Diriya

The challenges of entering International Markets

An international market is what is beyond the geographical boundaries of the company’s local operating country. Entering such markets facilitates business to grow in new markets, gain access to new customers and exercise the maximum capacities and capabilities of the organization. But none of these benefits come free. These companies will face certain challenges especially the small and medium entrepreneurs who don’t possess strong capacities and capabilities in comparision to other corporate giants in the market. It is important that such organizations take calculated risk when expanding to international markets which could hinder the overall performance of the organizations. 

It is very important that small and medium entrepreneurs understand the challenges they would encounter, when opening themselves to the international markets. The biggest challenge is the cost that needs to be incurred and the time to be invested to identify prospective markets for the products offered. Failure to manage the international market properly can influence the performance and harm the reputation of the organization. But proper discovery of challenges in the market and formulating strategies to mitigate the risk followed will secure the possibility of improving the performance of the organization. 

The most common challenges encountered by businesses in international markets are cultural differences, language barriers, regulatory hurdles and more importantly the fierce competition from already established businesses in economies with scale advantages. 

Dilmah Tea, one of the largest tea exporters of Sri Lanka decided to expand its operations to the USA which is culturally different to a developing economy and company marketing material, approaches had to change to suit the taste and preferences of the USA market. Some challenges can be expected but most of the challenges will be spontaneous which will need immediate actions from the business organizations in order to survive in the market.  

Challenges

At the top of the list would be the cultural differences in the new market. The entrepreneurs must take into account that every community, every market has its own unique set of values, customs and way of doing business which should be respected. Properly identifying the cultural differences will avoid any misunderstandings during business transactions and also any sort of conflicts. For example, in the context of Sri Lanka silence is most of the time seen as a sign of respect while in the USA it could be a sign of disinterest or disapproval. Failing to understand these trivial matters can cost hugely even during finalizing an agreement between two business partners. 

Another big challenge entrepreneurs will face when entering international markets is the language barrier. Effective communication is a must for the success of business operations and miscommunications can cost a fortune. Use of language is also an important component for marketing which builds relationships in the minds of customers and partners. Language will act as a barrier to convince the product to the customers and even close deals with the partners, building strong long-lasting relationships in the business world is very important for the growth of a company. For example if an IT company in Sri Lanka enters the European market and uses many technical jargon with the locally hired employees it will impact the projects executed. Therefore the usage of local language, technical jargon, must be carefully dealt with by entrepreneurs and business organizations. 

The next challenge that is encountered when entering international markets is the regulatory challenges that are enforced by different governing bodies of different countries. Compliance to the respective country’s documentation, quality standards and regulations is a must for any business operation. Sometimes these processes will be complex in nature and time-consuming. 

Another challenge would be the threat from the already established businesses which would pose the challenge of entering the market, capturing the market, and more importantly securing the market. Such companies will have strong brand presence in the market and enjoy economies of scale which will secure them a larger customer base. These circumstances will force the new companies entering the international market to become creative in their offering which could disrupt the traditional market, which was evident with the growth of Uber, Netflix all over the world. 

In addition to the above challenges entrepreneurs will face logistic related matters, taxations, tariff policies and more importantly fluctuations of exchange rates. Failing to resolve logistic related challenges will pose a threat of getting the product offerings of the company to the target market in a timely and the most cost-effective manner. Exchange rate fluctuations and taxations will directly impact the profitability of the operations and it’s a must before entering international markets to assess the feasibility of every action of the business operations. 

Overcoming challenges 

Conducting thorough market research including feasibility assessments must be the first step for any entrepreneur or business organization in making the decision to enter into an international market. The market research will analyze the target market, understanding the needs and wants of the respective market and also will give insights of the competitive landscape. Market research will be the primary task that should be undertaken in entering an international market because it will also show the opportunities which are available in the market and the most prominent pitfalls that must be avoided. Through the market research it will be able to identify the probable risks that are involved in entering the respective international market and this will help the entrepreneurs to formulate strategies to manage the risks that are identified. Some of the risk factors can be related to political instability, economic volatility and other cultural factors so comprehensive preparation will facilitate in overcoming many challenges. 

The value chain is another core component of any business and therefore building strong relationships with the local partners is another important aspect which will help to overcome several challenges that can be encountered while entering a new international market. Building such local relationships will pave access to resources and navigate the operations through the local business operations without any hassle. The local partners will ensure in building a strong brand image along with trust and credibility with the customers which will lead to a win-win situation for both the company and the partners. 

Another important aspect is that entrepreneurs must take efforts to customize the product offerings in terms of the product itself, packaging, marketing approaches in success ways, adapting to the local market taste and preference can improve the opportunities for the business to succeed in the respective international market. 

It is essential to understand how thorough the planning can prepare for unforeseen challenges that need to be addressed immediately, and entrepreneurs must be patient while being flexible to adapt to new developments in the market. It is also essential to learn from mistakes and move on, which is an essential mindset an entrepreneur must have to overcome any sort of challenge encountered. 

Success Stories 

Dilmah is a world-renowned brand which was established by Mr. Merrill J. Fernando in 1988 which is operating in over 100 countries. Commitment towards quality, sustainable practices and innovative marketing approaches has helped Dilmah Tea to become the face of Sri Lanka in many platforms. Dilmah has been a true inspiration for many entrepreneurs and business ventures of their journey to the pinnacle of success and their corporate citizenship practices have been benchmarked in the industry. 

MAS Holdings was founded by Mr. Mahesh Amalean in 1978 with the vision of expanding the apparel industry in the country and establishing a strong quality standard along with ethical standards related to the industry. MAS Holdings is now one of the biggest ventures which guarantees a heavy inflow of foreign currency. The company itself has expanded its operations to many regions across the world while mainly securing clients from USA and European regions. 

Therefore, success in the international market mainly depends on the exploration of strategies based on the thorough market research conducted by the entrepreneurs or business ventures. Such research will provide the dashboard view of challenges when entering the new market including the competitive landscape. There are many opportunities for entrepreneurs to enter international markets and managing the risk with effective strategies while building strong relationships with the local partners for the success of international business goals is important. 


This content was facilitated by CeFEnI/COSME and prepared by the University of Sri Jayawardenapura, Kotte

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