Entering Foreign Markets (CIE IGCSE Business)

• 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 of the Benefits of Entering International Markets

Entering and operating successfully in international markets can generate higher levels of profit

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

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

Cultural and social factors to consider in global markets

 

• 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