To state the obvious, large and distant markets take significantly longer to develop and mature than some of the smaller, closer markets where exporters would be wise first to cut their teeth. It is better to do a few export markets well than to achieve only modest or minimal success in many.
There are numerous strategies that exporting companies need to consider and employ in both developing new markets and attracting the attention of key customers in the larger markets, with the latter generally being helped along by a good track record. Don’t dive in with both feet because you only have two of them to lose!