When the home market is saturated, competition is too strong or the economy is in the decline stage of the business cycle, it might be time to sell products to other countries.
Selling in foreign markets was once too risky and expensive for most firms, but international marketing opens up new opportunities for marketing goods and services abroad.
The process of globalization also helped businesses that wish to get involved in marketing of their products in foreign countries. Communication around the world has improved, transportation is cheaper, faster and more convenient and finally international trade is freer than ever before.
Example 1: Coca-Cola was available in foreign countries as early as in 1900. The company was promoting Coke using strong brand development emphasizing the logo and consistent taste in promotion that was adapted to suit local markets. For example, in China, Coca-Cola is using highly-recognizable elements of the Chinese culture in its television advertising – the color red, strong family ties and gatherings to celebrate the Chinese New Year.
Why companies sell products in foreign markets?
There will inevitably be costs and risks when selling products to other countries, however, business managers need to be aware of them and respond to in an appropriate and timely manner.
- Saturated home markets. Saturated home markets are characterized by low-growth due to limits. When the home market is saturated, it is very difficult to increase sales anymore because everybody already owns the product. One customer can have only so many clothes, cards or TV sets! For many firms, international marketing is now an opportunity to find new markets for existing products. And, to profitably expand sales. When the local market stops growing any longer and competition is strong, selling products to another country with less competition can increase sales rapidly. In fact, for some firms it is less of an option and more of a necessity in order to remain competitive.
- Profits. In fact, overseas markets may be more lucrative than domestic ones. By selling in overseas markets, a business might have the potential to increase its profits through a rapid increase in sales combined with low costs of doing business in developing countries. The product might also sell at a higher price on foreign markets than in the home market. Manufacturing costs, labor costs and distribution costs may be lower abroad. This will create high profitability. In short, producing in a cheaper country and selling to a high-cost country can offer higher profit margins.
- Spreading the risk. Spreading risks between different markets minimizes the overall risk for running a business organization. If a business only produces in one country then it may face problems caused by downturns in demand due to recession. The more countries a firm operates in, the less vulnerable it is to changes in the business climate of any single country. The sales revenue and profit of that business are much less depending on economic situation in the home country. Thus, international marketing cal lower risk by reducing dependency on home markets and conditions in the home country.
- Poor trading conditions in home market. Poor trading conditions in home markets may make international markets desirable. Businesses often find that the market for a product is in decline. One option for a firm is to try and breathe new life into the product by introducing it into an overseas market. This is an example of an extension strategy. For example, while sales of electric cars in the US might be falling due to economic slowdown and inflation, sales in China continue to increase due to governmental subsidies supporting transition into environmentally friendly modes of transportation.
- Legal differences creating opportunities abroad. Legal restrictions on the sale of products vary from one country to another. Less-developed countries usually have fewer restrictions on which drugs, tobacco products and certain medication can be offered for sale. Some pharmaceutical and tobacco companies have been selling products banned on health grounds in the UK and the US to these emerging market economies with fewer restrictions. While these actions are legal, they may not be fully ethical though.
One of the most important reasons for companies wishing to expand into new markets in other countries is the saturation of the home market which limits growing future sales. That is why selling products in foreign countries creates huge international marketing opportunities for increasing sales revenue and profits.
