Research shows successful market entry strategies are driven by geographic and language segmentation.
Exporters segment by language, often targeting English-speaking countries where many expats live.
A UPS research survey has revealed that micro, small and medium-sized companies in the United Kingdom that have become successful exporters, have followed similar segmentation strategies when choosing new markets to enter.
Interviews were conducted with 2,368 small business owners or directors, including managing, commercial, business or sales development directors in 2013 and 2014. The research aimed to gain insight from the experiences of active exporters in order to identify the strategies they employed so that these could be emulated by novice exporters. The survey was of businesses in six sectors: manufacturing, wholesaling, retailing, services, publishing and communications.
An overwhelming majority of exporters had employed geographic segmentation and their first forays into exporting were countries in the European Union (EU). A total of 97% of the companies surveyed had exported to European countries.
Top Destinations: Where Exporting SMEs Send Goods
Source: UPS European SME Research conducted by Jigsaw
Exporting to the EU has built-in administration efficiencies, which the exporters appear to be exploiting. Without having to pay duties when goods cross borders and dealing with only one currency makes it far easier to price products.
Lead times are shortened when goods don’t need to be shipped long distances, which has a beneficial impact on cash flow. Fast transit with rail or road freight can be used and products can be warehoused at strategic locations on the continent to maximise speed of delivery.
Harmonised regulation across the EU has also eased business as it’s not necessary for exporters to comply with 27 different sets of regulations. A product compliant with British law will meet the standards elsewhere in the EU with little or no modification needed.
While geographic proximity and a favourable legal and regulatory environment promote exporting to the EU, British companies still experience cultural and language barriers. Exporters overcome these barriers by finding agents or distributors in each country. Multilingual labels and product packaging can be created to reduce inventory costs.
The UPS survey highlighted language as being the second most significant way of segmenting the world for the exporters. Forty five percent of companies that had exported outside the EU had sent goods to the United States. Australia and Canada were also among the top eight markets being exported to.
Similar research conducted in Germany by UPS found a large number of German companies were exporting to neighbouring countries, where German is also spoken. Destinations included Switzerland, Austria, Belgium, and parts of Italy and Poland. Exports to Switzerland contributed to Europe outside the EU being the most significant trading bloc after the United States for German exporters.
There are many benefits to segmenting by language when formulating an export market entry strategy. The ease of doing business is probably the most compelling as negotiating sales and prices is a lot easier if both parties speak the same language. Over five million Britons live abroad and the value of having contacts in the markets you target cannot be underestimated. These people can offer a great deal of marketing insight as well as practical help in developing business relationships.
One in 10 Britons live abroad and 77% of them choose to reside in English speaking countries. There are 1.3-million Britons in Australia and 215,000 in New Zealand. It’s unsurprising that the research found Australasia ranked among the top export destinations for British companies.
||Percentage of SMEs exporting there
|Asia (excluding China)
|Europe outside the EU
Brits Living Abroad: The Top Countries
Exporting to English-speaking countries also brings efficiencies to product design and promotions. Significant savings can be made by developing product labelling and instructions, specifications and descriptions, and advertising and promotional material in only one language. Customer service and sales staff will be able to interact with customers in English, lowering the costs of employing alternate language specialists.
There are also some financial benefits to choosing English markets to export to. Input inventory, such as language-specific labels and packaging, is lowered if all customers get the same thing. Because costs escalate as goods get manufactured, it can be extremely expensive to hold language-specific finished goods that can only be shipped to individual customers.
English-speaking countries, particularly ones that are culturally similar are the easiest to segment psychographically. Exporters have an intuitive feel for what the behavioural motivators in the United States or Australia are, but research would be required for markets like Thailand or China in order to find out what’s most important to consumers there.