It’s a pivotal moment: The business you’ve founded, advise, or are a key employee at has hit its stride in the domestic market and is looking to expand internationally. There are several factors for your organization to consider:
- To what extent will your product or service need to adapt to consumer preferences in new markets?
- Who will the competitors be in those locales?
- Should you go it alone or enter with a local partner?
Before you take the plunge, how do you know which foreign market to enter? What factors can give you a read on the opportunities and risks you might face in your chosen country?
Economic indicators—data used to gauge an economy’s performance and its future direction—can provide you with valuable insights as you weigh your options for international expansion.
Factors to Consider When Entering a Foreign Market
An understanding of key macroeconomic indicators provides a broader context which, when combined with a firm-level analysis, can not only give you greater confidence in the decision to expand internationally, but a handle on the potential benefits and drawbacks of taking that course of action.
Here’s a look at three key economic indicators and what they tell us about the business climate in a given country.
1. Gross Domestic Product
Gross domestic product (GDP) is the value of the goods and services produced in an economy. The lunch you bought at the corner restaurant, the money your government pays to firefighters and teachers, the funds a company spends to build its new headquarters, the value of a vehicle manufactured in your country and sold abroad—all of these are part of GDP.
It’s generally a good sign for business when GDP is growing, but there’s nuance in the number: If a country’s GDP isn’t growing as fast as its population, GDP per capita isn’t rising. That means the standard of living for the people, and their purchasing power, isn’t increasing.
2. Unemployment Rate
A country’s unemployment rate is the number of people who are not working divided by the number of people who are working, or actively looking for work. A high unemployment rate can signal that a country’s economy is struggling and may give you pause when considering an investment.
An unemployment rate of zero, however, isn’t necessarily ideal for business. Considering the way unemployment is calculated, those who are changing jobs for better opportunities within a thriving economy are considered unemployed for any time they spend between positions. With low unemployment, companies have to spend more to lure candidates to work at their firms, and those costs often get passed along to consumers in the form of higher prices, which leads to inflation.
When evaluating potential markets to enter, consider what the country’s unemployment rate could mean for your business.
3. Inflation
Inflation represents the rate at which the general price level in an economy is rising. If you operate a business in a country with high inflation, the prices you pay for your inputs will increase, and the value of any cash savings you have, or money you’ve lent to others, will erode.
Despite these drawbacks, rising inflation can be good if you borrowed money at a fixed interest rate to establish or expand your business. Thriving economies often have some inflation. As long as it’s stable and predictable, you’ll be able to plan for it in your budgeting and pricing decisions.
Related: 5 Common Challenges of International Business You Should Consider
Preparing for Global Expansion
These are just a few of the indicators you might consider when deciding to expand your business globally. With a keen understanding of economics and the intricacies of international markets, you can help your organization expand its reach and thrive.
Do you want to turn the uncertainty of today’s economy into an opportunity for your firm? Explore our four-week online course Global Business, and learn more about how to assess the impact of macroeconomic, political, and social indicators on business decisions.
This post was updated on December 18, 2020. It was originally published on July 30, 2019.
