Markets are categorized in several ways, such as industry, consumer, product, geography, etc. Based on geography, a market is categorized as either a national (or domestic market) or an international market.
An international market is essentially the market outside the company’s country of origin. All companies have a home country, the country in which they were formed. For example, Apple Inc. is a U.S.-based company. Therefore, any country outside the U.S. where Apple operates is considered 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.
Expanding into international markets offers numerous potential benefits for businesses. These advantages include:
Access to Untapped Customer Segments
International markets provide an opportunity to reach new and diverse customer segments. By expanding globally, companies can tap into larger consumer bases, target emerging markets, and cater to the specific needs and preferences of different cultures and demographics. For example, McDonald’s has successfully adapted its menu to local tastes in various countries, such as offering rice dishes in Asian markets like Japan.
Diversification of Revenue Streams
Operating in multiple markets reduces reliance on a single market and mitigates the risk of economic downturns or market saturation in a specific region. By diversifying their revenue streams geographically, companies can maintain stability and sustainable growth. A case in point is Coca-Cola, which generates a significant portion of its revenue from international markets, safeguarding its business from fluctuations in any single market.
Economies of Scale
Expanding into international markets enables businesses to achieve economies of scale through increased production and distribution efficiencies. With larger production volumes, companies can reduce per-unit costs, negotiate better supplier contracts, and optimize their supply chains. This cost advantage enhances competitiveness and profit margins. For instance, Nike leverages economies of scale by manufacturing its shoes in countries with lower labor costs and then distributing them globally.
Competitive Advantage through Global Presence
Establishing a global presence can provide companies with a competitive edge. Being recognized as an international brand enhances reputation, credibility, and customer trust. Additionally, a global footprint allows businesses to gather market intelligence, stay ahead of industry trends, and foster innovation by adapting to diverse consumer needs. Apple is a prime example of a company that has leveraged its global presence to dominate the smartphone market, with a significant share of its revenue generated from international sales.
Challenges in the International Market
Expanding into international markets presents businesses with a range of challenges that need to be carefully navigated. These challenges include:
Foreign Laws and Regulations
Each country has its own set of laws and regulations governing trade, employment, and business operations. Companies must invest time and resources to understand and comply with these local legal requirements. For instance, in the European Union, businesses need to adhere to the General Data Protection Regulation (GDPR), while in China, there are specific regulations related to foreign investment and intellectual property protection.
Also Read: International Business
International Accounting
Different countries have varying accounting standards and practices. Companies expanding into international markets need to ensure compliance with local accounting regulations. Failure to do so can result in legal and financial consequences. For example, US-based companies operating in European countries need to adopt International Financial Reporting Standards (IFRS) alongside or instead of Generally Accepted Accounting Principles (GAAP).
Cost Calculation and Pricing Strategy
Entering foreign markets often involves additional costs such as tariffs, transportation, logistics, and localization expenses. Companies need to accurately calculate their production costs and determine appropriate pricing strategies to remain competitive. For instance, luxury brands like Louis Vuitton adjust their pricing strategy to account for higher import duties and taxes in certain markets.
Currency Fluctuations
Fluctuations in foreign exchange rates can significantly impact a company’s profitability. Businesses engaged in international trade are exposed to currency risk, as exchange rate movements can affect the cost of imports, exports, and repatriation of profits. For example, a strengthening of the local currency can reduce the competitiveness of exported goods.
Cultural Differences and Communication Barriers
Cultural nuances and communication gaps can pose challenges in international markets. Companies need to adapt their marketing messages, product offerings, and business practices to align with local cultural norms and preferences. Effective communication across different languages and cultural backgrounds is crucial for building relationships and establishing successful operations. For instance, fast-food chains like McDonald’s and KFC modify their menus and marketing strategies to suit local tastes and preferences in various countries.
International Marketing – How it can Help?
International marketing involves adapting a company’s marketing approach to cater to the unique needs and preferences of international markets. This includes market identification, targeting, positioning, and the adaptation of marketing mix elements, commonly known as the 4 Ps (product, price, promotion, and distribution).
Market Identification and Targeting
Companies must identify suitable target markets based on thorough market research. For example, McDonald’s successfully identified and targeted India as a potential market. However, the company had to adapt its menu to cater to local preferences and cultural sensitivities. It introduced vegetarian options like the McAloo Tikki Burger to align with the predominantly vegetarian diet in the country, allowing them to connect with the Indian consumer base effectively.
Positioning and Product Adaptation
To succeed in international markets, companies often need to adapt their products or services to fit local preferences and cultural norms. Nike is an excellent example of successful product adaptation. The company tailors its footwear offerings to suit different markets, considering factors such as climate, fashion trends, and customer preferences. In China, Nike introduced shoes with higher arch support due to the prevalence of foot conditions like flat feet, which resonated well with the local audience.
Pricing Strategy
Pricing plays a crucial role in international marketing. Companies need to consider various factors, including local purchasing power and competition. For instance, when Walmart expanded into the Indian market, it adjusted its pricing strategy to align with the price-sensitive nature of the local consumers. Walmart offered competitive prices and introduced smaller pack sizes to cater to the affordability and shopping preferences of Indian customers.
Promotion and Communication
Effective promotion and communication are vital for international marketing success. Coca-Cola is known for its localized marketing campaigns. The company adapts its advertising messages and creative content to resonate with different cultures and languages. For example, during the Chinese New Year, Coca-Cola runs festive campaigns featuring Chinese traditions and symbols, connecting with the local audience and strengthening brand affinity.
Distribution Channels
Choosing the right distribution channels is crucial for international market penetration. Apple has successfully expanded into various international markets by strategically selecting distribution partners. In China, Apple collaborated with China Mobile, the largest mobile network operator, to reach a wider consumer base and improve distribution efficiency. This partnership enabled Apple to tap into the rapidly growing Chinese market effectively.
