International Market – Lucrative But Challenging As Well

Markets are categorized in several ways, like industry, consumer, product, geography, etc. On the basis of geography, a market is categorized as either a national (or domestic market) or international market.

An international market is basically the market outside the company’s country of citizenship. All companies have a home country, i.e., the country where they are formed. For instance, Apple Inc. is a U.S.-based company. So, any country outside the U.S. where Apple operates is Apple’s international market.

Importance of International market

A company usually expands to the international market if there is a saturation in the domestic market. If a company feels that it won’t be able to accelerate its growth in the home market, it then feels the need to tap outside the market. Another reason is if the company is confident that it has a product that has a demand overseas. In such a case also, the company goes for the foreign market.

In all, the international market has the potential to increase a company’s revenue to unprecedented levels. A company can enter a foreign market in many ways, like Export, Licensing, Contract Manufacturing, Joint Venture, or Direct Investment.

Several reasons have led to the rapid development of the International market. First is the increased accessibility, all thanks to the development in communication technology. Technology nowadays allows anyone to chat, call video calls, or even conference with others in any part of the world.

Second is the rise in the local free deal areas, like ASEAN, NAFTA, APEC, etc. Third, increased availability of capital and labor in most countries has improved purchasing power. High purchasing power is a major attraction for global companies. For instance, the rising middle class in India is a major reason why global companies are entering the Indian market.

International Market

Challenges in the International market

There are several challenges that a company faces when it tries to expand overseas.

Foreign laws and regulations

To successfully penetrate the foreign market, it is essential that a company gets familiar with the local laws and regulations. A company must be thorough with the trading laws, employment, labor requirements, etc. Such knowledge could help the company easily and cost-efficiently launch a business in the International market.

International accounting

A clear accounting strategy is crucial for maximizing revenue. However, different countries have different accounting rules, and by not following those, a company’s tax liability may arise. Further, varying tax systems, rates, and compliance requirements could make accounting a headache for a multinational organization.

Cost calculation and pricing strategy

Normally, a company’s cost of production will rise in a foreign market. However, it must know how much the product exactly costs and what its price should be to remain competitive. For instance, Swedish furniture giant Ikea initially struggled in China because of the cheaper products from the local vendors.

Ikea later tweaked its strategy by relocating production for the Chinese market and using more of locally sourced materials. Such a strategy helped Ikea lower its prices and boost sales.

Currency fluctuations

It is a major factor that can impact the profit of a multinational company. An adverse currency rate could lower the profits. Moreover, it is difficult to forecast currency fluctuations as well. Though there are ways to mitigate currency risk, like forwarding contracts, it also lowers the chances of generating greater profits.

Cultural differences and communication gap

Communication across cultures could prove a real challenge for an organization. Proper and clear communication with colleagues, clients, and customers is crucial for the success of the international business. Therefore, a company must be well-versed with the different cultural values and norms, acceptable business etiquette abroad, and religious and cultural traditions of the country that it is planning to enter.

International marketing – how it can help?

One can overcome many of the challenges discussed above with effective planning and implementation, including proper application of marketing principles across national borders, a concept called International marketing. International marketing is basically an extension of a company’s local marketing strategy focusing on the international market. Like the local marketing strategy, a company’s international marketing strategy includes market identification, targeting, and decisions.

Even though the international market presents its own challenges, it could prove very profitable, provided the company has a proper plan and implements it successfully. China, for instance, is one of the most important markets for Apple.

Sanjay Borad

Sanjay Bulaki Borad

Sanjay Borad is the founder & CEO of eFinanceManagement. He is passionate about keeping and making things simple and easy. Running this blog since 2009 and trying to explain "Financial Management Concepts in Layman's Terms".

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