In the complex world of international trade, trade development agencies are increasingly attuned to the importance of selecting lucrative export market(s) in order to produce higher ROI for the exporters that they serve. Some agencies rely on passive methods which come with significant risks. Other agencies take active approaches that significantly increase the likelihood of successful market entry. This article presents Tips for Success to trade agencies when advising client exporters which international markets to pursue.
Passive Market Selection
Passive market selection has been traditionally used because it’s cheap and easy. Passive export market selection methods include:
– Website Inquiries: Companies choosing export markets based on the number of inquiries from a country.
– Trade Show Visitors: Companies prioritizing export markets based on interest from international visitors when exhibiting at trade shows.
– Past Orders: Companies relying on random orders from international customers who stumbled upon the company’s products.
– Copying Competitors: Companies copying competitors’ entry into export markets.
The passive market selection presents several risks:
– Pursuing the Wrong Market: Passive market selection leads to pursuit of markets with low demand or strong competition.
– Misalignment with Business Strategy: Passive methods result in companies entering markets that don’t align with their long-term goals.
– Misleading Revenue Streams: Passive reliance on random orders misleads companies to focus on smaller markets.
– Regulatory and Legal Risks: Passive research ignores regulatory and compliance requirements, thereby increasing the risk of costly legal issues.
– Resource Drain: Passive approaches waste resources and time entering unsuitable markets that may need to be undone with attendant exit costs.
– Loss of First Mover Advantage: Passively following competitors ensures missing out on first mover advantage.
Active Market Selection
The active approach to export market selection involves analyzing relevant market indicators to identify markets with high potential. These market indicators include:
– Potential Customer Pool: Company-specific market indicators such as production levels, units purchased, sector revenue, market size per capita, e-commerce market size per capita, government R&D funding levels for the sector, detailed demographic data, infrastructure rankings, etc.
– Market Access: Free Trade Agreements, tariff rates, competition intensity.
– Country Risk Ratings: OECD country risk classifications, corruption rankings, foreign exchange fluctuations.
– Real Economy: Real GDP, GDP per capita, U.S. exports to the analyzed countries (6-digit HS codes), imports from other countries.
– Growth Trends: Growth trends of company-specific market indicators, GDP per capita growth, segmented population growth rates.
– Geographical and Cultural Distance.
The active export market selection approach offers multiple advantages:
1 – Data-Driven Decisions: Active market selection ensures well-informed decisions by using market indicators relevant to the company.
2 – Strategic Alignment: Active approaches ensure that the selected markets align with the company’s long-term objectives.
3- Risk Mitigation: Active market selection addresses risks such as exchange rates, corruption risks, regulatory burdens, and cultural obstacles.
4- Sustainable Growth: Active market selection identifies markets with demonstrated demand and opportunities for reliable revenue streams.
A recent client, an exporter of critical infection control systems, used the passive approach for years, attending trade shows in the Middle East and responding to incoming inquiries. This approach led to wildly fluctuating international sales without measurable market penetration. Frustrated with the low ROI, the exporter turned to Prime Target to identify and prioritize the best export markets. Of the ten (10) countries analyzed, four (4) were deemed “Abstain”, three (3) were determined to be “Observe” markets, two (2) were found to be “High Potential” and the remaining one (1) market was classified as “Forerunner.” With this prioritized list of export markets, the company more wisely allocated its marketing resources and generated a 3X increase in its ROI.
Prime Target works with trade development agencies to actively select the best export markets for hundreds of client exporters. Our 5-country, 10-country, and 20-country reports are delivered to your client companies in two weeks. Contact us to learn how your trade program can actively deliver export market selection recommendations using 1,800+ unique market indicators across 90+ countries.
