The need for a targeted internationalisation strategy

By Michael Di Figlia, DTO

The media repeatedly report an economic slowdown and the threat of an economic crisis or recession. The trade dispute between the USA and China and the prospect of Brexit are just two indicators. Some export-focused companies are already reporting fewer orders. Overall, the signs appear rather gloomy.

However, companies can prepare for a potential crisis and should have learned from past recessions. Early warning systems are important in this context. If sales conditions in particular countries deteriorate sharply, alternative markets should already have been evaluated. Alongside continuously monitoring existing markets, this means keeping a permanent eye on regions with potential. There are still countries and regions where medium-sized companies can achieve sound growth. Experience also tells us that many have not exhausted the global growth potential of their products and services. Cultural factors, as well as limited market knowledge, often explain this. Entering a new market therefore always requires careful preparation. Companies should systematically build knowledge of products, customer segments, sales structures, competitor activities, legal conditions and market trends. This provides the basis for a country or regional strategy. Questions may include:

• Is the entire region attractive, or only individual countries or groups of countries?
• Should a local subsidiary be established, or is distribution through dealers preferable?
• Which products should be offered locally, and do existing products need adapting to local requirements?
• Is a presence needed in every country in the region, or can some markets be served through direct exports?

Past projects show that medium-sized companies have mainly focused on Asia or South America alongside North America in recent years. Economic and political uncertainty has shifted this focus somewhat. While Europe is regaining strategic importance as a production and sales market, more companies are watching developments in Asia. China is often the main focus, but it is not necessarily the right starting point for business in the region. Decision-makers interested in China also tend to think primarily of its major coastal cities and special economic zones. Looking at the Chinese market as a whole reveals considerable diversity. Addressing the entire market is therefore not recommended as an initial step. Cultural barriers are also relatively high. Companies face difficulties in Japan too: alongside language and cultural factors, trade barriers pose particular challenges. Many German companies, for example, separate their Chinese and Japanese operations from other regional activities, because these markets are attractive in size but can also be difficult to develop.

Based on our experience in the region, we usually recommend that clients at least consider Singapore as a market entry point. The country offers comparatively straightforward ways to establish a foreign subsidiary, is an excellent logistics base for serving Indonesia, Malaysia, Vietnam or Thailand, and has relatively low cultural and language barriers. It is also often significantly ahead of Germany in digitalisation, technology and sustainability. Knowledge and technology transfer from Asia to Europe will increase considerably in the coming years. Companies can benefit if they engage with Asian markets early enough.

Unlike many markets in Europe and North America, markets in the region are often not saturated. Over the coming decades, stable growth will be achievable primarily in Asia. Rapid technological and social development in countries such as Vietnam should be sufficient motivation for medium-sized companies to take the step into Asia. We will be happy to help if you want to explore specific markets or industries, or need contacts from our network, for example in legal and tax matters.

About DTO

DTO is an international market research and consulting company specialising in B2B market analysis and market entry consulting. Our core capabilities include analysing competitors, market potential, customers and suppliers, trends and markets in more than 100 countries worldwide. We have completed more than 500 national and international B2B market research and consulting projects. Alongside professional market analysis, we develop strategies to expand clients’ businesses in existing markets or enter new markets and realise new opportunities. We support clients with:

• Strategic direction and planning at national and international level;
• Targeted optimisation of marketing and sales;
• Building international knowledge of markets, industries and opportunities through professional market and industry analyses;
• Preparing internationalisation strategies and developing new sales markets;
• Evaluating strategic alternatives;
• Preparing M&A projects;
• Implementing strategies.

Our industry focus includes industry and manufacturing, construction machinery and commercial vehicles, mining and construction, mechanical engineering, chemicals, medical devices, cleaning machines and products, logistics and transport.