Discover where you’ll have the most revenue potential with a market analysis
Now that you know your North Star, which country should you enter that will align with your ambitious goals? A market analysis is what you perform to find out if you can make revenue within a jurisdiction. You’ll want to understand whether there is a demand for your product and whether your product can meet that demand. The market analysis can be done for one or multiple jurisdictions, and it’ll help you forecast not only how much revenue you can make but also which market to strategically enter first.
With a market analysis? You can put yourself at ease knowing you’ll enter a country where there is more likelihood of success!
Without a market analysis? You might get stuck with unforeseen costs, import or delivery complications or hit other dead ends. Like chasing the mirage of water in a dry, dry desert.
We can divide a market analysis into three main buckets:
1. Market Size: finding the sweet spot
Here’s a scenario: a manufacturer of bathtubs is looking to enter a new market, so they select China. Sounds like a good idea because China has a large population, right?
Well, when consulting with locals, they found that people in China do not have baths in their homes. So regardless of the size of the population, there would unlikely be a demand for this product.
When you’re looking at market size, you’ll need to look at a variety of factors including not only the population of the country, but also the potential demand for your product, and the buying power of the customer. Is there a market for your product and does your product have the qualities that will meet that demand?
You’ll also want to consider the positioning of your product in the market. Are you a premium, mid, or value player? Are you expecting high margins on low volume, or low margins on high volume?
Depending on the country you’re aiming to target, you may have to do a segmentation analysis as well to understand your expectations. For example, it might sound like a good idea to sell low-cost products at high volume in a populous country like India, but since the total value cost to the country is too high to play, it’s ultimately not as viable for low-cost goods.
Just because a country has a high population doesn’t mean there is a demand; and just because there is a high demand per capita for your product doesn’t mean there is a large enough market to support entering. The sweet spot is finding the location that has a great balance between market size and demand for your product.
2. Competitive Analysis: can you beat the competition?
Finding a market that has the sweet spot between demand for your product and a large pool of customers is exciting – that is, until you find out that there are players you’ll have to compete against. You’ll want to know in advance who your competitors are, and if you have a product that has a competitive advantage.
Once you are aware of your competitors and how your products or services will fit in the market, you’ll also have to weigh this against the market size to understand the full revenue potential.
One company learned this the hard way: The CFO of a Spanish-headquartered health tech company was concerned about a new entity that the CEO had impulsively set up in China. The company had some good deals throughout Asia, but he wasn’t sure if there was market potential in China.
Turns out that the CEO had heard from his peers in other industries that they were having great success in China, so he decided to set up the entity with the attitude of, “Everyone else has done it, why can’t we?”
Little did he know, regulatory policies for the health tech industry are extremely complicated if you’re a non-Chinese headquartered company. Plus, big tech Chinese headquartered companies like Alibaba, Baidu and Tencent were so involved in the ecosystem that it would be nearly impossible for them to break into the market, let alone compete.
Even though many industries might be having success in China with it’s huge population, a competitive analysis is essential in helping you know if you’ll have a competitive edge.
3. Local business environment: will you have any barriers to entry?
A US company that makes hardware for cabinetry wanted to enter the Brazil market where they knew there would be a demand for their products. Their first task was to identify wholesalers who could distribute the products to customers.
But what they discovered was that the market in Brazil for hardware is structured differently from the US. People in Brazil do not buy individual hardware products; instead, they buy kits of hardware.
The company had to change it’s approach from finding wholesalers to finding kit companies. Once they started having success in Brazil, they acquired a kit company to increase their margins.
You can think of the local business environment as one of your barriers to entry. These include potential problems you might face from the government (including being shut down or political risk where a government could take over your business and operate it themselves to nationalize your product). Or, local business implications that could impact how you reach the customer like the example of this hardware company entering the Brazil market.
Local business environment also includes financial considerations like whether or not your business can be 100% foreign-owned; if not, you’ll need to find a local partner which could affect your revenue potential or work with a company that can effectively set up a local presence while limiting a local partner’s rights in the company (hint, work with weConnect!).
Analyze these in tandem for your market analysis
Analyzing these three categories – market size, competition, and local business environment – will help you answer these questions:
- Is this a market where there is demand for our product?
- Is this a market we can make money in?
- If so, just how much can we anticipate making?
- How much time will it take to make that money?
Answering these four questions in tandem is essential for gaining a full scope of your revenue and profit potential. For example, Indonesia has the world’s 4th largest population which makes it great for sales potential; however, when it comes to the local business environment, it’s ranked low on “ease of doing business” due to the poor national infrastructure and the burdensome and costly regulations around foreign-owned companies doing business there. If you were to look at market size alone without considering the local business environment, you could assume it is the perfect jurisdiction to enter and run into issues that may be a costly mistake.
What criteria matter most to your business?
When we perform a market analysis, the first thing we’ll do is identify your list of criteria that are essential to your business, because your criteria can impact how the analysis is conducted.
Say an important criterion for your company is going green. A European headquartered electronic vehicle company had going green as one of their core values. In the process of figuring out where to expand to, their search included finding locations with charging points, green incentives, vendors that value going green, manufactures that are mindful of carbon footprints, and also customers who value switching to electronic bikes.
Once we know your criteria and perform the analysis, we can “score” countries and create a list of which jurisdictions will meet your needs and have the most revenue potential. Then, we can perform a location analysis to narrow this down further so you are able to understand which markets have the most potential and make the best decision around prioritizing which markets to enter.
Ready to perform comprehensive market and location analyses? We’re happy to help! Our team of international business experts can help you brainstorm – share with us your strategy and list of criteria by contacting us here and we can help you refine it and get going on this journey!
With special thanks to Sam Barrett from EY’s APAC Operating Model Effectiveness team for his inputs and insights in putting together this series of articles.
International Business Expansion Series
This article is part 2 of an 18-part series about International Business Expansion. Here’s a list of the full series to give you a well-rounded understanding of what to consider when expanding your business abroad:
- A North Star: The #1 Thing that Companies Need for a Successful Expansion Abroad
- The 3 Components of a Market Analysis to Know if Your Product is Viable Abroad
- How to James Bond Your Profit Margin with Location Analysis
- How to WIN in a New Market with These 6 Models of Execution
- Show me the money: How to Fund Your Business Expansion Abroad (Coming 8/24/2021)
- Lost in Translation: How Culture Can Impact Your Business Expansion (Coming 9/7/2021)
- Risky Business: The 2 Key Layers of your Operating Model to Align with Your Growth Strategy
- How the Way You Organize Your People Globally Can Save You on Taxes
- Trash Talk: Why You Need to Analyze Your Processes Before Expanding Globally (Coming 10/19/2021)
- 5 Reasons Why You Should Customize Your Technology for Your International Expansion (Coming 11/2/2021)
- Setting Up a Business Abroad: The 4 Kinds of Structures & Legal Implications (Coming 11/16/2021)