Part 4 of our 13 week series on how to grow overseas
Understanding the true desire or demand for your product or service is key before you enter a new market. Some products or services seem to be universal. Anywhere you go in the world today you will see people on their mobile phones, many of which are smartphones. So common are smartphones in Singapore that a key response to Covid pandemic was to provide a track and trace app for mobile phones. Although the government did make provisions for citizens without smartphones the assumption was that most of the population had smartphones. It’s hard to accept that the everyday use of mobile phones is only about 20 years old.
Other products are more regional. Take breakfast cereals, for example, in many parts of the world these are well accepted, and the demand is high. However, folks in Vietnam do not eat cereal for breakfast, and the demand for them is limited to international hotels and supermarkets catering to ex-pats. The point is that because there is a demand for your product and services in your home country, demand may not exist in your target market. You must ensure that there will be a demand for your product or service before you invest time and dollars in a market.
Like real estate, where Location, Location, Location is the key to price, in terms of assessing demand, it is Research, Research, Research. Research can be hard work, but there is no substitute for it.
But before you do your research, do your research. Take the time to find out what resources are available without charge. Many governments provide a wide range of support services to companies considering expanding overseas. As an example, the UK government, through the Department for International Trade, offers, using their network of overseas posts and UK-based trade advisers, support for UK companies wishing to expand into overseas markets. This includes information on the primary forms of overseas investment reasons, why UK businesses may consider expanding into overseas markets, and information on overseas investment opportunities for your products or services.
To learn more follow the link below:
I looked at where the DIT overseas posts are located, and most countries are represented and, certainly, the highest potential export markets are covered. Think about it, thanks to free services such as Zoom, you can conference with someone who is located in and knowledgeable about your prospective target country. Many governments provide similar services, so take the time to find out what is available in your home country.
Also, on the other side of the coin, you will likely find that your target countries’ governments have departments that provide information to potential investors. Also, consider gateway service providers as a source of information. Gateway service companies will help you set up your company in your target countries, help with work permits, etc. To attract clients, they publish articles about the countries they operate in. These can be excellent sources of information.
This pre-research will help you frame the questions you need to be answered before you venture forth on your international journey. And it will not have cost you a dime. Completely free, just a time investment. And doing this research can save you time if you find that your business offering is closed to foreign companies. Some countries limit foreign investment into some industries, usually defense companies and critical infrastructure. They can sometimes be company specific, like several government concerns about Huawei, the Chinese Telecoms company, involvement in 5G networks in their countries. As an entrepreneur, this type of company-specific restriction is unlikely to impact you.
You are now ready to start assessing the potential demand for your product or service in your target country or countries.
GDP per capita can be a guide, and this information is available free of charge. The World Bank defines a lower middle-income country as one with a GDP per capita of between $1,000 and $4,000. Below this, a country is considered a low-income country. Between $4,000 and $12,500, a country is considered to be upper middle income.
However, a country can have a wide range of per capita incomes. Take India as an example; the per capita income for the country as whole in 2019 was $2,100. This puts India in the lower middle income category. Mumbai’s per capita income was $7,830 placing the city in the upper middle income category.
Similarly, for Thailand, the country’s per capita GDP is $6,700; for Bangkok, it is $17,000. This pattern is typical – the big cities have higher GDP than the country as a whole. This is good news; it means that most potential buyers for your products or services will likely be concentrated in a small geographic area. This will help lower distribution costs.
While we are on the topic of GDP, the numbers I have given are nominal GDP expressed in US dollars. The country or city’s GDP divided by the population. There is another measure of GDP, which is known as Purchasing Power Parity or PPP. Put simply, this adjusts GDP for the cost of living in the country. Looking at Bangkok, the nominal GDP is $17,000, but the PPP equivalent is $46,000 due to the lower cost of living in Bangkok. This is important to you because it means the folks living in Bangkok have a higher disposable income than might be apparent from the nominal GDP.
GDP is only a general guide, but it can help. If you sell luxury items, a country with a low GDP it may not be ideal. But looking at the number of Gucci, Louis Viton, Prada, and Hermes stores in Bangkok’s malls, there is undoubtedly a demand for these premium products in the city. Some governments publish population information by income which is a subset of data that can be helpful.