Surveys have shown that the economic environment tends to receive the greatest amount of attention from export planners. The primary concern in analysing the economic environment is to assess opportunities for marketing the company’s products abroad or possibly for locating some of the company’s production and distribution facilities outside of South Africa. Indeed, when striving to identify potential countries to focus on, one of the major differentiating factors will be the differences in the economic environments that exist between potential target countries.
Decisions about how much of a product people buy and which products they choose to buy are largely influenced by their purchasing power. If a large portion of a country’s population is poor, the market potential for many products maybe lower than it would be if they were reasonable prosperous. If a country is expected to enjoy rapid economic growth and large sectors of the population are expected to share in the increased wealth, sales prospects for many products would clearly be more promising than if the economy were stagnating.
Thus, if you are comparing potential countries to focus your export efforts on, you must consider factors such as the general economic outlook, employment levels, levels and distribution of income, growth trends, etc. It should be borne in mind, however, that when income levels drop, people will generally cut back on their purchases of luxury items before they cut back on necessities. Thus, poor countries which are allocating scarce foreign exchange reserves only to necessities (e.g. cheap clothing, simple agricultural tools, etc.) may prove to be more reliable markets than rich countries for certain export products.
Below are some of the economic factors which should be of interest to the exporter. To learn more about these factors, please follow the corresponding links:
- Gross domestic product (GDP)
- Disposable income
- Demographic factors
- Competitive and complementary products
- Industrialised vs developing countries
- Degree of government intervention
- International trade agreements
- Trading blocs