Once you have carried out a preliminary analysis of your company, the next step towards internationalisation is to choose the market(s) you want to focus on.
Selecting the right markets and learning how to reach out to them could determine the viability of your expansion strategy. These markets will shape your international development, business planning and growth potential.
This article will address:
- strategies for selecting international markets
- the main criteria for international market selection
- bodies with information for market selection analysis
Strategies for selecting international markets
Before you try to identify your target market, think of a number of suitable markets where your product could work – then think about how you could serve each one.
No strategy is universally correct – it all depends on the type of business you are in and its marketing environment. Base your strategy on the resources available and the lifecycle phase your product has reached. A wide variety of factors will determine your choice of strategy.
Market concentration
Focus on a few select markets. This strategy will help you consolidate your company’s presence in these markets, with the aim of securing constant sales growth.
Advantages:
- you will gain in-depth knowledge of each market and can design or adapt your products to match
- costs are reduced across logistics, management and operations management
- you can dedicate more resources to market promotion
- you gain increased risk control of your international activities
Factors favouring concentration:
- international demand is concentrated on a small number of markets with stable performance
- the market has several potential customers
- your product has a long lifecycle
- there is strong competition
- your company is small with limited resources
- your product needs to be adapted to suit particular market tastes
- the market requires large promotional or communication-channel investment
- there are reduced logistics costs, management and sales monitoring
Market diversification
Introduce your product to as many markets as possible – perhaps with small shares in the majority of your markets.
Advantages:
- possibility for rapid sales growth
- you could sell at different prices and take advantage of the fluctuations in exchange rates
- risk diversification
Factors favouring diversification:
- the global demand for your product or service is spread out across many markets with irregular behaviour
- there is a reduced number of potential customers in the market
- your product has a long lifecycle
- your competitive environment is stable and divided among fewer companies
- your company is large with abundant resources
- your product or service is standardised in all markets
- only limited promotional investment is needed to generate sales
- logistics management and sales monitoring comes at a high cost
The main criteria for selecting international markets
We recommend conducting an initial global market selection process using the following criteria:
Environment and market analysis
Put together a short list of countries that present a good concentration or potential concentration of your target market.
Analyse the variables for each country:
- GDP growth – including the country’s growth prospects for infrastructure and the demand for tourism products
- country risk – including political or social unrest, insecurity and currency devaluations
- political factors – including the degree of political intervention in business decisions, political and social stability, and possible alliances or trade agreements with your country of origin
- other factors – including geographic proximity, and the similarity to your source market in terms of business and social culture
In this first stage of pre-selection, consider countries that interest you or have good market potential. Next, rank the countries in order of:
- market appeal – including the demand for your product and the risks associated with it
- possible operational difficulties – including market legislation, state-level protectionism, the ease of doing business, procedures for starting a business, taxes, administrative costs, and the intensity of local competition
Analysis of the competition
To analyse competition in your market:
- identify your main competitors and describe them
- analyse their economic evolution and sales over the last 3 years
- detect their distinguishing factors – including prices, channels, market maturity, financial position, development potential and plans and/or expansion strategies
Distribution channels
Your choice of distribution channel will determine how your company expands in the market.
Track the supply chain of your product, from its origins to its final customer. Develop a clear idea of the intermediate operators and their prices. Analyse the existing sales structure in the country and how this could be adapted to your product or service.
There are a number of possible distribution channels:
- international distribution from your own market
- a local distributor in the target market
- your own commercial agent
- the internet
- a subsidiary or delegated company
- the creation of a joint venture with a local partner
Demand analysis
You will need to analyse the current and potential demand of your product in its source market, as well as its profile and expected evolution. This information should confirm that your pre-selection process was successful and that your chosen markets are suitable for your product.
You will learn how best to design your subsequent marketing strategy based on price, presentation, promotion, distribution and so on. We recommend that this initial analysis is backed-up by further research in the market itself or through intermediaries. This will help you assess whether your initial analysis was correct.
Bodies with information for market selection analysis
The following entities will help you analyse potential markets:
- The World Factbook – published annually by the American Intelligence Agency, it provides information on every country in the world in its ‘Country Listing’ section (including geography, population, economy, communications, transportation, etc.)
- Population Division – published by the United Nations, this gives comprehensive information on studies, publications, population statistics, development and economic programs by region
- Transparency International – analyses the corruption index for 85 countries
- Organisation for Economic Cooperation and Development (OECD) – provides data for all types of comparative macroeconomic analysis on a worldwide scale
- World Tourism Organisation (UNWTO) – the United Nations agency responsible for the promotion of responsible, sustainable and universally accessible tourism
- World Travel & Tourism Council (WTTC) – global organisation that brings together stakeholders in the travel and tourism sector
- European Travel Commission (ETC) – the organisation responsible for promoting Europe as a tourism destination in markets outside the EU
Recommended reading
- International marketing plan for a tourism company
- Transnational business cooperation
