Entering & Operating Internationally (DP IB Business Management)
Revision Note
Written by: Lisa Eades
Reviewed by: Steve Vorster
Factors to Consider Before Entering New Countries
When businesses are considering new markets, they have to consider the attractiveness of the market
This will involve businesses carrying out extensive market research, and using models such as the Boston Matrix and PESTLE
Diagram: factors to consider when entering new international markets
Infrastructure
Infrastructure considers factors such as roads, transportation and communication (mobile coverage/internet)
Good infrastructure improves the production process and delivery of goods/services to the customer which reduces costs and increase sales
Ease of doing business
Rules and regulations involved in establishing a business in a particular market may be relatively simple or extraordinarily hard
Issues to consider include accessing credit, registering properties and enforcing contracts
If businesses face significant challenges setting up a business, this may lead to delays in operations and the business generating sales
(Source: World Economic Forum)
Levels of growth and disposable income
Disposable income is the income individuals have left after paying direct taxes (e.g. income tax) and other deductions (e.g. pension contributions)
Selling products in a country with higher disposable income is likely to lead to more sales
Selling in a country with lower disposable income is likely to lead to slower sales growth
Businesses should look at trends in income levels over time to see if there is potential growth in sales in the future
Exchange rates
An exchange rate is the price of one currency in terms of another e.g. £1 = $1.10
Exchange rates can be subject to extreme fluctuations due to external factors
Businesses should look at the historical trends of the currency of the country
Businesses moving to countries with stronger currencies can import raw materials and components for production at a lower price
Exports from this country will be more expensive to customers abroad
Political stability
Businesses may be at risk of not gaining a return on their investment in a country with political instability
A country with political instability will be subject to corruption, lack of law enforcement and higher levels of crime
It is more likely to have disruption to trading
An economy with a stable economy and government is seen as a less risky investment for a business
Opportunities of Entering and Operating Internationally
Entering new international markets has proved attractive to many businesses
The internet makes it easier than ever to enter international markets
Financial systems are much more joined up and make it much easier for money to flow between countries
This is a natural part of growth once a successful business has saturated their market share for a particular product
Diagram: the benefits of entering international markets
Economies of scale
Operating on a larger scale can reduce unit costs
Potential for higher profit margins
Flexibility to reduce prices to gain market share
Brand recognition
Higher visibility of branding (e.g. product/brand names, packaging)
Particularly relevant to the ethnocentric approach
Improves brand loyalty/repeat sales
Spreading risk
Less exposure to market change in one country
May avoid localised economic downturns
Increased volume of customers
Potential to earn high level of revenue from more sales
Access distribution economies of scale
Extends the product life cycle
Avoids saturation/decline in domestic market
May reduce the need for spending on research and development
Examiner Tip
Considering social, technological, economic , environmental, political, legal and ethical factors (STEEPLE analysis) before entering a new overseas market helps to reduce risk and improve the likelihood if business success. The Business Management Toolkit contains detailed guidance on the model
Threats of Entering and Operating Internationally
Global businesses must consider various cultural and social factors to effectively market their products/services in different countries and regions
Diagram: cultural considerations of new markets
These are common errors that many businesses have made
These errors can damage the brand's reputation
These errors may be costly to correct resulting in lower profit margins
These errors may not be recoverable and may require a business to exit the market
An Explanation of the Cultural and Social Considerations
Factor | Explanation |
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Cultural differences |
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Different tastes |
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Language |
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Unintended meanings
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Inappropriate branding/promotion
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