The Importance Of Market Research for International Expansion

Author: Veruska Anconitano, Multilingual SEO & Globalization ConsultantAuthor information
About the author
Veruska Anconitano
Veruska is a International Expansion Specialist focused on Multilingual SEO and Globalization with 24 years of expertise working with brands wanting to enter non-English speaking markets.
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The allure of international expansion is stronger than ever. Companies across the globe are looking to enter into new markets, eager to access untapped customer bases and unlock the potential for substantial growth. The promise of diversifying revenue streams, enhancing brand recognition, and exploring innovative product demands fuels a sense of excitement and optimism among business leaders.

However, this journey is fraught with challenges, and there’s one critical step that many companies overlook, jeopardizing their global aspirations: thorough market research. While the enthusiasm to compete globally is always a nice driver, it often leads to a rush toward expansion without a deep understanding of the new market’s complexities.

Market research plays a pivotal role in international expansion; it is not merely a preliminary check for competition or a superficial analysis of market size but provides businesses with the insights needed to enter new markets confidently. It’s a fundamental process that should guide every decision, from the choice of market to the adaptation of products and marketing strategies. This process involves gathering, analyzing, and interpreting data about a market, including potential customers, competitors, and the overall industry environment. Effective market research can illuminate the path forward, highlighting opportunities and pitfalls in foreign markets.

Throughout my career, I’ve been deeply involved in numerous expansion initiatives, accumulating significant knowledge about the critical role of market research in international growth. I’m eager to pass on this wisdom by outlining effective strategies for conducting research, interpreting data for informed strategic planning, and navigating the hurdles typically encountered along the way. Additionally, I’ll provide real-world case studies illustrating both successful and less successful market expansion efforts, offering valuable lessons from each.

The Role of Market Research in International Expansion

The Role of Market Research in International Expansion

Market research is not just about understanding who your customers are but also where they are, what they need, and how they behave in diverse cultural contexts.

For companies looking to cross borders, market research offers invaluable insights into local consumer preferences, market size, growth potential, and competitive landscape.

The essence of market research for international expansion

lies not in accumulating vast datasets or the superficial metrics of keyword volumes but in the depth and quality of insights gained.

Superficial research might give an initial overview of market size or highlight the most popular search terms related to a product or service. However, this level of analysis barely scratches the surface of what companies need to understand when entering a new market.

It may reveal “what” people are searching for but not “why” they search for it, “how” they make purchasing decisions, or “which” factors most influence their loyalty and satisfaction.

Conversely, in-depth market analysis delves into the cultural, social, economic, and political factors that shape a market. It seeks to understand the local consumer behavior, preferences, and unmet needs. This type of analysis considers local competitors, not just to acknowledge their presence but to understand their strategies, strengths, weaknesses, and customer base. It evaluates the regulatory environment, potential barriers to entry, and the logistical challenges of market penetration. In-depth market analysis also involves segmenting the market to identify the most viable customer segments and tailoring strategies to meet their needs.

The difference between superficial research and in-depth market analysis is akin to the difference between looking at a map and navigating the terrain. The former may give you a broad idea of the landscape, but only the latter can guide you through the intricacies of the local environment, helping you to avoid pitfalls and capitalize on opportunities.

Types of Market Research: Primary vs Secondary

Types of Market Research: Primary vs Secondary

When it comes to market research, we need to start by distinguishing between two main types: primary and secondary research.

Primary research involves collecting new data directly from sources. This can include surveys, interviews, and focus groups with potential customers in the target market. It’s tailor-made, offering specific insights into your business questions, but it can be time-consuming and costly.

On the other hand, secondary research utilizes existing data from reports, studies, and statistics published by government agencies, trade associations, and other organizations. It’s a cost-effective way to gain a broad understanding of the market, although it may not address specific business needs as precisely as primary research.

Both types are crucial; secondary research often lays the groundwork, while primary research fills in the details, providing a comprehensive view of the market landscape.

Conducting Effective Market Research

Step-by-Step Guide to Primary Market Research

Primary market research is essential for businesses seeking in-depth insights into their target international markets. The process begins with defining research objectives clearly: understanding what you need to know and why. Next, designing the research methodology is crucial, whether surveys, interviews, or focus groups, each tailored to gather specific data types. Crafting culturally sensitive and relevant questions to the target market is key to eliciting valuable responses.

Sampling involves selecting a representative group of respondents to ensure the data reflects the broader market. Implementing the research then requires careful coordination, especially when dealing with different time zones and languages. Data collection should be followed by a thorough analysis, looking for trends, patterns, and insights that inform business strategy.

