Globalization and access to world markets continues to accelerate, making it easier for smaller companies to reach overseas buyers. Cheaper bandwidth availability, broad internet adoption and the use of personal computers and smartphones allow for fast, affordable movement of information, goods and money. For small and mid-sized enterprises, having the tools available that permit rapid exchange of information with foreign buyers has made it easier for many businesses to prosper in markets they once were afraid to enter. Smaller companies can confidently expand their business to take advantage of the exploding growth in emerging and other overseas markets.
"The top three reasons companies seek to enter the global marketplace are 1) expansion, 2) diversification of cash flow, and 3) the ability to tap into the growth opportunity presented by foreign markets with greater GDP growth than the U.S., or even Europe," says Susanne Keough, head of the Global Trade Solutions division at SunTrust Bank. "With less than 20% of the middle class residing in the U.S., businesses understand that if they can move into foreign markets, they can reach a huge number of buyers overseas. This is particularly true in emerging markets such as Africa, India and Malaysia, where 20 years ago there would not have been a vibrant middle class."
Emerging market consumers are also typically younger. That means more life events taking place including marrying, having children and establishing a home. The opportunity for your company to gain brand loyalty with younger consumers and move them up to higher value products can prove quite profitable in the long-term.
"While emerging markets can be highly opportunistic, ebbs and flows do still exist,” Keough explains. "And while there will always be a growth market out there to explore, once your company begins to consider selling internationally, there are four critical factors that must be understood about growth through exports."
Consideration #1: Will there be demand for your product or service?
Markets differ dramatically from both a consumer and industrial/manufacturing demand perspective. For instance, BRIC country consumers may value electronics for discretionary funds, while other emerging market consumers, such as those in Thailand, Indonesia, Columbia and Mexico, value education over any other discretionary purchase. Apparel is also valued in most of those same markets, except Indonesia. 1
Also of interest, BRIC and other emerging market countries are placing more emphasis on the home with decorating items and renovations ranking highly as compared to developed markets where discretionary spending is more focused on travel, leisure and dining out.3 For example, demand for large, quality Western style furniture is increasing in China. As more Chinese consumers are buying villas and larger homes, their quest for Western style decorations can benefit U.S. furniture manufacturers.2
From an industrial perspective, global construction is predicted to grow by more than 70% worldwide by 2025. Currently, 52% of all construction activity is in emerging markets, with an expected rise to 63% by 2025, being led by China and India. Indonesia, Vietnam and the Philippines are also on the rise, with a construction market that is growing more than 6% annually, making Pan Asia countries incredibly attractive for construction products and solutions.3
Infrastructure growth along with a huge surge in natural resource extraction in Sub-Saharan African countries over the last 2 to 3 years has opened up opportunities for the exportation of industrial, mining and construction equipment. Keough describes SunTrust's first-hand experience with the opportunities African countries represent, "one of our clients was finding it difficult to sell their used oil construction equipment. They looked to Nigeria, where they found a receptive audience, and a new revenue stream for their used equipment."
Consideration #2: How will your product or service translate to a foreign market?
Top selling products in the U.S. don't automatically equate to profitable ventures internationally. There are legions of products that have failed in international markets for a whole host of reasons, just as there are a multitude of others that have succeeded. In order to avoid the pitfalls others have encountered, research your targeted market thoroughly with the following in mind:
What is the market culture? For consumer goods, is the population ready to spend? A market with increasing discretionary income does not necessarily mean those dollars will be spent freely. Take for instance China, where the saver mentality is ingrained behavior. Is your target market used to making choices about products to purchase, or is the buying populace so new they may be overwhelmed with too many options?
Size matters: Heavy construction equipment will do no good if it is too large to navigate developing infrastructure or too hard to handle in the terrain in which it will be used. Consumer goods have similar constraints - while Americans tend to super-size everything, some foreign markets view larger sizes or quantities bundled together as wasteful, or requiring too much space to store.
General cultural issues: Translation issues - from product names to marketing slogans to usage guidelines - can cause huge issues if not researched and implemented properly. Take for example the Chevrolet Nova, the name of the vehicle, which when introduced in Spanish speaking countries meant "doesn't go”. Similarly, colors and numbers have different significance in different cultures. In the U.S., bright red colors are associated with danger, whereas Chinese culture views red as good luck. In Asian countries the number 4 is considered unlucky because it is pronounced like the word for "death".
Consideration #3: How will the product or service be used?
When researching foreign markets, attention should be given to whether your product or service will be used exactly as it is in the U.S. Take into consideration the unique characteristics of each target market, then determine if the product needs to be modified to meet government regulations, buyer preference, geographic or climate conditions. Religious and cultural practices should also factor into any decisions on product usage. If the market potential in the selected market is large enough, then the costs associated with adaptation of the product may be justified.
Some products may only need some tweaking to have more appeal or fit the market. The Kit Kat example is an excellent commentary on how to take an existing product and extend its share into the market by making small changes and introducing variations that appeal to the end user. Manufacturers of component parts or equipment may find that measurements need to be converted to metric in order to match market standards. Also power and electrical standards in many markets may not be as stable as in the U.S., with cycles, voltages or phases that may damage equipment designed for domestic use.
Of course, some products, such as agricultural products, may translate exactly. A good case in point is milk. The demand for milk in emerging markets, as well as a shortage of traditional supply sources in other international markets, has opened huge opportunities for domestic dairy producers. Milk products that are produced and sold in the U.S., such as nonfat dry milk and skim milk powder, cheese and shelf stable milk can be sold directly to foreign markets. The U.S. Dairy Export Council reported that the U.S. aggregate export volume of milk products as doubled between 2010 and 2014, primarily driven by surging demand in China.4
Think about the end use of the product. In many emerging markets, consumers do not spend freely on themselves, yet they do spend on gift giving. So life events and occasion based use must be considered when determining product appeal.
Coming to a decision
Carefully considering these three factors will help you get a clearer picture of the level of attractiveness your products have in global markets. You will need to combine this understanding with an overall picture of the macro global trends and your analysis of local market conditions . There are numerous resources available to help you with this information gathering. When armed with this information, you can select the most profitable foreign markets for your exporting initiatives.
The SunTrust team has worked with a number of owners just like you who have asked the same questions. Talk to your SunTrust relationship manager or global trade specialist about insights into your global growth aspirations and understand how others have addressed the issues that you are facing.
1 Euromonitor International consumer survey; Middle Class Home 2013
2 China's Furniture Market, Hong Kong Trade Development Council, July 14, 2014, http://china-trade-research.hktdc.com/business-news/article/China-Consumer-Market/ China-s-furniture-market/ccm/en/1/1X000000/1X002L63.htm, accessed 8/15/2014
3 Global Construction 2025, Global Construction Perspectives and Oxford Economics, PriceWaterhouseCooper, http://www.pwc.com/gx/en/engineering-construction/publications/global-construction-2025.jhtml, accessed 8/15/2014
4 U.S. Dairy Export Council, Global Dairy Market Outlook, March 12, 2014, http://www.usdec.org/files/GDMO/USDEC-GDMO-201403.pdf, accessed 1/8/2014
This content is educational in nature and is not an advertisement for a loan or business solicitation. It does not constitute legal, tax, accounting, financial or investment advice. You are encouraged to consult with competent legal, tax, accounting, financial or investment professionals based on your specific circumstances. We do not make any warranties as to accuracy or completeness of this information, do not endorse any third-party companies, products, or services described here, and take no liability for your use of this information.