Overseas Trade Marketing Plan 4: Environmental Factors

Environmental Factors

The macroeconomic and industrial conditions in which a product or service is offered will be highly determinative of business performance. For businesses venturing into foreign territories, infrastructure issues will be impactful. Logistical systems, available technology, and personnel are likely to be influential factors. Competitive forces must be taken into account. The strength of the local, regional, and national competition for the target market must be known, as must the entry barriers, as these influence the prospects of the venturing firm and potential future competition from new entrants. Environments in which entry barriers are formidable will be costly to penetrate, but those entry barriers will also reduce the probability of significant threat coming from an influx of new entrants.

For companies who are moving physical goods, the competitive environmental factors of most interest are the availability of logistics companies and the suitability of transport infrastructure. In some environments, transport is monopolised and the availability of transport to companies other than the most dominant or well-connected is poor.

• Economic forces are another important consideration. Can costs be reduced or even fully known in uncertain environments? What percentage of competitors’ sales is diverted into marketing activities, such as PR, campaigns, and advertising? Does the local market expect companies to engage with prospective customers in this way? If so, the business model may have to be localised, or, better yet, made multi-domestic.
• Political forces are also to be reckoned for. In developing countries especially, state involvement in private business is commonplace and extensive. Special planning for interaction might be required. Similarly, transportation in some countries is highly political and efficient logistics is available only to customers who have political connections. General political and social stability must also be examined. Politically unstable environments are precarious investment destinations. There is overlap with economic factors: the costs of customs processes, taxes, tariffs, and special trade agreements will have to be figured into the cost of sales, and profitability projections made with such costs taken into account.
• Related to political forces are laws and regulations. Standard products may be inappropriate if shipped unmodified for sale into some markets. National laws also influence the nature of advertising. Along with formal institutions (as represented by laws and regulations), informal institutions can also affect business practices. This is particularly true of emerging economies, where governance and general business practice is conducted on the basis of established norms. The informal aspects of local business culture can be more forceful, and, in some instances, better enforced, than formal laws. A full understanding of local business culture is required when planning operations and marketing/advertising/promotion In environments where political institutions are potent i.e. where laws are enforced, legal expertise and the assistance of agents and brokers will be required. In institutionally weak environments, acquiring local management expertise and networking extensively with influential political and business figures are likely to be productive activities.
• The possibility of technological turbulence is likely to be impactful, especially if the technology of the product offering is highly differentiating, i.e. the product’s selling point is its technical advantages over similar products. If the technological environment is highly changeable, the value of a product whose differentiation is based solely on comparative technological advantage is likely to be short lived. In markets where entry barriers are low and the differentiating technology is easily replicable, product value is even more short- Moreover, if the product can be substituted for a lower quality but functionally adequate imitation, a strategy based on value adding through modest technological differentiation alone is unsustainable. Major, highly innovative technological differentiation reduces the possibility of loss of market share due to low-cost imitations, but this comes at high development cost. If product innovation is not at competitor destroying scale however, other, less tangible aspects of product, such as brand must be strengthened in order to fend off market encroachment. Adaptability, prestige, the possibility of use with other products, in conjunction with tangible functional benefits, are key to maintaining market share in highly turbulent environments.
• Sociocultural factors are strongly related to the foregoing. Convenience and ease-of-use are critical elements of product attractiveness. Any successful product offering must incorporate these two elements. In an untried market however, convenience and ease of use may be defined differently due to variance in cultural preference. What is recognized as easy-to-use in one market might be seen as difficult, illogical, unnatural, or counterintuitive in another. A full understanding of relevant cultural concepts is prerequisite prior to market entry. There may also be sociocultural factors affecting choice of payment and delivery and/or bundling expectations – all of which have profound implications for logistics and supply practice. In some cultures, cash is the preferred medium of currency exchange and e-commerce is unpopular. This has direct consequences for all company decisions related to distribution channels.