It’s a pivotal moment: The business you’ve founded, advise, or are a key employee at has hit its stride in the domestic market and is looking to expand internationally. There are several factors for your organization to consider:
- To what extent will your product or service need to adapt to consumer preferences in new markets?
- Who will the competitors be in those locales?
- Should you go it alone or enter with a local partner?
Before you take the plunge, how do you know which foreign market to enter? What factors can give you a read on the opportunities and risks you might face in your chosen country?
Economic indicators—data used to gauge an economy’s performance and its future direction—can provide you with valuable insights as you weigh your options for international expansion.
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Factors to Consider When Entering a Foreign Market
An understanding of key macroeconomic indicators is an essential international business skill that provides a broader context which, when combined with a firm-level analysis, can not only give you greater confidence in the decision to expand internationally, but a handle on the potential benefits and drawbacks of taking that course of action.
Here’s a look at three key economic indicators and what they tell us about the business climate in a given country.
1. Gross Domestic Product
Gross domestic product (GDP) is the value of the goods and services produced in an economy. The lunch you bought at the corner restaurant, the money your government pays to firefighters and teachers, the funds a company spends to build its new headquarters, the value of a vehicle manufactured in your country and sold abroad—all of these are part of GDP.
It’s generally a good sign for business when GDP is growing, but there’s nuance in the number: If a country’s GDP isn’t growing as fast as its population, GDP per capita isn’t rising. That means the standard of living for the people, and their purchasing power, isn’t increasing.
2. Unemployment Rate
A country’s unemployment rate is the number of people who are not working divided by the number of people who are working, or actively looking for work. A high unemployment rate can signal that a country’s economy is struggling and may give you pause when considering an investment.
An unemployment rate of zero, however, isn’t necessarily ideal for business. Considering the way unemployment is calculated, those who are changing jobs for better opportunities within a thriving economy are considered unemployed for any time they spend between positions. With low unemployment, companies have to spend more to lure candidates to work at their firms, and those costs often get passed along to consumers in the form of higher prices, which leads to inflation.
When evaluating potential markets to enter, consider what the country’s unemployment rate could mean for your business.
Related: 5 Common Challenges of International Business You Should Consider
3. Inflation
Inflation represents the rate at which the general price level in an economy is rising. If you operate a business in a country with high inflation, the prices you pay for your inputs will increase, and the value of any cash savings you have, or money you’ve lent to others, will erode.
Despite these drawbacks, rising inflation can be good if you borrowed money at a fixed interest rate to establish or expand your business. Thriving economies often have some inflation. As long as it’s stable and predictable, you’ll be able to plan for it in your budgeting and pricing decisions.
Preparing for Global Expansion
These are just a few of the indicators you might consider when deciding to expand your business globally. With a keen understanding of economics and the intricacies of international markets, you can help your organization expand its reach and thrive.
Do you want to turn the uncertainty of today’s economy into an opportunity for your firm? Explore our four-week online course Global Business, and learn more about how to assess the impact of macroeconomic, political, and social indicators on business decisions.
This post was updated on December 18, 2020. It was originally published on July 30, 2019.
As associations look to bolster revenue, some may wonder if they can start selling a popular product or service overseas. Before launching in a foreign market, consider five variables to help determine if current success will translate.
At a time when organizations are revamping their strategies and rethinking ways to deliver value to their customers, the opportunity to expand to a broader international market is worth considering. After all, virtual online technologies are increasingly removing national barriers. In search of new revenue streams, associations see international market diversification as a wise strategy.
But how do organizations know their products and services will appeal to audiences in other parts of the world? There are five key pieces to the global appeals test to determine whether any product or service will be welcomed by foreign audiences. The 5 As include applicability, accessibility, acceptability, affordability, and adaptability. If one of these is missing, organizations need to rethink their strategy before launching to international markets.
Applicable. The first test is to check whether the product, service, or program is applicable to audiences in other countries. Does the content apply? Is it relevant? Do laws permit it? Are the customs in the country open to it? For example, an app that involves betting won’t be permitted where gambling is illegal. Or guidance specific to Title VII of the Civil Rights Act won’t be applicable outside the United States. The applicability test considers laws, customs, and traditions in other countries when deciding what products and services to select and where to expand.
Accessible. The second global appeals test is to check whether the product or service is accessible in other countries. Accessibility must consider time zones if it’s a live service, such as a conference or webcast. While virtual tools open many borders, there are some restrictions. It’s important to research the availability in some countries of internet bandwidth, software licenses, and access to any platform used. For example, not all countries can purchase books on Amazon, view videos on YouTube, or access Facebook. Even payment methods have accessibility components, as options such as Venmo and PayPal aren’t universal.
A product will not meet the global appeals test unless the price point is considered affordable in target countries. Keep in mind that purchasing power is greatly affected by where people live and work.
Acceptable. The next test is whether the product or service is acceptable from a cultural standpoint. Are there any values or social norms that would make it unacceptable or culturally offensive? This ingredient means reviewing not only the product but also the marketing and imagery linked to it. Many companies learn this too late. For example, Nike had to pull thousands of sneakers from the Middle East market because the logo featured on the shoe’s sole resembled Allah (God) written in Arabic, something highly offensive to Muslims. Acceptability is an often-missed aspect that can create tremendous costs and lasting reputational damage when left unchecked.
Affordable. A product will not meet the global appeals test unless the price point is considered affordable in target countries. Keep in mind that purchasing power is greatly affected by where people live and work. For example, while the price of a webcast could equate to the cost of a business lunch in Germany, it could represent a week’s salary to a member in Brazil. Affordability is also affected by foreign exchange rates.
Adaptable. The ultimate test of global appeal is whether a product or service is suitable for adaptation. Translation and localization are common forms of adaptation to a foreign market.
Common impediments to translation include unsuitable format, length, availability of source material, and frequent updates. As a result, any attempt to translate will be an overly complicated and costly undertaking. For example, while it could make sense to translate an established publication to penetrate foreign markets, it would be much harder to translate an online training course that involves a lot of graphics, animation, video, and audio. Translations of a major book can be lengthy and could be outdated by the time a new edition is published.
Localization may involve taking into account different norms and requirements, such as business practices, climate, wattage, measurements, holidays, and so forth. For example, a marketing campaign featuring photos of people may need adaptation to depict local cultures. And an online course offered Monday to Friday in the U.S. would need to be switched to Sunday-Thursday in Muslim cultures, where Friday prayers are sacred.
Ultimately, it’s best to consider these five ingredients before creating, finalizing, and launching a product or service in another country. Doing so helps to avoid unnecessary risks, costs, delays, and overall surprises down the road.