educational

International Marketing: 2 Identifying Foreign Resources

David Wolf

International business expansion can be extremely lucrative if conducted properly. Careful planning and long-term forecasts are an absolute must for any competitive firm, but the need for research is even more pronounced for foreign companies entering unfamiliar markets. Part 2 of our International Marketing series continues with this look at identifying foreign resources:

As a rule, the product selected for exporting should have achieved some degree of sales success domestically. Foreign markets are probably not suitable points of entry for less-established businesses, but if your product or service stands up to your English-based competition, then chances are excellent that your firm provides the quality necessary for international success. There are five textbook factors to consider when entering foreign markets: population, income, competition, demand, and desire.

Five Factors Used to Target Your Market
1. Population

Who is my target audience?


# People, Language, Computer and Modem Penetration

2. Income
Can they afford to pay?


GDP, Income Per Capita, Credit Institutions
3. Competition

Who exists in the market niche?

Age and gender aside, the most important statistics for Internet based businesses are computer and modem penetration rates.

# Competitors, Physical and Virtual Locations

4. Demand

Is my firm needed?

5. Desire

Is my firm wanted?

# Keyword Searches, Cultural Values, Legal Acceptance

Population

Who is my target audience?

The attributes of a foreign population may be strikingly different than those in our respective home regions. Ethnic ratios vary dramatically from one region of the United States to another, while Europe is a melting pot of culture packed into an even smaller area. Age and gender are also important attributes. For example, any marketing effort in Germany should take into account the country's pronounced Internet user gender gap (63.4% male), while advertising campaigns in the US and Canada may need to consider the impact of a more dominant female audience.

Age and gender aside, the most important statistics for Internet businesses are computer and modem penetration rates. According to Reuters, 93% of those surveyed in Singapore and 87% in Hong Kong use a computer at home, compared to 47% of Russians.1 Although Russia sports a population of more than 140 million people and Eastern Europe another 160 million, the regions are not yet technologically viable markets. However, this situation is improving quickly - the number of PCs in Central and Eastern Europe is increasing at an average rate of 22% per year.3

 
Total
Population
(thousands)

Internet Subscribers
(thousands)

2000-2001
1997
1998
1999
2000
Austria
8,100
250
425
625
825
Belgium
10,263
100
210
740
890
Denmark
5,349
300
575
800
870
Finland
5,181
270
410
620
645
France
59,039
650
1,600
3,490
4,100
Germany
82,192
3,500
6,500
9,000
10,750
Greece
10,564
38
98
192
245
Italy
57,844
533
1,142
2,900
3,800
Netherlands
15,987
595
1,080
2,130
2,590
Norway
4,503
400
600
900
965
Portugal
10,242
85
190
440
500
Spain
40,121
650
900
1,700
2,275
Sweden
8,882
900
1,600
2,000
2,175
Switzerland
7,204
375
575
1,000
1,200
UK
59,862
1,100
3,750
7,400
9,175
Total
377,233
9,746
19,230
33,312
40,180
Source: IIASA, Analysys 2

Income

Can my audience afford to pay?

India has more than 1 billion citizens, but the country has limited potential because its people don't have a high per capita income. General economic figures such as Gross Domestic Product (GDP) provide excellent comparisons when considering international markets.

But analyze your data with a grain of salt. Understand that the recent disappearance of wealth from the US stock exchanges, 9/11, and the potential for Desert Storm II skews data from before these events in favor of the United States. Use caution when comparing estimates of European and American market values from all dated sources. "The Euro hit its all-time high of $1.18 shortly after its launch on Jan. 1, 1999, but then began a long slide, falling through the $1 mark in February 2000 and hitting a record low of 82.30 cents in October 2000."5 Now the Euro is making headlines - the currency passed the US dollar in value on 12 July, 2002.

 

Gross Domestic Product
Region
1995 US Dollars
(millions)

2001 US Dollars
(millions)

Euro Zone
8,129
6094
Japan
5,647
4,141
United States
9,094
10,143
Source: OECD

Competition

European competition on the Internet is far behind that of the United States, Canada, and even wired portions of Asia such as Seoul, Hong Kong, and Tokyo. There are two reasons for this:

Language barriers result in fractured regional European markets. Corporate America and its Asian electronics suppliers buck worldwide trends in technology supply. The rest of the globe is just a few years behind. The same tidal increases in Internet popularity experienced in the United States and wired Asia over the last several years are only now appearing in Europe. The Boston Consulting Group correctly identifies the current scenario in international marketing ventures focused in Europe.

