Market diversification - better not biggest
This article by Consilium's export consultant Ed Marsh recently appeared on InternationalMan.com. In it he discusses international market selection , an criteria important in market diversification analysis.
As International Man readers know, there is great merit in diversifying one's assets and even one's self abroad. However, the same principle holds true for businesses. By internationalizing your business, you unlock tremendous opportunities that are simply not available in your local market.
The question then becomes... Where to go?
It's not a trick question, but it's not intended to be an easy one either. Picking viable target markets is one of the most important decisions you'll make in your internationalization process... and... it's also the toughest.
There's much to consider, such as:
- What attributes are really important for my product to succeed? (Per capita income, disposable income, demographics, etc.)
- What are my domestic and foreign competitors doing? (Where have they succeeded? Failed? Why?)
- What experience, familiarity and cultural/language skills do I have in these possible markets that would help me?
Here is where you need to be brutally honest with yourself. You need to know what your true motivations are and how will they impact your decisions.
Many entrepreneurs have business growth objectives that must be tempered with their personal diversification goals. These aren't incompatible, but pursuing one without regard to the other will result in sub-optimal choices - and ultimately - a sub-optimal experience.
So let's try to avoid that. To do so, let's delve more deeply into some of the specifics you'll need to consider...
Stability: Even if the conditions are favorable today, what are they likely to be tomorrow? Are you likely to encounter increasing protectionism? Are there populist rumblings of nationalization?
Pricing: Many enticing markets are extremely price sensitive. That doesn't mean there aren't opportunities for premium quality and value at premium price, but, you need to make sure your offering fits a market position.
Living environment: Could you/would you want to live in your chosen market? Security, medical care, lifestyle, climate and cost of living are all factors to consider. Since you'll travel there frequently, you might as well enjoy it. (And, you might even have the opportunity to become resident, so choose wisely...)
Demographics: Does your business success depend on trends of improved living conditions and affluence? Is there a young, eager population to drive continued opportunity?
Barriers: Are duties or tariffs prohibitive? Is licensing problematic? Are you obliged to have a local partner? Can you take earnings out of the country?
These are all factors to consider. Once you've mulled over all of these factors (and for more, see the article I previously wrote on selecting overseas markets), now it's time to make a choice.
WHERE AM I GOING NOW?
Now in choosing a specific market, here's the obvious disclaimer: it's hard to generalize. The short list of suitable target markets will greatly depend on your personal preferences.
Link to original article
Having said that, here are the markets that I recommend to nearly all business owners seriously considering internationalizing their business. These countries generally satisfy the criteria outlined above and provide a good starting point to build a well-diversified strategy. Here's one thing to keep in mind: try thinking of markets like investments - focus on overlooked opportunities where "popular wisdom" discourages others.
Colombia: Escobar's been dead almost 10 years and Uribe largely quelled the FARC. It's not the Wild West that many still recall. In fact, HP recently established a Latin American HQ in Medellin. Colombia captures the essence of the Latin American optimism and opportunity in a stable environment that welcomes North American businesses, yet is still largely overlooked. (Panama is another similar opportunity, although more recognized.)
Poland: The Economist recently noted that many still stereotype Poland as "a big, poor country with shambolic governments, dreadful roads and eccentric habits." But as the NY Times noted, their decision to maintain fiscal autonomy from the EU "turns out to have been a blessing." So if you are unwilling to simply write off the whole of Europe for now, consider the thriving opportunities on the periphery. Key "eastern" countries offer regional participation with much lower risk. (Turkey offers a different profile, and has some additional political risk, but provides another option on the edge of the troubled EU.)
Ghana: Africa boasts the last "emerging markets" and, just as Mark Svoboda recently reported from Tanzania, entrepreneurial opportunities abound. Demographics in "middle Africa" are compelling - more than 50% of the population is younger than 20. West African trends are exciting. Recently, Jason Njoka, founder of Iroko (perhaps the fastest growing media company in Africa) said "(the) great thing about Africa is that there isn't any competition ... be part of the wave." (Nigeria is also an interesting alternative.)
Vietnam: It's still a communist country, but western businesspeople may be startled to find a far less pervasive security environment than they face at home. Many of the main ASEANnations offer exciting prospects now. Consumers are welcoming and friendly, demographics are favorable, incomes are rising, and for better or worse, the US Government is eager to help companies succeed in this region. (Singapore is another great place to start in Southeast Asia.)
And lastly, what about the BRICs?
My advice: don't chase them. The bureaucracy and sheer magnitude will sap your resources. Three years to make an initial sale isn't unusual, and five years to break even is common. Make a cold, hard, calculated business decision. Maybe these countries make sense, but don't make them the core of your international expansion. The barriers and competitive pressures are substantial. Put your early efforts into markets far more likely to yield profits within a reasonable time frame.
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