Exporters often view a new market as promising based on initial impressions, such as a familiar language or similar business culture, and the presence of a free trade agreement. However, these impressions can hide significant risks, emphasizing the need for thorough investigation before market entry.
Laura Pixley, CITP, highlighted the importance of disciplined investigation over enthusiasm in a recent FITTskills Live session, drawing from her experience in helping companies assess and enter new markets.
Understanding the Market
Pixley stressed that exporters should start by proving there is a real market for their product, looking beyond broad indicators like population size or economic growth to understand actual demand, local consumption habits, and competition.
A product’s success in its home market does not guarantee success 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, room for another entrant, and what makes their product meaningfully different, considering whether buyers will pay enough to make the opportunity commercially worthwhile.
The goal is to find a realistic place for the specific product in the market, rather than just identifying an attractive country.
Defining the Market
Pixley pointed out that countries’ borders do not necessarily mark a single unified market, illustrating this with Europe and Canada, where consumer habits, language differences, regulations, and distribution networks can differ greatly between regions.
Instead of asking if they should enter a particular country, exporters should define the market at the level where buying decisions actually happen, considering which province, region, customer segment, or sales channel to target.
This added level of specificity can significantly change the market entry strategy, emphasizing the need for a detailed understanding of the local market.
For instance, in the United States, regional income levels, buyer expectations, consumer preferences, and distribution systems may vary substantially, requiring exporters to tailor their approach to each region.
Pixley advised exporters to investigate compliance requirements, such as labelling, certifications, and product standards, early in the process, as these can determine the viability of the opportunity and may require product reformulation or new packaging.
The example of traditional Scottish haggis, which had to be reformulated for the Canadian market due to regulatory requirements, highlights the importance of adapting products to meet local standards.
A free trade agreement does not automatically mean lower tariffs, as the product must meet specific origin requirements to qualify for preferential tariff treatment, making it essential for exporters to understand the rules of origin and involve customs brokers early in the process.
The commercial impact of not meeting these requirements can be substantial, with potential differences in landed price of 15, 25, or even 30% in some cases, making trade agreement eligibility a strategic pricing issue.
Pricing the Full Landed Cost
Just because someone shows interest in buying does not guarantee a profitable export deal. Companies must account for all expenses involved in moving goods, such as shipping costs, insurance, broker fees, tariffs, port charges, storage, inland transport, product modifications, packaging adjustments, local marketing efforts, and post-sale assistance.
“Looking at just the product price alone is not a good enough strategy when you’re thinking about your own profitability.” Companies need to know not only what the buyer will pay, but what remains after every export-related expense has been accounted for. Product reformulation, packaging changes and local promotion also belong in that calculation.
Treating the Local Partner Decision as a Strategic Decision
For many businesses, selecting the right in-market partner can be just as critical as the product itself. Pixley described the local partner as ‘often the single most important choice when expanding into a new market,’ emphasizing the need for thorough vetting.
Before committing, exporters should scrutinize a potential partner’s track record, customer base, sales networks, existing brands, geographic coverage, and sales expertise. They must also clarify what the partner expects in return. While rapid growth promises may sound tempting, exporters need concrete proof that the partner can meet those claims.
The structure of the channel may also need to change from market to market. Pixley used non-alcoholic beer, wine and spirits in Canada as an example. Due to the country’s regulations when the category first emerged many products could not be sold through the same liquor channels exporters were accustomed to using elsewhere. 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.
