Imagine a Saudi company preparing to launch a new product in a market where it has never operated before. The company has no sales history in that country and does not know how quickly consumers will take to the product. But it has detailed information about how the same product performed in another country, where it was introduced several years earlier.

Can the company use that experience to understand what might happen in the new market?

The answer may seem simple: if a product succeeded in one country, it is likely to succeed in another. But economic forecasting requires more than assuming that success will repeat; it means understanding how demand evolves over time and how similar the conditions that drove it are.

This is where other markets become valuable as sources of information, not merely places to sell.

When the past reveals the future of another market

One approach covered in international business by Dr. @Stephen Rosenbaum at Al Yamamah University is lead-lag analysis, a forecasting method that examines how demand evolves in a market that adopted a particular product before another market did.

The idea is that some markets may go through similar stages of demand growth, but at different times. Historical data from the market that is further along can therefore help estimate the likely trajectory of the market that follows.

For example, suppose a smart home appliance company began selling one of its products in a country five years ago and has now decided to enter a new market with similar consumer conditions.

Rather than looking only at current sales figures, the company can study how demand evolved in the first market: When did consumers begin adopting the product? How long did it take to spread? Did sales accelerate gradually or experience a sudden surge?

The company can then use this data to build a picture of the likely sales trajectory in the new market, taking into account the time lag between the two.

The difference is that the company is not simply trying to calculate how many potential buyers there are; it is estimating how sales may change over the coming years.

When can comparisons be misleading?

The challenge is that similar markets are not necessarily identical.

A product may spread quickly in a country with advanced infrastructure and high incomes, but take longer in another country with different purchasing power, consumer habits, or distribution channels.

Economic and technological conditions may also change between the periods being compared. A product that took years to achieve widespread adoption in the past may spread faster today because of the growth of e-commerce or changes in consumer behavior.

For this reason, lead-lag analysis rests on an important assumption: that the relationship between demand growth in the two markets will remain similar enough to support a comparison. If this assumption does not hold, historical data may lead to inaccurate forecasts.

What does this approach mean for Saudi companies?

For a Saudi company planning to expand beyond the Kingdom, the experience of markets that adopted a similar product earlier can help determine when to enter, estimate inventory needs, and set more realistic sales targets.

But foreign market experience is no substitute for studying the target market. Good forecasting does not mean transferring one country’s figures to another; it means testing how similar the factors driving demand in each market are.

Studies of international product diffusion also suggest that the transfer of knowledge between consumers in different countries may affect how quickly products are adopted, making the relationship between markets more complex than a simple, fixed time lag.

Thus, experience in a foreign market does not provide a definitive picture of what will happen in the future. It does, however, give a company a starting point for developing forecasts that can be tested and adjusted before making costly investment decisions.

Scientific reference:

https://doi.org/10.1287/mksc.21.3.318.139