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Useful Tools for Analyzing a New Overseas Market – PART 1
by Tatsuya Oishi - Focus Business Produce, Inc., Tokyo, Japan
Conducting initial research of a new overseas market is crucial and is the starting point for any successful venture. I would like to discuss this in detail utilizing an established framework for strategy analysis. Since this subject is too broad a one time column, I will divide this discussion into three parts as outlined below:
Part 1 The Premise for Success and the External Environment
Part 2 Internal Environment
Part 3 Case Analysis
Part 1
There are three major factors you should review when researching and analyzing a new market:
Premise (your product)
External environment
Internal environment
First of all, self-analysis of your product is naturally the most important premise of success. If your product is purely a commodity without any particular strength or differentiation, it will be difficult to enter new markets. Strength in this sense can lie in technology that solves a particular problem better than the competitors’, in brand, cost, distribution or services. In general, overseas expansion with a product that possesses any of these strengths would satisfy this “premise” test.
External environments cover many factors, and it is usually a complicated analysis. A useful tool for this analysis is to use the PESTLE analysis. That is:
P Political
E Economical
S Sociological (cultural)
T Technological
L Legal
E Environmental
You can analyze the external environment in your target country by applying the above PESTLE categorization. Some of the elements may be similar to your home country but more often, they vary greatly. Once you have analyzed the factors, you will now be aware what your focus needs to be.
By viewing the overall picture through the PESTLE analysis you should begin to think of the lifecycle of your product. Even though your product in your current markets may be in the growing stage, the market of your target country’s external environment may have some factors which prevent the product from even going into the cradle stage or, worse, prohibit it from going into the market at all. This often happens for products in the food industry if the product contains substances which are not allowed in the target country.
A PESTLE analysis is a useful tool when looking at a broader picture of a country. If you are more interested in a particular industry or market of your product in the target country, it is usually true that the target market will show a very different picture. When researching this, Michael Porter’s, “Five Forces Analysis Framework” can give you good some insight into the industry. The elements of this framework that should be considered are:
Rivalry among existing competitors
Threats of new entrants
Bargaining power of suppliers
Bargaining power of buyers
Threats of substitute products or services
Like the PESTLE analysis, you should consider each element and the impact of each. With the above two analysis: PESTLE and Five Forces, you will now have a clearer picture of the industry and market. Of-course, it would not be perfect, however you have done at least the basic industry analysis which is a must for entry.
If your product is for B2C rather than B2B, you may be interested in doing some small scale, end-user, market research as preliminary step. In the case of Japan, there are many kinds of market/consumer research reports available online or in public libraries, industry association publications or corporate research reports. If it is for a particular niche market, you can easily utilize online market research services.
In the next issue, I will discuss the internal environment of candidate partners, distributors, joint-venture partners and some useful strategic tools.
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