Lastly, reporting involves presenting the findings in an accessible format, highlighting actionable recommendations for the business.

Leveraging Secondary Market Research for Global Insights

Secondary market research is a cost-effective method to gain a preliminary understanding of a new market. Start by identifying reliable sources of information, such as government trade offices, industry associations, and reputable market research firms. Analyzing existing studies can provide a broad view of market trends, size, and competition, helping to identify potential opportunities and challenges.

Comparative analysis is particularly useful, comparing the target market with others where the business is already established. This can reveal cultural nuances and market dynamics that could impact entry strategy. Additionally, secondary research can inform primary research design, helping to pinpoint areas needing deeper exploration.

This guide from Qualtrics explains the differences between primary and secondary market research and it is a great starting point to start your journey.

Cultural Considerations in International Market Research

Understanding cultural nuances is critical in international market research. Cultural misinterpretations can lead to irrelevant questions or misunderstood responses, skewing research findings. It’s important to adapt research methods to fit the target market’s cultural norms and communication styles. For instance, a preference for direct versus indirect communication can affect how questions are phrased and interpreted.

Local partners can provide invaluable insights into cultural nuances and help navigate the local market landscape. They can assist in designing research that resonates with local consumers and interpreting findings through a cultural lens. Being mindful of cultural sensitivities and legal considerations in data collection and privacy is crucial, ensuring research practices align with local norms and regulations.

Effective market research is multifaceted, requiring careful planning, execution, and interpretation. By combining primary and secondary research and paying close attention to cultural considerations, businesses can gather the insights needed to successfully navigate the complexities of international expansion.

Market Research Methodologies for Global Expansion

Market research methodologies are essential for companies looking to expand internationally, providing vital insights into consumer behavior, market dynamics, and competitive landscapes. These methodologies can be broadly categorized into qualitative and quantitative research, each offering unique benefits and insights tailored for global expansion. Understanding and applying the right mix of these methods can significantly enhance a company’s ability to enter and succeed in new markets.

Qualitative Research Methods

Qualitative research focuses on understanding the “why” and “how” behind consumer behavior, offering deep insights into customer motivations, attitudes, and preferences. It is particularly useful for exploring new markets, where understanding cultural nuances and consumer behavior can be crucial for success. Methods include:

  • In-depth Interviews: One-on-one conversations with consumers or industry experts provide detailed insights into personal experiences, opinions, and attitudes.
  • Focus Groups: Small, diverse participants are guided through discussions about specific topics, revealing consumer perceptions, needs, and preferences.
  • Ethnographic Research: Researchers immerse themselves in the target market’s environment to observe and interact with consumers in their natural settings, gaining a deep understanding of local cultures and lifestyles.
  • Case Studies: Analysis of specific examples within the market, such as successful businesses or failed product launches, to understand best practices and pitfalls.

Quantitative Research Methods

Quantitative research methods involve collecting and analyzing numerical data to quantify opinions, behaviors, and other defined variables. These methods are useful for estimating market sizes, measuring consumer preferences, and identifying patterns. Techniques include:

  • Surveys and Questionnaires: Structured instruments are administered to a large group people to gather measurable data about various aspects of the market.
  • Market Segmentation Analysis: Statistical analysis divides the market into distinct segments based on demographics, behaviors, or other characteristics, helping to identify the most promising target audiences.
  • Trend Analysis: Examination of market data over time to identify consistent trends or shifts in consumer behavior, preferences, or market size.
  • Benchmarking: Comparing company metrics against industry standards or competitors to gauge market position and performance opportunities.

Incorporating both qualitative and quantitative research methods and leveraging the expertise of local professionals provides a robust framework for understanding and entering new international markets. This comprehensive approach ensures that companies are informed about the market landscape and equipped to make strategic decisions that align with local consumer preferences and market conditions, thereby increasing their chances of success in global expansion.

Scribbr has in-depth guides on quantitative and qualitative market research, so if you want to start your journey more academically, I strongly recommend reading those two resources.

Analyzing Market Research Data for International Expansion

Analyzing Market Research Data for International Expansion

Identifying Market Trends and Consumer Behavior

Once data is collected, the next step is to analyze the findings to identify market trends and understand consumer behavior. This involves sorting through the data to discern patterns that indicate preferences, buying habits, and potential demand for your products or services. Advanced analytical tools and software can help manage and interpret large datasets, providing insights that might not be immediately obvious. For instance, consumer responses from surveys or focus groups can reveal cultural factors influencing purchasing decisions, such as preferences for certain product features or sensitivity to pricing.

