“Which country should I export or expand to?”
How do you figure out which country has the best sales potential for your products or services? This is a brief overview of the two established methodologies for answering this question and then my own approach.
The SBA way
The US Small Business Administration (SBA) instructs DIY exporters to use US census data to identify which countries that American companies export the most of your product category (aka your schedule B number). Next, small businesses should investigate competition in the local market, landed costs, and local regulations.
Pros: US census data on exports has more nuance within product categories than any other free secondary dataset. These datapoints can be useful indicators of potential ease of market entry for your company, and it can be a sign that your American competitors are already doing business in your potential foreign market.
Cons: Within each product category there remains a high degree of market segmentation among products, and for tech industries this can often make these datapoints entirely irrelevant. For example, Uber, Microsoft Office, and Coinbase products all count as US software exports, but clearly they do not compete in the same markets; so if you are a software company then data on US software exports is not the best measure of your international sales potential.
The USCS way
Export-U is a project of the US Commercial Service (USCS), the arm of The Commerce Department charged with boosting US exports. They follow the SBA in that they instruct DIY exporters to begin by analyzing US census data on exports. They add important additional steps to include socioeconomic indicators and industry measures. Variables are indexed and then countries are ranked. The final steps involve research on competition and costs of market entry.
Pros: While the problematic measure of relying on US export data remains, we can consider this variable alongside a range of other market indicators. This adds significantly more dynamism to the market selection process.
Cons: While there are many freely available secondary datasets on demographics and business-relevant factors, for tech industries the most valuable datasets are private. In addition, tech companies must ask, ‘What are the most relevant indicators of potential demand for my product?’ Yes, favorable demographics are necessary, but they are not sufficient - many other datapoints are equally important and they need to be incorporated.
The Bruce Lee way
Bruce Lee probably never did foreign market analysis but he once described his martial arts methodology, “Use only that which works, and take it from any place you can find it.” The objective of foreign market research is to measure and compare sales potential in different foreign markets (although depends on the project and your goals). To that end I customize units of analysis (foreign countries and cities) and demand and demographic variables from hundreds of public and private datasets. One powerful measure of sales potential is to relate consumer income growth to consumer expenditure in the relevant product market, so that we can see to what extent people are spending their income growth on relevant products. If pertinent to the product market, I also incorporate social media and keyword data analytic tools. Finally, I normalize, weight, and rank the countries or cities. While those are measures of foreign market opportunities, I also research the challenges - top competitors, costs, regulations, risks, and product distribution and delivery, among others.
Let me gather and synthesize this information while you focus on your company’s core competencies. Contact me for proposals for your company.
The China Dilemma
Data from China is notoriously unreliable and in some cases it is incompatible with other measures that we use for market analysis. And crucially, China’s tech and IP practices pose huge risks (if not threats) to US and European tech companies. Yet China is a global tech leader and it will soon become the world’s largest market, so how should a tech company approach this China dilemma? The answer is that it depends on your capacities, product market, overall business strategy, and – generally – politics. Contact me for advice, I have extensively researched and published on China’s tech/IP policies and practices.