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

Why businesses enter new markets overseas

• 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

Reasons for entering international markets

1. Economies of scale

• By operating on a larger, international scale, a business can lower its unit costs through bulk buying, more efficient production and spreading fixed costs across a higher output

• This can lead to higher profit margins or allow the business to reduce prices to attract more customers and gain market share

  • For example, IKEA expanded into countries beyond Sweden to reduce production and distribution costs, sourcing and manufacturing in bulk for a global customer base

2. Brand recognition

• Expanding internationally can increase the visibility of a business's brand, including its name, logo, and packaging

• This is especially important for businesses that use the same branding and sell the same products globally

• Greater brand awareness can lead to stronger customer loyalty and more repeat purchases

  • For example, Apple uses consistent branding worldwide, which has helped it build a loyal global customer base and a premium image

3. Spreading risk

• Entering overseas markets reduces a business’s dependence on just one country

• This makes the business less vulnerable to economic or political problems in its domestic market and allows it to spread its risks

  • For example, McDonalds operates in over 100 countries, which helps protect it if sales drop in one region due to economic issues or changing consumer trends

4. Increased sales revenue

• Selling in international markets allows a business to reach more customers and increase total revenue

• It can also help the business benefit from distribution economies of scale, such as cheaper transport costs per unit when selling larger quantities globally

  • For example, Amazon entered markets like India and Brazil to access large customer bases and grow its overall revenue

5. Extending the product life cycle

• When demand for a product begins to fall in the domestic market due to saturation or changing trends, selling it in overseas markets can extend its life cycle

• This can reduce the need for immediate investment in new product development

  • For example, Coca-Cola continues to sell mature soft drink flavours in emerging markets even after demand has declined in some developed countries

Disadvantages of entering new markets overseas

• Businesses also face several challenges when entering a new country

• These problems can lead to high costs, legal issues or failure to attract local customers if not managed carefully

1. Cultural differences

• Different countries often have unique customs, values, languages and expectations

• If a business does not understand these differences, its marketing or products may offend customers or simply fail to appeal

  • Advertising that works in one country may be seen as inappropriate in another

  • Words, symbols or images used in one country might carry completely different or even offensive meanings in another

  • Product flavours, features or aesthetics that are popular in one country may not appeal to consumers in another

• Businesses must adapt their products and messages to fit the local culture to avoid misunderstandings and lost sales.

2. Lack of local knowledge

• Businesses entering a new market may not fully understand the local competition, customer needs or buying habits

  • This can lead to poor decisions about pricing, promotion or product design

• Without local knowledge, a business might choose the wrong location or struggle to connect with the right target market

• Partnering with local firms or conducting thorough market research can help reduce this risk

3. Legal requirements

• Each country has its own laws and regulations that businesses must follow

• These may include rules about advertising, product safety, employment and taxes

• Failing to follow local laws can lead to fines, legal action, or being excluded from the market

  • For example, food products may need specific labels, or online platforms may have to follow data protection laws

• Businesses must study legal requirements carefully before entering a new country.