and complementary products
1: Considering exporting > The
various environments you will encounter abroad
> The economic environment
> Competitive and complementary products
current size and future growth of a potential market can
be meaningfully evaluated only in relation to the share of
the market which a company can reasonably hope to attain.
This, in turn, requires that you assess both existing competitors
in the foreign market place as well as potential competitors.
In order to effectively analyse competition, you need to
focus on a number of structural and behavioural determinants
of competition, including barriers to entry and exit, the
number of competitors, the goals and capabilities of competitors,
and the state of evolution of the industry concerned.
The size and distribution of firms will have
an important bearing on competitive conditions in the industry
concerned. For example, competition in an industry made
up of a number of large, well-financed firms is likely
to be different from the competition in an industry made
up of many medium-sized, expansion-minded firms. In evaluating
the potential rivalry from substitute products, you need
to consider the goals and objectives of the different competitors,
as well as their competitive strengths and weaknesses.
Thus, large but relatively complacent firms may offer less
competition than smaller, expansion-minded firms may. Since
the export firm is often operating (or contemplating operating)
in unfamiliar markets, the task of identifying the likely
strategies of its overseas competitors may be difficult.
Competition and prices
The extent of competition in the industry
or sector will also influence the prices can be obtained
for the goods and/or services. For instance, the widespread
availability of substitute products makes consumers quite
sensitive to price differences in the market place, and
this places restrictions on the prices that can be charged
without losing a large share of the market. On the other
hand, a scarcity of good substitutes presents an opportunity
of charging higher prices without suffering a significant
decrease in market share.
Availability of complementary products
While it is sometimes overlooked, the availability
of complementary products can enhance the economic outlook
for a particular product. Complementary products are goods
or services used in conjunction with the products that
a company is contemplating introducing into foreign markets.
For example, video cassettes are complementary to video
cassette recorders. The widespread availability of complementary
products makes the introduction of any new product in foreign
markets a more attractive business opportunity. Indeed,
the availability of complementary products may even be
essential to the successful launch of a product.
Government policies toward foreign investment
The policies of foreign governments toward
international trade and investment constitute one of the
most important influences on competitive conditions in
foreign markets. Many governments, particularly in developing
countries, protect local producers with a combination of
tariff and non-tariff barriers. This often enables firms
already established in a particular domestic industry to
maintain their share of the local market while charging
prices substantially higher than the cost of production.