This is the second post on the topic of finding the ideal target country for your business expansion
Another criterion in your market assessment is what is the competition like? There is likely to be local competition and probably international competition that have entered the market before you. Find out as much as you can about their products or services, pricing, quality, distribution methods. Is there national and regional competition? How are they perceived? What is their after sales service? A SWOT, Strengths, Weaknesses, Opportunity Threats analysis could be helpful in assessing the potential competition.
You should consider the Macro Economic climate. We have talked about GDP growth but extend this to look at per capita income, demographics. Does the country have a young growing demographic? In many African countries more than 40% of the population is under 15 years of age. Niger’s under 15-year-olds represent half of the country’s population. The country with the lowest under 15 years population? Singapore at 12.3%. Look at the trend of the working population size. China’s working population has been declining for a decade, this affects their investment strategy. They want high added value industries to invest in their country. Singapore follows a similar strategy, although that is driven more by lack of land than population demographics. Demographics will to some extent determine how welcome you are in your chosen location. If there is a large young population, the government will be facing the challenge of finding jobs as these folks enter the job market. If education standards are low and if you can provide low skilled employment, you are likely to be encouraged to invest in their country.
Climate is another consideration. Are there challenges in how your product will perform or be received in your target market? There are some obvious examples, home heating appliances are almost non-existent in hot humid Singapore. But there can be more subtle limitations, for instance some sprayed waterproofing products do not work well in humid climates. If operating conditions are a challenge, will your product suffer an unacceptably high level of failure resulting in claims? Fortunately, climate data is available for most countries, with that knowledge and an understanding of your product you can avoid this issue.
Similarly, you need to understand the environmental issues, regulations, and concerns in your target market. If you plan on building a plant either at the start, or later once demand is established, what environmental restrictions exist? In most countries an environmental impact assessment will be needed. Know what is covered in such an assessment. If you are in the chemical industry, you may be restricted where you can locate your plant. And the definition of a chemical industry can be wide, it covers more than the massive chemical plants such as are run by BASF. Small companies with non-reactive chemistry are usually included. Many countries have chemical inventory registers which list the chemicals that can be used in that country. Are your products or raw materials on the list? If not, what will it cost to get them approved? This is usually not a trivial amount. Are there the facilities to safely store your products if they are hazardous? These are just some of the environmental questions you need to ask.
Trade barriers: both tariff and non-tariff barriers need to be understood. Tariff barriers are relatively easy to understand, countries publish tariff rates usually classified under HS Codes. HS stands for Harmonised System which is administered by the World Customs Organization. This should be straightforward but interpreting the correct HS code for your product is not always easy. You may be tempted to classify your product under the HS code that has the lowest duty tariff. The country’s customs officials may have other ideas. Getting it wrong can be costly. There will be back duty and penalties to pay. Do not be tempted to use different HS codes in different countries to lower duty rates. Consistent use of codes in each jurisdiction can show honest intent which can help reduce penalties.
If tariff barriers are high, it maybe time to reassess the local competition. Will you be able to compete with them if you are paying 10%. 15% or higher tariffs on your imports? This may tip the balance on your decision whether to manufacture locally. I will cover this in a later episode.
Non-tariff barriers can be harder to assess, they can include packaging and labelling regulations, safety standards, license requirements. Also check if there are import quotas that might restrict your business. Note that standards might not be consistent across the whole country.
These are just some of the considerations you need to consider when assessing if a country is right for you. Others such as infrastructure, currency conversions, distribution methods repatriation will be covered in later episodes.
None of these should frighten you away from your global expansion. You might hit unexpected prohibitions, for example it is not allowed to import used production equipment into China. So, if you were thinking of bring that under-utilized production capacity from your home country to China, forget it.
Where can you find the information needed to make your target selection. This is a three-step process, target – identify the countries you are interested in, screen, use research to find the countries most suitable for you and then select where you will start,
By now you should be at the screening stage. You have identified the countries you think have potential for you and now you need the information to confirm or refute your first thoughts.
Fortunately, there is a huge amount of information available free of charge although this might be of a more generalist nature.
Your home government likely has a department focused on encouraging exports. This is often country specific so a huge amount of information can be gained there.
The target country’s government may have a function that encourages overseas investment – this is another great source of information.
In many countries there are private companies that provide services helping new companies set up in their home base. These companies often provide a great deal of information about the country, its regulations, culture etc. There are often more than one such company in most emerging markets so you can cross reference the information.
Google, of course, is another great tool for research. Just be careful, there can be a lot of misinformation on the internet. Assess the reliability of any website you visit and make sure you validate what you learn.
LinkedIn is another useful site. Using this you can find companies that operate in your field in your target markets. You can find locals with experience in your industry who may be able to tap for information, Or experts for hire.
In addition, you can find research organizations who survey countries and industries to produce reports that can be purchased for a fee. Although the cost of these reports can cause sticker shock their price will be a very small part of your overseas expansion budget. Be sure you get a sample first so you can assess the suitability of the report for your purposes.
You can also hire firms to do customized research. This should deliver the highest quality market data, but it will come at a price.
But the most important research is the research you conduct yourself in the country of your choice. You should try to meet potential customers, suppliers, competitors, market experts, industry associations, and your country’s chamber of commerce in the country. Do not over pack your schedule, if you are traveling across time zones take jet lag into account. In my experience adrenaline will get your through the first day, it would be sensible to plan a quiet day for the second day of your trip. And allow a couple of open days at the end of your visit for follow up meetings and research.