"The battle to dominate online retailing in Western Europe begins in earnest this year as the market enters a stage of hyper-growth with three types of players -- European incumbents, European start ups and US online retailers -- fighting to capture market share. Unless European retailers become more aggressive in creating innovative e-commerce businesses, they will continue to lose share of their home market to more experienced US competitors.

"US players have already been able to scoop up 20% of the European market by coming in with large-scale pan-European businesses," says Patrick Forth, BCG Vice President and author of the report. "This approach contrasts with that of typical European incumbents who have focused on their national markets only. US online retailers, however, will also find it difficult to deal with the European online market since it is a conglomeration of regional markets, each at a different level of development."4

Foreign markets are often underdeveloped because the technological barriers to entry are too high. First mover advantage can be secured by saturating the emerging Internet with your brand image before competitors arrive. And remember that the Internet infrastructure supporting European Web developers and marketers is often far less advanced than that of the English Internet - existing companies can leverage already licensed content, site designs, and existing server capacity to drive market entry costs to lower levels than emerging competition.

As many American firms have already made the prerequisite investment in technology, it seems likely that American firms like Microsoft, Yahoo!, and AOL/Time Warner will dominate the "one-stop portal" market for the foreseeable future. "The research identifies that Western Europe, the US and Japan are now entering a new phase in the information development cycle. Individuals and businesses within these countries are much more confident in their use of information technologies, but due to time and financial constraints, are increasingly looking for a 'single source' for their information needs."1

American firms hold additional competitive advantages in a global marketplace. "In 2001, about 60% of the difference between the European Union's average 87% of the US productivity level and its 67% of the US per capita income level came from lower hours worked per worker and the remaining 40% from lower employment participation rates."1 Socialist France has a maximum work week of only 35 hours, the lowest worldwide. This provides a marked advantage to more efficient international companies. Cultural values and legal issues also strongly impact a company's ability to conduct business.

Need

Is my firm actually needed?

Identifying needs is perhaps the most difficult part of exploiting foreign resources. If there is no competition, perhaps there is no need. However, needs often exist before any desire is created. The first mover business often creates its own demand (think of the De Beers and the diamond industry or Henry Ford's cars providing opportunity for gas stations). But beware of confusing a need with demand. he owner of a health club may identify Detroit (consistently one of the nation's unhealthiest cities) as a market region with a great need for his service. However, getting a Detroit audience to actually desire a health club service is something else altogether.

Demand

Is my firm actually desired?

Although your firm's products or services may be needed in your target market, they may not be wanted. Check the number of searches for products and services related to your company's core competencies through Overture's search term suggestion tool. A German version is available.

Cultural values and legal issues also strongly impact the company's ability to conduct business. If a country's government has a desire to protect its citizens or industries from a product or service, then the barriers to entry are very high. Don't expect to distribute democracy- or adult-related materials to a sizable Chinese audience at any time in the foreseeable future, and import/export law can be difficult to navigate without trouble.

Additional Statistics

IT Investment as % of GDP
World GDP and Population Pie Charts
Computers Per 1000 Inhabitants 1995-7
European Internet Users and Consumer Credit

David Wolf has worked in the adult industry for three years. He specializes in international marketing strategy and web spider creation. David holds a BS in Business Information Systems, is currently pursuing his MS in Strategic Intelligence, and can be reached for follow-up inquiries at Wolf@adultwebmasterconsultants.com or through adultwebmasterconsultants.com.

1 http://about.reuters.com/investormedia/news_releases/art_7-12-1998_id232.asp
2 http://www.isp-planet.com/research/isps_western_europe2a.html
3 http://www.eu-esis.org/esis2basic/esis2basicQ3/ceec2basicQ3.htm
4 http://www.bcg.com/media_center/media_press_release_subpage4.asp
5 http://money.cnn.com/2002/07/15/markets/bonds/index.htm
6 http://www.oecd.org/pdf/M00018000/M00018516.pdf

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