Understanding seasonal trends or economic factors that affect consumer spending in the target market is also crucial. This information can guide businesses in timing their market entry and tailoring their offerings to meet local demands. Furthermore, analyzing competitive data helps in identifying gaps in the market that your business could fill, providing a competitive edge.

Competitive Analysis in a Global Context

Competitive analysis in international markets requires examining both local and global competitors. This includes analyzing their market share, product offerings, pricing strategies, and marketing tactics. Understanding the strengths and weaknesses of these competitors can help you identify market opportunities and potential challenges.

This analysis should also consider indirect competitors, which may not offer the same products or services but satisfy the same customer needs. By understanding the broader competitive landscape, businesses can strategize on how to differentiate themselves and capture market share.

Evaluating Market Entry Strategies

The culmination of market research is evaluating and selecting the most appropriate market entry strategy. This could range from exporting, franchising, joint ventures, to establishing a subsidiary in the target country. Each strategy has its risks and benefits, and the choice depends on factors like market size, regulatory environment, capital investment, and business objectives.

The analysis should consider logistical challenges, such as distribution channels and supply chain logistics, and regulatory hurdles, including tariffs, trade restrictions, and local business regulations. A thorough understanding of these elements, informed by comprehensive market research, allows businesses to choose a market entry strategy that aligns with their strengths and market opportunities.

Understanding Real Demand With Market Research

Understanding Real Demand With Market Research

One of the main uses of market research is to help understand the real demand for a specific market’s product or service. Identifying genuine demand for products or services in a new market is fundamental for companies aiming to navigate international expansion successfully. This critical step goes beyond merely recognizing a market’s size or the apparent interest in a category of products or services. Genuine demand signifies a deeper, more sustainable market opportunity that can drive long-term success and growth for businesses venturing abroad.

Understanding real demand involves uncovering whether potential customers are interested in a product or service and whether there is a readiness and ability to purchase within the target market. Interest might be widespread, but it doesn’t always translate into sales if the market isn’t financially prepared or if the product doesn’t align with local purchasing power, consumer habits, or needs. For instance, a high-tech product might attract significant interest in a developing market, but the real demand might be limited due to affordability issues or a lack of related infrastructure to support the product’s use.

Real demand is about understanding several elements:

  1. Economic Viability: The target market must have the economic strength and stability that enables consumers to purchase the product or service. This includes disposable income levels, employment rates, and overall economic health.
  2. Market Readiness: This aspect looks at whether the market is prepared for the product or service in terms of infrastructure, legal frameworks, and technological adoption. For technology products, for instance, adequate internet penetration and digital literacy are crucial.
  3. Cultural Fit: Products or services must resonate with local cultural norms, values, and practices. What works in one country may not necessarily work in another due to cultural differences influencing consumer behavior and preferences.
  4. Unmet Needs: Genuine demand is often found in areas with significant unmet needs or gaps in the market. Identifying these gaps requires deeply understanding local problems, pain points, and how current offerings fall short.
  5. Sustainability of Interest: Temporary trends or fads can create a misleading appearance of demand. Real demand is characterized by a sustained interest that indicates a product or service meets a lasting need or desire.

Implementing Findings to Shape Strategy

Implementing findings from market research to shape strategy is a crucial step in ensuring the success of international expansion efforts. The insights gained from thorough market research enable companies to make informed decisions, tailor their offerings to meet local needs, and strategically position themselves in new markets. Here’s how businesses can use these findings to adapt their product offerings, marketing strategies, and business models, along with examples of successful applications.

Adapting Product Offerings

Teriyaki McBurger

Market research can reveal specific local preferences, cultural nuances, and unmet needs that may require company product line adjustments. This could involve modifying product features, changing packaging, or developing new products tailored to the local market. For example, a food and beverage company might alter recipes to suit local tastes or dietary restrictions identified through market research.

Example: McDonald’s adapts its menu to local tastes globally, offering items like the McSpicy Paneer in India and the Teriyaki Burger in Japan, reflecting the preferences uncovered through market research.

Tailoring Marketing Strategies

Pantene Gold Series line

Insights from market research help in crafting marketing messages that resonate with the target audience, selecting the most effective channels for communication, and identifying the best practices for engaging with consumers. Cultural insights ensure that marketing campaigns are sensitive to local norms and values, thus avoiding potential backlash and enhancing brand reception.

Example: Procter & Gamble (P&G) used market research to understand the unique hair care needs of African American women in the U.S., leading to the successful launch of the Pantene Gold Series line, specifically formulated for and marketed to this demographic.

