Otsikko

Otsikko

16 October 2014

Find the most compelling export countries

One of the best ways to stimulate growth is successful market entry to new, international markets. But first you need to identify the most compelling markets - and these decisions are better to be based on the facts. I have also in my own career come across with internationalisation cases, where the key motivations were, for example, the language and cultural knowledge of decision-makers, coincidences or emerging romances.  It is of course possible to be successful just by counting on luck, but a more systematic approach will probably produce better results.

Here we shall go through methods to identify the most lucrative markets, introduce a tool for Finnish companies to facilitate the first steps of the job and walk you through an example of the use of the tool. The methods are suitable not only for international market expansion, but also when evaluating country priorities in new product, service or business model commercialisation.

Methods to identify the most compelling markets


Both company internationalisation researchers and experts of the sector appear to have broad consensus on the priority-setting and choice of international markets:
  • First, select the markets worth taking a closer look, based on macro-economic variables of the markets
  • Secondly, study the market potential for company's products in selected countries, and 
  • Thirdly, estimate the sales potential of company's products in relation to required  investments
The main factors affecting the market selection are thus:
  • Company related: e.g. the type of product or service, management characteristics, the size of the company, or experience in internationalisation issues
  • Target market related: e.g. the attractiveness of the country or market, marketing infrastructures or competition
  • Target market entry barrier related: e.g. country risk, customs and other barriers or physical and psychic distance
According to the model set out above, the made plans are indeed systematic but also mechanistic. They often lead to substantial investments, without the possibility, if necessary, to change the plans.

Of course, these things can be studied by means of desk studies, but a more in-depth view can only be found by having closer contacts with customers and markets. Traditionally, the tool has been own or outsourced market research, but its disadvantage is significant time, money and resources required. Globalisation of consumption and purchasing decisions, along with online methods, has created new, more cost-effective methods; international market selection can be made more iterative, avoiding too early choices that can easily lead to waste of resources.


Internationalisation Heat Map


Internationalisation Heat Map was developed as a tool for Finnish companies to easily and rapidly evaluate the attractiveness of entering various European markets. The tool encompasses all the European countries with the exception of mini countries, as well as some of the Balkan and Eastern European countries, where no reliable information is available.

Six elements were selected as the key factors of the Heat Map, with a user giving weight to each of them:
  1. Market size: measured by the population of a country 
  2. Purchasing power of the market: the measure is country's gross domestic product (GDP) per capita
  3. Ease of doing business in a country: measured using a World Bank comparative study on barriers and incentives of doing business in different countries
  4. Market openness: measured by using a comparative study by the International Chamber of Commerce on international trade openness in different countries
  5. Physical distance from Finland: measured using distances of country capitals from Helsinki, Finland
  6. Psychic distance from Finland: there are numerous, complex formulae developed to evaluate this, but here we use a good approximation of country's total trade (exports + imports) with Finland
The tool is used so that a user will assess the significance of each of the factors 1 to 6 from his or her business and internationalisation point of view, giving each factor a number value between 0 and 100. If the number is zero, then the factor is not taken into account in assessing the attractiveness of the country. Similarly, the number one hundred means that the factor is extremely important. Each factor should be evaluated individually, but a user gives each factor a weight based on what is important in company business. Each country gets an end result between zero and one hundred: the higher it is, the more lucrative the country is for market entry.

An example of Internationalisation Heat Map use


As an example, the tool is applied to analyse internationalisation plans of Ludus Helsinki. I was heavily involved in the business operations of the consumer product company aiming for rapid international expansion. Its products inspired children and young people to move, using a gaming-based service concept consisting of the Internet, software and dedicated devices.

 The most important factors of Ludus Helsinki internationalisation plans were market's purchasing power, ease of doing business in the country and country's psychic distance from Finland. The basic reasons behind this were
the facts that the product was quite expensive compared with its benchmarks and that it required a specific distribution and retail infrastructure. The size of the market and its openness were also important, but distance from Finland was not considered to be a very vital factor. The weighting of the various internationalisation factors is illustrated in the picture above.

The factor weighting produced the results of the chart on the right side. The most interesting export destinations seemed to be Germany, Sweden, Norway, Russia, the United Kingdom, the Netherlands and Denmark. The only surprise was Russia ending up so high. The importance of Russia, however, decreased significantly, when other important points for the Ludus Helsinki business were taken into account:
  • Tablet and Smartphone penetration in the country
  • The importance of non-competing physical activity for children and young people in the country
  • Sophistication of using digital marketing methods and tools in the country
The results were also very consistent with the conclusions of Ludus Helsinki digital marketing efforts: highly ranked countries generated more customer interest and the distributors and retailers in these countries were also the keenest to start to sell the product.

The used tool can be found here

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