
Feasibility of Foreign Market Expansion
Business Management and Enterprise (Year 12) - Management (U3)
Kanwal Singh
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