Domestic Market

What is a Domestic Market?

The domestic market definition is the supply of goods and services by businesses to customers living within its own geographical borders.

Key Takeaways

A domestic market is made up of customers from a company’s own home country.
Companies will be more familiar with their domestic market.
The costs involved with domestic markets are usually lower.
A domestic market is normally less complicated than an international market.
Focusing solely on domestic markets will limit a company’s growth potential.

How a Domestic Market Works

A domestic market is best described as one in which goods and/or services are bought and sold within the confines of a single country.

For example, Spain has a population of more than 48 million people, according to the country’s National Statistics Institute.

Effectively, this is the size of its domestic market as it’s the number of people in Spain to whom a Spanish company could theoretically offer its goods and services.

Attractions of a Domestic Market

A business may opt to focus on its domestic market because the costs and logistics involved are likely to be cheaper and simpler than searching for overseas customers.

It will also be more familiar with everything from the needs of potential customers to the various legal requirements that must be met.

They’ll also avoid complications such as language barriers, foreign exchange issues, or transportation challenges in getting their products abroad.

Domestic Market vs. International Market

While some companies focus solely on domestic customers, others opt to increase their customer numbers by embracing international markets. The best way to describe an international market is one that sits outside the borders of a particular company’s home country.

Let’s use a Chinese company as an example. Its domestic market would be China, while its international markets would be any country outside of China.

Attractions of International Markets

The main benefit to a business of trading across international markets is an increase in the number of potential customers.

For example, there were 3.3 million people in England and Wales who were aged at least 65-years-old in 2021, according to the Office for National Statistics.

However, there were 13.69 million people of that age in France, according to Statista data. This means businesses selling to older people would have more opportunities in France.

The Changing Global Backdrop

The world has also become much more global in outlook over recent decades with businesses more relaxed about international trade.

As of 2022, world trade volume and value have expanded 4% and 6%, respectively, on average, since 1995, according to data compiled by the World Trade Organization.

Evolution of world trade_ 1950-2022 Volume Index_ 1950_100

Domestic vs. International Markets: What are the Key Differences?

The table below highlights the main differences between domestic and international markets.

Domestic market

Trade occurs within one country
Exposed to country specific-risks
Important for local suppliers and producers
Simpler for businesses to negotiate
Less competition

International market

Trade between at least two countries
Exposed to broader international risks
Greater number of potential customers
More complicated for businesses
Greater number of rivals

Domestic Market Examples

An example of a domestic market is the United States. If a US-based company is selling to customers in the US, that will be referred to as its domestic market.

However, there are other parts of the world that can lay claim to being domestic markets, even though they don’t match the definition of being a single country.

For example, the UK is often referred to as a domestic market, even though it consists of England, Wales, Scotland, and Northern Ireland.

Then there’s the European Union. Its aim is to enable EU citizens to study, live, shop, work, and retire in any EU country, as well as enjoying products from across Europe.

The EU has stated: “By removing technical, legal, and bureaucratic barriers, the EU also allows citizens to trade and do business freely.”

Domestic Market Pros and Cons

There are pros and cons for business when it comes to domestic markets.

Pros

Less transportation costs for businesses
No foreign exchange issues to consider
Less impact from geopolitical events
Customers may prefer dealing with companies based in their home countries

Cons

Fewer potential customers by restricting to one country
Vulnerable to country-specific economic problems
Limited growth potential
Vulnerable to international rivals stealing market share

The Bottom Line

The most accurate domestic market meaning is that it’s the supply of goods or services by a company to customers living within its own country borders. It’s easier for a company to navigate its domestic market because it will be familiar with the customs, language and general requirements.

The business will also avoid foreign exchange issues, transportation problems, and the need to understand other countries’ rules and regulations.

However, focusing on the domestic market means a company could be missing out on spectacular growth and exploring potentially lucrative areas of the world.

Having diversified income streams can also help future-proof businesses and make them less vulnerable to competition and the economic backdrop.