The 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.