Feasibility of Expanding into a Foreign Market

A feasibility analysis looks at how viable expansion into a given market would be. It involves considering many factors, such as the total market size, the number of competitors, their position in the market, capital requirements and more. Generally, businesses that expand overseas do so to make profit. Overall, the analysis considers if the proposed venture will generate a sustainable level of profit in both the short-run and long-run.

There are three factors (for the WACE syllabus) that determine the feasibility of expanding into a foreign market:

Level of demand by consumers

• This refers to the consumer base's desire and willingness to pay a price for a certain good/service

• Feasibility will mainly be impacted by the following:

• Number of potential customers

• How often they purchase

• Their ability to purchase (this is affected by their disposable income)

• Higher demand helps a business expand overseas, due to the following reasons:

• Increased sales

• Higher potential market share

• Greater ability to command higher prices

• Ability to quickly recuperate expansion costs

• Quicker penetration of brand awareness

Consumption patterns

• This is the process where customers search for, acquire and consume goods/services that satisfy their needs and wants.

• Feasibility will mainly be impacted by the following:

• Trends in the market set by consumers (e.g., popularity, social media influence, interests of target demographic)

• Consumers seeking substitute products

• Changing patterns of consumption due to political influences and overall rises in household income

• Time of year (e.g., holidays, seasonal consumption)

• Businesses that rapidly adapt to these trends tend to be more successful

Competitor activity

• This refers to how many competitors there are in a market and their relative market share.

• Different markets can have different barriers to entry:

• Markets with low barriers to entry tend to have few competitors, unhappy customers and competitors failing to provide the market with what they want

• Markets with high barriers to entry tend to have difficult products to make, established competitors and loyal customers