Analysis of International Market Opportunity Deciding Whether or Not to Go Abroad

Analysis of International Market Opportunity Deciding Whether or Not to Go Abroad

Doing international business successfully requires firms to take a market­led approach. A critical evaluation of why firms enter foreign markets shows that, in many cases, the practice of international business falls short of the market­led approach essential for long­term success. Firms must consider the factors that draw them into the international arena.

188 • Charter 5 The Global Marketplace

Figure 5.1

International marketing planning model

A surprisingly large proportion of sales to foreign markets are made in response to chance orders coming either from customers who are international players or from other sources such as foreign buyers attending a domestic exhibi­

tion. Such 'passive exporting' is not international marketing, although it contributes to international trade. It does not associate with the central principle of creating

customer value and market targeting, there i.s little assessment of critical factors for competitive success, and it is unlikely to build a long­term market position,

Limited domestic growth and/or intense domestic competition is a key reason why firms enter foreign markets and was a prime motivator behind the Japanese companies' overseas expansion programme during the 1970s and

1980s. In practice, many firms quickly suspend foreign market activity when the domestic economy improves or when they fail to make money in the overseas operation. Finns driven to exporting because of domestic recession often fail to anticipate the wider external constraints to doing business in a foreign market and tend to take a short­term orientation to international marketing. 3

Furthermore, companies that are struggling to survive at home are highly unlikely to successfully take on and beat sophisticated competitors in foreign markets. The domestic market must be secured first before going abroad and it should be maintained thereafter. Japan's top two car manufacturers, Toyota and Nissan, are arch rivals at home. They took this rivalry overseas and in the process have raised the level of competitive activity to new heights in North America and Europe, while striving to remain strong performers in their home base.

Geographic market diversification to reduce country­specific risk ­ that is, the risk of operating in only one country, due to different political­economic cycles ­ is a popular reason behind firms' international expansion drive. Firms must understand that market needs may be strikingly different, even for appar­ ently similar products, and that different management skills and approaches are

needed for different country markets. So, managers must weigh the costs and barriers to global diversification against the benefits of risk reduction.

Ancdyifis of international Market Opportunity • 189

Asia; a growing market. Thin Hongkong­Bank ad reinforces die region's potential, and illustrates /lote the bank can meet the needs of its international customers.

Firms spread the costs of production over more units if output is expanded for overseas markets. While economies of scale give firms a strong incentive to expand into foreign markets, the firm must also take on board additional adminis­

tration, selling, distribution and marketing co.sts. A 'cost­led' approach or a 'selling orientation' in international marketing is unlikely to lead to long­term success.

Without H marketing­led orientation, where customers' needs are identified and satisfied, and die firm's marketing mix adapted for the foreign market, the inter­ national business activity of the firm is unlikely to flourish.

In summary, firms enter overseas markets for profits and/or survival. But firms must not confuse exporting with international marketing. The latter is about taking a long­term perspective of foreign market potential and relentlessly adopting a market­led approach to identifying, anticipating and satisfying the needs of customers in target international markets. Before going abroad, the firm must weigh the risks and question its ability to ope rate globally. Can the company learn to understand the preferences and buying behaviour of customers in other

country markets? Can it offer competitively attractive products? Will it be able to adapt to other countries' business cultures and to deal effectively with foreign nationals? Do the company's managers have the requisite international experi­ ence? Has management considered the impact of foreign regulations and political

environments? International marketing is really about exploiting market oppor­ tunities based upon sound environment and specific market analyses.