Refining Business Models

spotify india

Market research can indicate the need to change a company’s business model to better align with local market conditions. This could involve adjustments in pricing strategies to match local purchasing power, changes in distribution channels to better reach consumers, or even adopting new sales models, like subscription services, if research shows a market preference for such models.

Example: Spotify’s expansion into India involved a comprehensive market research effort that revealed a preference for mobile use and an appetite for local content. Spotify adapted by offering flexible pricing models, including a low-cost mobile-only plan, and by curating extensive local music playlists by language considering the many languages spoken in the country.

The Pitfalls of Ignoring Local Nuances

Ignoring local nuances in cultural, economic, and legal aspects can significantly hinder the reception of products or services in new markets, leading to failure. This oversight can manifest in various ways, from misaligned marketing campaigns to products that clash with local values or legal systems. Here, we explore how such differences can impact business success and highlight case studies of companies that faced setbacks due to overlooking these crucial local preferences and regulations.

Cultural Differences

Cultural nuances influence consumer behavior, preferences, and expectations. When companies fail to adapt their offerings and marketing messages to align with these cultural specifics, they risk alienating their target audience. For instance, color symbolism varies greatly between cultures, where a color considered positive in one country may have negative connotations in another.

Case Study: Best Buy in China

Best Buy, the American consumer electronics retailer, exited the Chinese market after failing to gain traction. One of the critical oversights was not adapting to the local retail culture. Chinese consumers preferred a high level of service and the ability to negotiate prices, practices that were common in local competitors but not in Best Buy’s model, which focused on fixed prices and self-service. Additionally, Best Buy’s failure to localize its product offerings and marketing strategies to the preferences of Chinese consumers further contributed to its struggles.

Cultural awareness should be a must in SEO and Digital Marketing. If you want to know more, read my guide.
Check the guide

Economic Differences

Economic conditions vary widely across markets, including income levels, purchasing power, and consumer spending habits. Products and pricing strategies that are successful in one country may not work in another if they do not consider these economic disparities.

Case Study: Walmart in Germany

Walmart’s exit from Germany in 2006 was a notable failure attributed to several factors, including disregard for the country’s economic and operational practices. Walmart attempted to implement its American business model, including its low-price strategy and store layout. However, this approach did not resonate with German consumers accustomed to local discount chains already offering competitive prices. Walmart’s corporate culture also clashed with German labor practices, leading to further complications.

Legal Differences

Legal and regulatory environments can drastically differ from one country to another, affecting everything from product formulation to marketing practices. Ignoring these legal nuances can result in fines, bans, or compulsory product recalls.

Case Study: Google in China

Google’s initial challenges in China highlight the complexities of navigating legal and regulatory environments. The company entered the Chinese market in 2006 but faced significant hurdles due to China’s strict internet censorship laws. Google’s failure to fully anticipate and adapt to these regulatory demands led to a contentious relationship with Chinese authorities, eventually contributing to redirecting its Chinese search engine to Hong Kong in 2010.

Avoiding the Competitor Trap

Avoiding the Competitor Trap

The presence of competitors in a market is often interpreted as a sign of viability, suggesting a proven demand for similar products or services. While competition can indicate a healthy market, relying solely on this factor to assess market potential is a misconception that can lead companies astray. This approach overlooks the importance of differentiating through a unique value proposition (UVP) and addressing unmet needs, which are crucial for success, especially in saturated markets. Only accurate market research can help avoid the competitor trap and can lead to significant rewards, enabling new entrants not just to compete but to redefine the competitive landscape itself.

Misconception of Market Viability

The assumption that a market is viable simply because competitors exist fails to account for the nuances of market dynamics and consumer preferences. Competitors’ presence does not guarantee a new entrant’s success; it often means that the market’s expectations are already set, and the standards are high. Entering such markets without a clear differentiation strategy can lead to struggles in gaining market share, as consumers may have little reason to switch from established players to new entrants.

Focusing on Unique Value Proposition

A UVP defines what makes your product or service unique and why it is better than or different from the competition. It is a crucial element that can attract customers in a crowded market. Companies that succeed in saturated markets do so by offering something that competitors do not. This could be an innovative product feature, a unique customer service experience, a different business model, or a more appealing brand story.

For example, Tesla entered the automotive market by focusing on electric vehicles (EVs) when major manufacturers were still heavily invested in traditional internal combustion engines. Tesla’s UVP of high-performance, luxury electric cars with innovative technology and an eco-friendly image allowed it to carve out a significant niche in what was already a highly competitive market.

