It is very important for any business that is thinking of expanding its presence into international markets to examine the strengths, weaknesses, opportunities, and threats (SWOT) for the expansion process. In many respects, a SWOT analysis is an integral part of the strategic planning stage of the internationalization process. A SWOT analysis acts as a report card for the business and helps to isolate the strengths and weaknesses of an export strategy. SWOT also indicates to the business, the opportunities or threats that it is mostly likely to face in its targeted markets and hence effective in strategy formulation and selection. The SWOT process can be broken down into three activities:
(1) A thorough internal analysis of the firm’s strength and weaknesses
(2) A complete business analysis of the firm’s industry focusing on entry barriers, price points, substitute products, customers and competitors
(3) A macro analysis of the opportunities, risks and threats that could be potential in a targeted market.
For a small business to apply its own SWOT analysis it should start by creating a heading for each category – ‘Strengths’, ‘Weaknesses’, ‘Opportunities’ and ‘Threats’. Under these heads, relevant aspects of the business and the targeted market environment should be listed. The following diagram illustrates how the SWOT analysis can be conducted.
A SWOT analysis can be very subjective and is an excellent tool for a business when it is choosing to expand to a new foreign market. It is a tool that can be successfully used prior to expansion and helps in developing a business expansion strategy, a risk aversion plan and lets the business be prepared for what it can expect in a new market. Furthermore, a SWOT analysis can be used to efficiently and effectively convert the weaknesses into strengths, to utilize the available opportunities to the maximum and to be prepared for the threats in order to reduce the losses.
Every business differs and therefore so will its SWOT analysis. The following is a broad classification of the most common strengths, weaknesses, opportunities and threats that a business in general faces when it choses to expand in a foreign market.
(1) Strengths: The strengths of a business are its resources and its capabilities to use these resources for developing a competitive advantage. If the business finds itself possessing these strengths, it should find itself at an advantage when it choses to enter the international market. A few of these strengths are:
- Strong Brand names
- Robust Domestic market
- Good Reputation among customers
- Excellent Infrastructure
- Patent Protection
- Exclusive access to high quality resources
- Cost advantages
- Favorable access to distribution networks
(2) Weaknesses: While a business has its strength, it may have its weaknesses too. Not all businesses possess the integral strengths needed for expansion. However, over time, and if caught on early through a SWOT analysis, these weaknesses could be converted into strengths. For example, the following may be considered weaknesses:
- A weak brand name
- Competitive Vulnerability
- Unfavorable reputation among customers
- High cost structure
- Lack of Patent Protection
- Lack of access to best resources
- Lack of access to key distribution channels
(3) Opportunities: When a new business enters a new foreign market, it is because it sees a growth opportunity for its business. The new market may reveal new and profitable opportunities for the growth of the business. Some of these opportunities are:
- An unfulfilled customer need
- New technologies
- Removal of International trade barriers
- Loose regulations
- Financial and Legal support
- Market poised for Growth
- Competitors weaknesses
(4) Threats: Again, as there are opportunities, there are threats too. When a business choses to expand internationally, it has to prepare itself to face unforeseen threats. Some of these threats may be:
- Constant shifts in consumer tastes
- Emergence of substitute products
- Price wars
- New Regulations
- Increase in Trade Barriers
- Political, Economic and Cross Cultural Risks
It is important, therefore that the business conducts a SWOT analysis, specific to its business and the industry which it is a part of, to successfully plan an international business strategy.
Successful SWOT Analysis
A successful SWOT analysis depends on few factors. Simple rules for it are:
- Realistic analysis of the strengths and the weaknesses
- Analysis should focus on the present and the future of the business
- Identification of the goals and objectives of the business
- Analysis has to be as specific as possible
- Analysis should always be in relation to the competition
- Analysis should be as short and simple possible
After the SWOT analysis is complete, the business should be able to exhibit a strategy to configure its overall position by seeking the best combination of the businesses strengths and objectives as identified, that can optimize maximum returns. The business needs to carefully make choices to develop itself in an advantageous position in the new foreign market. Concurrently, the firm needs to improve its weaknesses and minimize its threats.