Entering Foreign Markets (Cambridge (CIE) O Level Business Studies)

The Potential of New Markets

• 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, making 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 sales revenue

• 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

Problems of Entering Foreign Markets

Lack of knowledge of the market

• The business may lack of knowledge of customer needs/tastes so they may produce wrong style of product or not cater to the market's needs

  • E.g. Tesco struggled to compete with local supermarkets in China and suffered from distribution issues

Higher transport costs

• There may be less reliable or more expensive distribution channels 

• Moving products around the world requires reliable but complex logistics systems

  • Developments in large-scale containerisation as well as long-distance freight transport by rail is improving global distribution

Established competition

• Problems of established competitors in the market may make it harder to establish market share

  • High brand loyalty may exist to local brands and it can take time for customers to build trust towards a foreign brand

Trade barriers

• Protectionism is when a government seeks to protect domestic industries from foreign competition

  • Governments may impose tariffs or quotas on imports from businesses in other countries

    • E.g. Cricket bats imported into the UK from Australian manufacturers such as Bradbury and Kraken have a tariff applied to them, which may help to increase demand for UK-produced brands such as Kippax and Fearnley

Exchange rate changes

• The exchange rate is the value of one currency expressed in terms of another

• Exchange rates are an important economic influence for businesses that  import  raw materials and components and for businesses that export their product

• The value of a currency can appreciate or depreciate over time

  • Businesses are particularly at risk from fluctuating exchange rates as they make planning and forecasting difficult 

Cultural and social factors

• Global businesses must consider various cultural and social factors to effectively market their products/services in different countries and regions

• Adapting to different cultures can be especially expensive and time-consuming for smaller businesses that have limited marketing budgets and may not

  • Fully understand cultural differences in areas such as values, beliefs, customs and traditions

  • Be able to afford research into how tastes and preferences vary greatly between cultures and regions

  • Translate marketing messages accurately and appropriately

  • Be aware of how images, symbols or language have different connotations or are offensive in different cultures