When considering a new market, exporters often rely on first impressions, assuming that a familiar language and similar business culture are enough to ensure success. However, these initial impressions can hide significant risks, and a more disciplined investigation is necessary to determine the viability of an opportunity.
Laura Pixley, CITP, emphasized the importance of proving that there is a real market for a product before investing time and resources. This involves looking beyond broad indicators such as population size or economic growth and understanding actual demand, local consumption habits, competition, and whether the product fills a meaningful gap.
Understanding Market Demand
A product that performs well in its home market will not automatically succeed elsewhere, as consumer preferences, lifestyles, trends, and purchasing behavior can vary significantly from one market to another. Exporters must determine if there is an established need for their product, if there is room for another entrant, and what makes their product meaningfully different.
The goal is not simply to identify an attractive country but to determine whether there is a realistic place for the specific product in that market. This requires a detailed understanding of the local market, including the target customer segment, sales channels, and regulatory requirements.
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Pixley also noted that national borders do not always define a single commercial market. For example, Europe is not a single market, and companies must consider the varying consumer behavior, language, regulations, and distribution models within each country.
Defining the Market
Instead of asking whether to enter a particular country, exporters should ask which province, region, customer segment, or sales channel to target. This added level of specificity can change the entire market entry strategy and help companies avoid assumptions that can hide significant risks.
Regulatory requirements are another critical aspect to investigate before building a commercial plan. Exporters must understand labelling, certifications, product standards, traceability requirements, and other compliance obligations early in the process to determine whether the opportunity is viable.
Pixley shared the example of traditional Scottish haggis, which had to be reformulated to meet Canadian requirements for human consumption.
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A free trade agreement does not automatically mean lower tariffs, and exporters must understand the rules of origin to qualify for preferential tariff treatment. The product must meet specific origin requirements, and the commercial impact of not qualifying can be substantial, with differences of 15, 25, or even 30% in some cases.
Pixley recommended involving customs brokers and other trade specialists earlier in the process to answer these questions and accurately assess the opportunity. The earlier these questions are answered, the more accurately a company can determine the viability of the market and make informed decisions about pricing, distribution, and partnerships.
Exporters must also consider the full landed cost of their product, including freight, insurance, brokerage, duties, port fees, warehousing, and inland transportation. This is where Incoterms become especially important, as the responsibilities built into the chosen Incoterm can materially affect pricing and profitability.
Pixley emphasized that looking at just the product price alone is not a good enough strategy when thinking about profitability. Companies need to know not only what the buyer will pay but also what remains after every export-related expense has been accounted for.
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Treating the local partner decision as a strategic decision is also important, as the partner can have as much influence on success as the product itself. Exporters should investigate a potential partner’s history, customer base, sales channels, existing brands, geographic reach, and sales capabilities to ensure they can deliver on their promises.
The structure of the channel may also need to change from market to market, and Pixley used non-alcoholic beer, wine, and spirits in Canada as an example. Due to the country’s regulations, many products could not be sold through the same liquor channels exporters were accustomed to using elsewhere, and some suppliers had to work with grocery and packaged-food distributors instead.
In some cases, an exporter may even need more than one partner for the same market, and the key is to understand how the product is actually bought and sold locally rather than trying to replicate the distribution model used at home. Familiar markets deserve more investigation, not less, as they can differ in regulation, labelling, channels, buyer expectations, and consumer behavior.
Building a Strong Market Entry Strategy
A strong market entry strategy requires a deep understanding of the local market, including consumer preferences, regulatory requirements, and distribution channels. Exporters should invest time and resources in researching the market and adapting their product to meet local needs.