Want to succeed overseas? Then know your market size and sophistication

Editor’s note: “International Business Corner” is a weekly column written by Joan Keston that provides information for people involved in or considering international operations. Keston is an international business consultant. Over the next several months she will be writing about important issues that international businesses face as they compete in the 21st century global business environment.

This article discusses some considerations in developing markets.

RALEIGH, N.C. - Over the past 25 years we have seen the creation of several trading blocs and the emergence of several markets that have greatly impacted global business. The significance to business is the advantage of dealing with the shear size or volume of each potential market segment or region.

The excitement in the 80s and 90s was the European Common Market, NAFTA, Mercosul. The 90s and turn of the century brought the BRICs (Brazil, Russia, India, China) to the forefront. When talking about developing countries that are as large as the BRICs there are considerations that might affect your business strategy due to the size of those countries.

Domestic Market Size

One important factor in understanding the differences between developing countries, is the size of the domestic market and the ability to address that demand with national production.

Often the domestic needs and demand for domestic products limit the amount of trade due to unavailability of products or natural resources for export. As these countries industrialize, there is a tremendous domestic demand for their products. A large population and presence of domestic products will greatly affect the market for your product.

Smaller countries will rely more heavily on trade, whether to address unmet demands or to find markets for local production. This will greatly affect whether there is a market for you products and services in these countries, and may affect the choice of country to establish operations or distributions to enter into a certain geographical region.

Consumer Sophistication

When analyzing a particular country to determine the size of your potential market, you must take into consideration and identify the segment of the population that can afford or is at the level in terms of consumption to even consider your product or services. Does your product address a basic necessity, or does it appeal to a higher level or sophistication or technological use? Separating the market into first tier cities, second and third tier cities and rural areas may help in this identification.

Are There Choices?

An important characteristic that may affect demand for products in the initial stages of development is whether there are choices. The fact that the products may be novel or unique may create an initial demand that might not be sustainable as the country develops and competition enters.

Also, if there has not been a free-market economy or imports have been restricted the consumer may not understand the concept of choice or the concepts and functionality of supply and demand. These are all forms of aberrations that must be understood to understand initial success and sustainability. The sophistication of the consumer in making judgments on product choices may affect whether there is a market.

Quality

Somewhat similar to the presence of choices, is the focus on quality. As consumers become more sophisticated and as basic needs and technology are met, quality becomes a much more important focus.

Conclusion

Understanding your market is essential in your strategic analysis. Developing countries each have profiles that must be understood. The size of the domestic markets and the nature of the consumers must be considered in your strategic analysis.

About the Author: Joan Keston is the Managing Principal of Keston & Associates, Ltd., an international business consulting firm located in Raleigh, NC, and a Partner at Paladin and Associates, Inc. She has 25 years of experience with mature as well as entrepreneurial companies, domestically and internationally, coupled with an executive managerial and legal background. Her firm facilitates international business transactions, and assists companies establish, grow and integrate their international operations. She can be reached at (919) 881-7764 and jkeston@kestonassociates.com.