Why “big” markets like China or India may not be such a big market for your business.
We’ve had countless number of conversations with different startups and scaleups about which countries they would like to enter and almost always the conversation goes something like below.
Me: So, tell us about your busines and which countries you would like to expand into.
Founders: [Wonderful blurb about their business]. We would like to expand to China and we are super excited about it.
Me: Why China?
Founders: It’s one of the biggest markets!
Me: Biggest market?
Founders: Yes, there are nearly 1.5 billion people in China alone!
Me: I am aware of the population of China. How do you know they will use your product / service?
Founders: Well, ”potentially” a lot of people are going to be using our product / service because there are a lot of people in that country and thereby increasing the theoritical chance of the demand for our offering.
Me: That’s a dangerous and lazy assumption. The population size (i.e. market size) does not equate to demand for your product or service.
Please don’t make the mistake many of our clients are making. Market size can serve as one of the indicators of market demand, however it is most certainly not the sole indicator of it.
There are many factors at play when determining market demand. Plucking out the market size without factoring in other variables will fast-track your business to failure in that particular market.
Each business providing a product or service is in context attempting to solve one or more problems for the consumer. So the correct way to determine a more accurate market demand is to look into what segment of the population actually has the problem your business is trying to solve, how critical that problem is in relation to everyday life (is it life threatening or saving them a lot of time?) and whether there are already competitors providing a better solution than your business.
Additionally, environmental and cultural factors may come into play which should be taken into careful consideration. For example not all countries in the world suffer from air pollution, so if your business is manufacturing a state-of-the-art mask to reduce the intake of polluted air for commuters, the product would be void in countries or areas where air pollution is non-existent.
Take-away: Market size does not equal market demand. Do proper due-diligence to better determine market demand and never assume more people means more demand.