Data and local partnerships are key to success

When selecting countries in which to expand, a number of obvious decision criteria come into play: a ready consumer market, economic and political freedom and stability, the absence of corruption, a well-educated workforce, a healthy economy and strong economic growth prospects. 

Some factors are more readily changed than others: it can take decades to develop a well-educated workforce, corruption can be more readily policed and attenuated by a change in government, and domestic economic prospects can be improved within a year or two by a U-turn in economic policy or a change in government or both. Globalising businesses need to amass all relevant data and factor potential changes – for better or worse – into their risk scenarios.

For businesses looking to find new consumer markets (as opposed to those looking to locate service or manufacturing hubs in lower cost economies), consumer spending power (measured by GDP per capita and purchasing parity power) is one of the best starting points in selecting expansion countries or regions. 

The International Monetary Fund’s (IMF) comprehensive data resources show only a limited number of economies with GDP per capita above USD 30,000 and they are almost exclusively in North America (USD 64K per capita), Western Europe (USD 61K)), Australia and New Zealand – ANZ (USD 64K) , Japan (52K), Korea (57K), Saudia Arabia (65K), Eastern Europe (USD 35K), Turkiye (USD 41K) and a couple of countries in South East Asia, specifically Singapore (83K) and Malaysia (37K). For businesses marketing relatively high-value consumer items such as autos, smart phones, whitegoods, luxury goods, consumer durables in general and tourism these are premium markets.

Countries with the combination of high per capita income and large populations (US, Germany, UK, France, , Italy, Japan, Korea) are obviously the most attractive markets for high value consumer products.

In South America (USD 18K), a common expansion market for North American companies, only Guyana (USD 61K, of which more later) has per capita GDP above USD 30K, although Chile (USD 29K) and Argentina (USD 27K) come close. The proximity of South America to the wealthy North American countries (and compatible time zones) makes it an attractive potential market, but downsides include less wealthy consumers and political uncertainty in several countries. On the other hand, a shared language in the whole continent other than Brazil facilitates expansion across the region with a single operating model.

The Association of South East Asian Nations (ASEAN) members – Brunei Darussalam, Myanmar, Cambodia, Indonesia, Laos, Malaysia, Philippines, Singapore, Thailand, and Vietnam are an attractive expansion bloc, being “collectively the United States’ fourth-largest trading partner and together represent a market with a GDP of more than $2.9 trillion and a population of 647 million people” according to The Office of the US Trade Representative.   A few are successful and fast-developing economies with significant spending power, but several (including recent examples in Myanmar, Thailand and The Philippines) have had relatively unstable political environments. 

It’s not uncommon for business folks located in Europe and North America to have a mindset that expansion flows from these “home” economies to other, less-developed countries, but that isn’t true today and hasn’t always been the case in the past. Developing economies have a strong record in capitalising on rich markets, not only with trade in resources and commodities.

There’s a well-trodden path for exporting manufactured goods from relatively poorer to richer countries. For example, auto manufacturers in Japan and Korea aggressively targeted North America and Europe as expansion markets over the past 30 or 40 years. They’ve successfully exported directly to these markets and set up local manufacturing capabilities and joint ventures to embed themselves in local economies. The trade statistics bear this out: in 2021, Japan exported $88.6B in cars globally with $32.9B to the US, while Japan imported just $835M in cars from the US according to the Observatory of Economic Complexity (OEC). Similarly, South Korea exported $44.7B in cars globally, including $1.95B to the UK, and imported just $442M from the UK. Europe and North American export markets have massively helped the development of the Japanese and South Korean economies.

While wealthy established economies offer the juiciest expansion potential, they are also likely already to be targeted by competitors. Businesses need to keep their eyes open for fast-growing economies that offer rich potential.  In the past these have included the likes of Brazil, Mexico, Russia, Indonesia, Turkiye, Egypt and others, but these have not proved as successful as many pundits predicted largely due to political instability putting a damper on economic viability.

Following on from these examples, it’s obvious that economic growth potential on its own is not a sufficient decision-factor.  As an illustrative exercise, take forecaster FocusEconomics’ June 2023 report that assessed 198 countries and predicted the top five fastest-growing economies in the world over the 2022-2026 period. The results may surprise you. In order of predicted growth they are: Guyana (25.8% growth over the period), Macao (11.9%), Fiji (7.7%), Niger (7.6%) and Libya (6.9%).

These purely statistical comparisons don’t hold up to scrutiny when we dig below the surface. Guyana’s growth is purely down to recent oil discoveries and a projected rapid ramp-up in production As the World bank has commented, Guyana’s reliance on resource-based industries makes it vulnerable to oil-shocks. It’s mere 800,000 population is another disqualifying factor as an expansion destination. 

The other predicted growth economies also have drawbacks: Macao’s growth will be due to starting from a depressed base because its economy tanked when the flood of Chinese visitors trickled to a halt during the pandemic and consequently decimated Macao’s critical tourism and gambling sectors.  Fiji’s rapid predicted growth is, like Macao’s, largely based on growth coming of a low base as the economy withered due to a pandemic-affected shut-down of the tourism sector.

Niger and Libya may be predicted to grow but that alone is not likely to attract many non-oil businesses given the significant political unrest that plagues both countries. 

The bottom line is intending exporters must assimilate every piece of data about a target market before they leap into it. 

Key takeaways:

The most attractive expansion economies will most likely already be targeted by your competitors. For your business to enter these markets successfully you need to know the market dynamics better than these competitors and craft offers that hone in on market sweet spots not already addressed. Partnerships with local players can be a key factor in success.

Entering new markets is generally a long-term project. Consumers in the expansion market need to know you’re serious and there for the duration. The example of the Japan and Korea auto manufacturers’ success in North America and Europe underscores the importance of patience allied to consistent execution and support for their local clients. 

Korean businesses Samsung and LG as well as Taiwanese electronics exporters provide further evidence that great products need local marketing, execution and customer support to deliver exceptional returns.

Summary: 

1. Data-Driven Decisions: When expanding into new markets, rely on data to make informed decisions. Consumer spending power and economic growth are important factors, but a deeper dive into market dynamics is essential.
2. Local Partnerships: Collaborating with local players can significantly enhance your chances of success in a new market. They bring valuable insights, networks, and an understanding of local nuances.
3. Competitive Edge: The most attractive expansion markets are likely already targeted by competitors. To succeed, you must understand these markets better and craft unique offerings that address untapped opportunities.
4. Long-Term Commitment: Entering new markets is a long-term endeavor. Demonstrating commitment and consistent support for local clients is crucial for building trust and success.
5. Market Research: Predicted growth statistics may not tell the whole story. Deep market research is essential to identify potential challenges and opportunities that may not be immediately apparent.
6. Political Stability: Consider the political stability of the target market. Political unrest can significantly impact the viability of expansion.
7. Patience and Execution: Patience, combined with consistent execution and local customer support, is key to achieving exceptional returns in new markets.

In summary, data, local partnerships, market research, and a long-term perspective are vital elements for successful global expansion. Understanding the intricacies of each market and being adaptable are key to thriving in the ever-changing global business landscape.