One of the most important decisions in the internationalization process of a company is the adequate selection of the markets to which to expand to. In the process of identifying and analyzing markets that are more attractive to an exporting company, conducting market studies represents an essential tool for expanding and contrasting information on the analyzed country market. This information that will be very useful to test the convenience of marketing the product in that market and to design the strategy of penetration in it.
The quality of the information (which should be verifiable and complete) will logically affect the usefulness of the market study to support correct decision-making. In any case, there are countries where there are more restrictions on access to information, both secondary and elaborated "ad hoc". Likewise, certain sectors may present greater opacity than others, limiting the availability of information on the dynamics of the sector and the companies that operate in it in the market studied.
When searching for new markets, we will start by collecting basic information (socioeconomic, political climate, technological environment, etc.), allowing us to compare different countries and arrive at a pre-selection of those of greater potential interest. Subsequently, for the pre-selected markets-countries, a more in-depth analysis will be required, in order to test if there are indeed business opportunities in those markets for the sector of activity to which the company belongs, and if it can exploit its advantages there in a competitive fashion. It is then a question of conducting a market study for each of these countries.
Through the market study we seek to know both the characteristics of the supply and the demand of the product / service of the company in the market in question, as well as the distribution channels and other aspects that influence its commercialization (regulatory, technological, etc. ...) that are relevant for the design of a competitive strategy.
However, before starting the market study it is convenient to establish the objectives pursued through it. This will focus the search for information, through secondary sources (statistics, publications of sectoral associations or agencies for the promotion of exports and investment in the analyzed country, etc.) and primary sources (interviews, visits to companies, etc.), in the aspects that are certainly relevant, and provide value for the decision making on the export market in question. In addition, a focused market study will also serve as the basis of the strategy of entry in that market.
From the point of view of supply, the market study must contain information on both national production (quantity, behavior, geographic distribution) and imports (quantity, evolution, main origins of Foreign suppliers), the existing price structure, domestic and foreign companies operating in that market (typology, origins, market share, etc.), competitive strategies used by such companies, etc., for the sector in question.
In relation to demand, we are interested in knowing the level of consumption of the product or service in the analyzed market (quantity, evolution, geographical distribution), as well as the characteristics and behavior of potential consumers (segmentation of the market according to criteria relevant to the type of product / service - age, region of residence, purchasing power, level of training, etc.). This will help us in identifying their particular needs, tastes and preferences. Cultural and religious patterns of consumption should also be considered because oftentimes companies ignore them which results in costly litigation and is equivalent to entering the market to fail.
Another component to be analyzed in the market study is the structure of the distribution channels for imported goods / services as well as those produced locally. The aim is to identify the figures and links that make up that channel, the distribution of market shares and the commercial margins. In addition, it would also be possible to identify potential business partners or local distributors in this area. Even if the internationalization strategy is based on direct foreign investment, it would be worth analyzing the all modalities and implementation costs.
Finally, among other components to be analyzed that complement the previous ones, would be the normative aspects (fiscal, labor, possible tariff and non-tariff barriers, etc.), logistic, and related to subsidies and public aids available to operate in the sector under analysis, among others.
With the information obtained through the market study, the company must be in a position to assess whether the analyzed country has sufficient business potential to become a prospective market in its internationalization strategy. If so, this information will also serve as a basis for the design of the entry strategy into that market.
In short, how to conduct a market study, what components it should contain or what it is used for, are some of the most critical issues to address when setting up a company’s internationalization strategy. Going in without addressing these variables in a proper manner is counter-intuitive and may result in failure in the target market.