Addressing Unmet Needs

Success in saturated markets can also come from identifying and addressing unmet needs within the market. These are gaps that competitors have overlooked or chosen not to fill, either because they are unaware of these needs or because they do not align with their current business strategies.

Airbnb is a prime example of a company that identified an unmet need in the travel and lodging industry. Before Airbnb, options were largely limited to hotels, hostels, and bed-and-breakfasts. Airbnb’s platform offered a unique alternative: affordable accommodations with a local experience. This appealed to budget-conscious travelers and those seeking a more authentic and personal travel experience.

Case Study: Domino’s Pizza’s Failure in the Italian Market

Domino's Pizza's Fail in the Italian Market

When it comes to expanding globally, guessing is never an option. Disrupting, too, may not be the right approach.

Domino’s Pizza, the famous American multinational pizza restaurant chain, embarked on an ambitious journey in 2015 by entering the Italian market, the birthplace of pizza. This move was bold and somewhat controversial, given Italy’s rich culinary tradition and the strong presence of local pizzerias that have perfected their craft over centuries.

Domino’s entered the Italian market with a strategy tailored to differentiate itself from traditional Italian pizzerias. They focused on convenience and technology, offering online ordering, home delivery, and American-style pizza variations, which local establishments did not commonly provide. Domino’s aimed to cater to a niche market segment that valued these services, particularly among younger consumers and urban dwellers looking for quick and convenient meal options.

Did Italians need Domino’s Pizza? No, they didn’t. In fact, despite its global brand recognition and successful business model in other countries, Domino’s faced several significant challenges in Italy:

  • Cultural Resistance: Domino’s underestimated the strong cultural attachment we Italians have to our culinary traditions. Pizza in Italy is not just food; it’s a cultural heritage. Many Italians remained loyal to their local pizzerias, which offer superior quality and authenticity compared to the American chain’s offerings.
  • Competition with Local Pizzerias: Italy is home to thousands of pizzerias that offer a traditional dining experience, with pizzas deeply rooted in local traditions and flavors. These establishments have a loyal customer base and deep ties to the community, making it difficult for a foreign chain like Domino’s to compete.
  • Economic Factors: The economic landscape in Italy, particularly the challenges posed by the COVID-19 pandemic, played a role in Domino’s struggles. While the pandemic initially led to increased demand for delivery services, the competitive landscape and operational costs remained significant hurdles.

All of this happened because of bad market research and very little knowledge of the market. In 2021, Domino’s announced the closure of its operations in Italy, citing difficulties in sustaining its business in the face of stiff competition from local pizzerias and the inability to capture a significant market share.

Domino’s Pizza’s exit from Italy is a perfect example of the challenges of global brand expansion into markets with strong local traditions and preferences. While Domino’s continues to thrive globally, its Italian venture reminds us that success in one market does not guarantee success in another.

Who Is Responsible For Market Research For International Expansion?

Conducting market research for international expansion typically falls to a dedicated team within a company, often led by the Market Research or Business Development department. This team might include market researchers, data analysts, and international business strategists who work collaboratively to gather and analyze data on potential overseas markets.

In smaller companies or startups, these tasks may be undertaken by a single individual with expertise in market analysis and business strategy.

More and more businesses opt to partner with external market research firms that specialize in international markets or with local market research consultants to leverage their expertise and local knowledge. These external resources can provide in-depth analyses, cultural insights, and tailored strategies to ensure a comprehensive understanding of the target market, thereby supporting informed decision-making for successful global expansion.

Market Research Is More Than Gathering Data

Effective market research is the cornerstone of successful international expansion. Before even thinking of expanding, conducting thorough market research is vital to avoid common pitfalls and rely on strategies (like SEO and Paid) that cannot sustain a coherent growth if data do not support them. Through a combination of primary and secondary research and by paying close attention to cultural nuances, businesses can devise strategies that resonate with local consumers and navigate the complexities of global markets.

Market research is not just about gathering data. It goes beyond simple assessments of market size or competitor presence, delving into the depths of what makes each market unique and identifying local consumers’ unmet needs and desires. This level of understanding is crucial for companies to differentiate themselves in a crowded marketplace, offering products and services that resonate with local consumers and meet their specific needs. Moreover, market research aids in strategic positioning, helping companies to identify their unique value propositions and how these can be adapted to suit new markets. It provides the insights needed to make informed decisions about product adaptation, marketing strategies, business models, and market entry tactics—each tailored to the intricate tapestry of each new market.

Understanding a market before entering can differentiate between a successful expansion and a costly retreat. Through diligent, in-depth market research, companies can navigate the uncertain waters of international business, steering towards opportunities for growth and success in the global arena.

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