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International Expansion and Global Market Opportunity Assessment

Companies may decide to expand internationally for a variety of reasons. Before deciding on an international strategy, however, it is important to clearly understand the rationale and motivations for international expansion. These motivations typically include one or more of the following:

· seeking new markets—Company growth objectives that cannot be met with domestic demand drive the search for new revenue sources. The company may also want to establish a strong foreign presence to gain a first-mover advantage.

· geographic advantage—Some countries provide resources and strengths that are not available in the company’s home country. Access to skills and knowledge is a common motive for international expansion. The establishment of effective global hubs can also increase distribution efficiency.

· risk diversification—Economic downturns in one location can be mitigated by a company’s presence in another location.

· keeping up with the competition—If the company has a competitive rivalry in its home country, it may follow its competitor into a new territory.

Namely, international expansion allows companies to take advantage of global business opportunities including the following:

· marketing and distribution of products and services

· establishing production facilities to produce more competently or cost effectively

· procuring raw materials or components, or services of lower cost or superior quality

· entering into collaborative arrangements with foreign partners

Global market opportunities manifest as a combination of circumstances, locations, or timing that offer prospects for exporting, investing, sourcing, or partnering in foreign markets.

Before the company decides to expand internationally, it should carry out international due diligence and analyze the impact of regional differences, consumer preferences, and industry dynamics on its markets. A presence in a new market will have to follow the company’s specific strategies, which can be influenced by the local culture, regulatory mechanisms, and the structure of the industry.

International expansion may be attractive, but competition in these markets can be intense. Risks and costs can be underestimated in markets that are new to managers, and systematic global marketing opportunity assessment is therefore essential. Some of the well-known failures in global markets include the following:

· Best Buy failed to notice that Europeans prefer smaller shops to big-box stores. The company also closed its branches in China and Turkey.

· eBay initially failed to expand into China, where customers prefer to develop trust through their own interactions with sellers rather than act on other users’ ratings, and into Japan, where buyers had to input their credit card information in order to make a purchase, a practice that was not popular there at the time.

· Starbucks closed its six stores in Israel, failing to appreciate the nation’s coffee culture and misinterpreting the local consumer base’s tastes.

· Wendy’s closed its 71 locations in Japan. Japan already had McDonald’s and Burger King, but the company did not place appropriate focus on the Japanese palate.

The main steps of the global marketing opportunity assessment are shown in the figure below.

Global Marketing Opportunity Assessment

As we saw in the above examples, a weak opportunity assessment of global markets can expose companies to failure. Analyzing and evaluating markets for international expansion is critical for companies planning to access global markets.