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In last week’s post on part I of foreign market entry, I discussed the steep learning curve involved. Since I covered internal analysis last week, I will go over the importance of the external analysis in this post.
The external analysis typically consists of a foreign market and cultural assessment, along with determining the best entry modes — do you want to expand to a large country, a developing country, a developed nation, how important is being geographically close, etc. The next step in the foreign market assessment is performing a PESTLE (political, economic, social, technological, legal, and environmental) and Porter’s 5 Forces analysis.
After exploring the market, it is also necessary to understand and analyze the cultural differences and challenges to doing business in a global setting. A company should develop an analytic framework that allows them to better understand the attributes of the culture in the market they wish to enter. Cultural differences affect management and business practices so the company must recognize this and be able to adapt their business operations accordingly in order to succeed. Cultural differences have a broad reach to multiple segments of the business.
As an example, attaining and managing employees in the USA market can create challenges for a foreign company. There are not a lot of options for low cost labor as may be available in other markets. The USA labor pool is accustomed to having great benefits, flexible work hours, holiday time off, and even union support. The pool is saturated with workers of varying skillsets, but expectations must be set in the beginning. After Changing Your Lens, a foreign company quickly realizes it cannot rely on the philosophy of “it works in our country so it will work in the USA market as well.”
Analyzing a foreign market’s culture can sometimes be challenging as most people don’t view culture as a multi-level structure, when in fact a culture is comprised of observable and unobservable components. For example, one can observe behavior patterns such as are rules being enforced, rituals, etc. However, one cannot observe beliefs, values, and assumptions, and these are typically the most important to understand when entering a foreign market.
If I can help you determine whether your company should expand to a foreign market, please reach out to me.
