3.5. Markets That Your Company Will Operate In
The third and final area of business to consider when setting a corporate strategy is deciding on which markets to operate in. This decision should be based on your company’s realistic options and capacity to efficiently perform in a given market and the nature of your competition.Economic factors should come into play as well, such as the market potential of a given market. Companies with fixed operating costs should especially pay close attention to whether or not a given market is large enough for the company to be profitable. In certain lines of business, it is virtually impossible for a company to achieve long-term financial viability without exporting abroad.
Small and Medium-Sized Business in International Markets?
A strategically advantageous option, which is still being overlooked by many small and medium-sized businesses, is expanding into international markets. This can significantly increase sales opportunities and serve as a proactive step against global competition, which many small and medium-sized companies have to face.
A research study of small and medium-sized Finnish businesses that have successfully broken through the international market, was conducted by prof. Mari Suoranta from Finland’s University of Jyväskylä. This study revealed that small and medium-sized business were able to expand internationally, and by doing so eliminated certain weaknesses (low financial power, lack of knowledge of foreign markets, local culture and language) by engaging in personal contact and making connections. It is important to note the type of connections Finnish companies made abroad. Certain companies based their strategy on establishing few, albeit solid, personal relationships, while others developed more, strictly professional relationships. Companies who had both types of contacts in their network proved to be the most successful. This way, the company eliminated the risk of being strategically dependant on the few, albeit solid, contacts they had, which could be difficult to replace if they were no longer beneficial to the company. Having a wider network of professional contacts granted them better access to important market information. The most important aspect of both types of contacts proved to be trust. Maintaining a level of trust allowed Finnish companies to work well with their foreign contacts.
If something were to change, I would tell you …
In traditional Finnish humor, the wife asks her husband why he has only told her that he loves her once. The husband replies that he sees no need to repeat it, since nothing has changed. An important factor in the ability of Finnish companies to expand beyond their established home market, was being able to cope with “psychological distance,” i.e. the perceived difference between their own culture and foreign cultures. An example of cultural difference could be found in a meeting between Finnish businessmen and their French partners. While the Finnish businessmen assumed that what had once been said still holds true and does not need to be repeated, French businessmen expected stronger communication and repeated reassurance that their agreement was still valid. Finnish efforts not to waste time by repeating already agreed upon arrangements were viewed by the French as an expression of disinterest. Business meetings in Finnish companies with French partners thus often resulted in misunderstanding, complicating their international relations. The study showed that companies that did not perceive cultural difference as being problematic, or were able to bridge these cultural differences, were better equipped to enter the international market.
How to Approach International Markets?
- The possibility to expand into the international market can serve as a realistic opportunity for small and medium-sized business to grow.
- You will gain a strategic advantage by actively building a network of contacts abroad-if you do not have any contacts, you can use an agency such as Czech Trade, or similar international organizations in the Czech Republic (e.g. Finnish agency FinPro, www.finpro.fi).
- Contacts can be made at international conferences, exhibitions, trade fairs, or through someone you know with international contacts.
- When abroad, try to make as many professional contacts as possible, as they can serve as an important source of information, as well as some fewer but stronger contacts based on trust, which will directly help you expand into the international market.
- Be prepared to “invest” into strong, trust-based relationships.
- Regularly assess your strong relationships and ensure that you are not too strategically dependent on them. It is useful to have backup alternatives.
- If you decide to expand your company, keep cultural differences in mind.
- Creating stable business relationships abroad usually takes some time - certain contacts may have to be replaced until you find the right ones - don’t be discouraged if it doesn’t work out the first time around.
- After successful entry into the international market, it is necessary to develop and expand your position in the market, as successful entry is only the first step. Set a clear, long-term development strategy for the given international market.
