Entering & Operating Internationally (HL IB Business Management)

• When businesses are considering new markets, they have to consider the attractiveness of the market
  
• This will involve businesses carrying out extensive market research, and using models such as the Boston Matrix  and PESTLE
   

Factors to Consider When Entering new International Markets

Businesses should consider factors including infrastructure, ease of doing business, levels/growth of disposable income, exchange rates and political stability before entering an overseas market

Infrastructure

• Infrastructure considers factors such as roads, transportation and communication (mobile coverage/internet)
• Good infrastructure improves the production process and delivery of goods/services to the customer which reduces costs and increase sales
  

Ease of doing business

• Rules and regulations involved in establishing a business in a particular market may be relatively simple or extraordinarily hard
• Issues to consider include accessing credit, registering properties and enforcing contracts
• If businesses face significant challenges setting up a business, this may lead to delays in operations and the business generating sales
  

A scoring system that rates how easy it is to conduct business activities in different countries
(Source: World Economic Forum)  

Levels of growth and disposable income

• Disposable income is the income individuals have left after paying direct taxes (e.g. income tax) and other deductions (e.g. pension contributions)
  • Selling products in a country with higher disposable income is likely to lead to more sales
  • Selling in a country with lower disposable income is likely to lead to slower sales growth
• Businesses should look at trends in income levels over time to see if there is potential growth in sales in the future 

Exchange rates

• An exchange rate is the price of one currency in terms of another e.g. £1 = $1.10
  
• Exchange rates can be subject to extreme fluctuations due to external factors
  • Businesses should look at the historical trends of the currency of the country
     
• Businesses moving to countries with stronger currencies can import raw materials and components for production at a lower price
  
  • Exports from this country will be more expensive to customers abroad
    

Political stability

• Businesses may be at risk of not gaining a return on their investment in a country with political instability
  • A country with political instability will be subject to corruption, lack of law enforcement and higher levels of crime
  • It is more likely to have disruption to trading
• An economy with a stable economy and government is seen as a less risky investment for a business

• 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 and make 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
     

Diagram Showing the Benefits of Entering International Markets

Entering and operating successfully in international markets can generate higher levels of profit

Economies of scale

• Operating on a larger scale can reduce unit costs
• Potential for higher profit margins
• Flexibility to reduce prices to gain market share

Brand recognition

• Higher visibility of branding (e.g. product/brand names, packaging)
• Particularly relevant to the ethnocentric approach
• Improves brand loyalty/repeat sales

Spreading risk

• Less exposure to market change in one country
• May avoid localised economic downturns 

Increased volume of customers

• Potential to earn high level of revenue from more sales
• Access distribution economies of scale

Extends the product life cycle

• Avoids saturation/decline in domestic market
• May reduce the need for spending on research and development

• Global businesses must consider various cultural and social factors to effectively market their products/services in different countries and regions
  
  

Diagram with Cultural Considerations of New Markets

Understanding cultural and social factors can help businesses to build strong relationships with their global customers
 

• These are common errors that many businesses have made
  • These errors can damage the brand's reputation
  • These errors may be costly to correct resulting in lower profit margins
  • These errors may not be recoverable and may require a business to exit the market
     

An Explanation of the Cultural and Social Considerations

Factor	Explanation
Cultural differences	Businesses need to understand cultural differences in areas such as values, beliefs, customs, and traditions, and adapt their marketing strategies accordingly
Different tastes	Tastes and preferences vary greatly between cultures and regions and businesses should adapt their products/services to meet local preferences  E.g. IKEA's product range in the UK features products suitable for small living spaces
Language	Businesses must ensure that their marketing messages are translated accurately and appropriately This involves understanding language nuances and idioms E.g. When KFC entered the Chinese market, it translated its slogan "Finger-Lickin' Good" into Chinese as "Eat Your Fingers Off", which had negative connotations in the Chinese culture
Unintended meanings	Unintended meanings can arise when businesses use images, symbols, or language that have different connotations in different cultures E.g. The colour white symbolises purity and innocence in Western cultures, but it represents death and mourning in some Asian cultures
Inappropriate branding/promotion	Inappropriate branding and promotion can occur when businesses use images, symbols, or language that are offensive or inappropriate in different cultures E.g. In 2018, A Dolce & Gabbana advert showed a Chinese model attempting and failing to eat various Italian dishes with chopsticks. People were outraged over the depiction of Chinese people as lacking refinement and an understanding of culture