Study Notes

Factors Influencing the Attractiveness of International Markets

Level:
A-Level, IB, BTEC National
Board:
AQA, Edexcel, OCR, IB, Eduqas, WJEC

Last updated 7 Aug 2019

A decision by a business to enter international markets is often a complex one, where several potentially positive and negative factors need to be analysed and weighed up before the decision is made.

Here are six key factors that most businesses will consider when they analyse the attractiveness of target international markets:

Size & growth of the market (e.g. population)

One of the most important factors. Does the size of the target market justify the investment and risk involved with selling internationally? Which key market segments the business wants to target? How large are they and how fast are they growing?

Economic growth & levels of disposable income

An important indicator of the underlying strength of an international market. Emerging economies have experienced faster rates of economic growth than developed economies. This has created a growing "middle class" with rising disposable incomes that have fuelled demand for the products and services of international and domestic businesses.

Ease of doing business / political environment

An intangible, but still important factor. How reliable are the legal systems in the target country? Can the intellectual property of the business be protected? How volatile is the political environment?

Exchange rates

Trading in international markets is very likely to result in greater exposure of a business to exchange rate fluctuations. For example, profits may be earned inside the international market - but will exchange rate volatility reduce the value of those profits?

Domestic competition

If an international market is attractive, chances are that a business will have to compete effectively against local or domestic competition.What advantages do domestic competitors enjoy? Do they have control of, or better access to key distribution channels? How important is their more detailed understanding of customer needs and wants?

Infrastructure

The physical infrastructure of the target market is also likely to be a factor. This covers aspects such as the ease of transportation (into, out of and inside); strength and reliability of data systems (e.g. broadband).

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