Entering Foreign Markets (Cambridge (CIE) IGCSE Business): Revision Note

The potential of new markets

• Entering new international markets has proved attractive to many businesses

  • The internet makes it easier than ever to enter international markets

  • Financial systems are much more joined up, making it much easier for money to flow between countries

  • This is a natural part of growth once a successful business has saturated their market share for a particular product

The benefits of entering international markets

1. Economies of scale

• Operating on a larger scale can reduce unit costs

• Potential for higher profit margins

• Flexibility to reduce prices to gain market share

2. Brand recognition

• Higher visibility of branding (e.g. product/brand names, packaging)

• Particularly relevant to the ethnocentric approach

• Improves brand loyalty/repeat sales

3. Spreading risk

• Less exposure to market change in one country

• May avoid localised economic downturns 

4. Increased volume of customers

• Potential to earn high level of sales revenue

• Access distribution economies of scale

5. Extends the product life cycle

• Avoids saturation/decline in domestic market

• May reduce the need for spending on research and development

Problems of entering foreign markets

1. Lack of knowledge of the market

• The business may lack of knowledge of customer needs or tastesso they may produce wrong style of product or not cater to the market's needs

  • E.g., Tesco struggled to compete with local supermarkets in China and suffered from distribution issues

2. Higher transport costs

• There may be less reliable or more expensive distribution channels 

• Moving products around the world requires reliable but complex logistics systems

  • Developments in large-scale containerisation as well as long-distance freight transport by rail is improving global distribution

3. Established competition

• Problems of established competitors in the market may make it harder to establish market share

  • High brand loyalty may exist to local brands and it can take time for customers to build trust towards a foreign brand

4. Trade barriers

• Protectionism is when a government seeks to protect domestic industries from foreign competition

  • Governments may impose tariffs or quotas on imports from businesses in other countries

    • E.g., Cricket bats imported into the UK from Australian manufacturers such as Bradbury and Kraken have a tariff applied to them, which may help to increase demand for UK-produced brands such as Kippax and Fearnley

5. Exchange rate changes

• The exchange rate is the value of one currency expressed in terms of another

• Exchange rates are an important economic influence for businesses that  import  raw materials and components and for businesses that export their product

• The value of a currency can appreciate or depreciate over time

  • Businesses are particularly at risk from fluctuating exchange rates as they make planning and forecasting difficult 

6. Cultural and social factors

• Global businesses must consider various cultural and social factors to effectively market their products and services in different countries and regions

• Cultural differences

  • Businesses must respect and adapt to the customs, values, and traditions of different cultures to avoid offending potential customers or alienating markets

• Unintended meanings

  • Words, symbols, or images used in one country might carry completely different or even offensive meanings in another, risking misinterpretation of marketing messages

• Inappropriate or inaccurate translations

  • Poorly translated content can distort the intended message, confuse customers, or even damage the brand’s reputation. Accurate, context-sensitive translations are vital

• Inappropriate branding and promotion

  • Promotional strategies or brand names that work in one market may be considered offensive or ineffective in another due to social norms or laws

• Language

  • Even within the same language, regional dialects or expressions may differ. Businesses must use appropriate, clear, and locally understood language in their communications

• Different tastes

  • Product flavours, features, or aesthetics that are popular in one country may not appeal to consumers in another. Businesses must conduct research to adapt to local preferences