Reflection and Application Report (chapter 7)
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Ch7Foreignmarketselection1.pptCHAPTER 7
Foreign Market Selection
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When Market Selection Goes Wrong
- Opportunity: Large market potential and fast-growing online auction market in China.
- Failure: eBay shuts down its China operations in late 2006 (after millions of spending on market development since 2002)
- Focused too heavily on China’s market potential.
- Underestimated the differences in:
- consumer preferences
- political and regulatory issues
Taobao.com
eBay vs. TaoBau
eBay and TaoBao was neck-and-neck in 2005.
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When Market
eBay vs. TaoBau
- eBay and Taobao was neck-and-neck in 2005.
- eBay invested $100 m more in EachNet.
- However, investors lose confidence. eBay share dropped 19%
- Taobao set free price for its sellers
- Taobao made its site flashy and personal
- The site brought a softer, more human touch to e-commerce that helped it gain consumer trust.
- Whitman brought Ma to the company’s headquarters in US to discuss a partnership (for 40% share) in 2005.
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When Market Selection Goes Wrong
eBay’s weaknesses in Chinese market
- Centralization
-- Too globalized, not localized enough
- Less innovative and integrations in
technology (IT systems)
- In 2005, Jack Ma (owns Taobao and Alibaba) said:
eBay may be a shark in the ocean,
but I am a crocodile in the Yangtze River.
If we fight in the ocean, we lose.
But if we fight in the river, we win.
eBay’s failure in China as a result of a lack of Culture Adaptation
Brand Name:
- Taobao means “digging for a treasure” in Mandarin.
- eBay was not known in 2003 and hard to pronounce for Chinese eyes. In 2006 they changed to eBay EachNet.
Design:
- eBay maintain the western design. Sparse and clean, very product oriented
- Taobao website is noisy and full of content. It also chose red and orange colors that have symbolic significance in Chinese culture
eBay’s failure in China as a result of a lack of Culture Adaptation
Advertisement:
- eBay signed exclusive advertising rights with major online portals Sina, Sohu, and Netease
- But In 2004, most of Chinese's were more willing to accept the traditional media such as News Paper and TV. Taobao secured advertisements for Taobao on major TV channels.
Usability
- Taobao was more user friendly: Customers were not familiar with auctions.
- Only 10 % of its listings were for auctions. In eBay EachNet were 40%
- Taobao included a online chat system “swift guanxi” between sellers and buyers
Price:
- Taobao was free to use at first. Now it is still completely free-listing
- eBay charged numerous fees, a component that made them to lose many customers. They changed that on 2008, but they are not still competitive against Taobao.
The Remarkable Story Of How Taobou Defeated eBay In China
- eBay started off with over-optimistic views based on the market potential.
- They expected huge revenues in very short time.
- At the same time, they maintained a ethnocentric management highly controlled from US headquarters.
- eBay was more product-centric and Taobao was more customer-centric.
Strategic Alliance in China
- Nov. 2012
- eBay formed a strategic alliance with Xiu.com to launch luxury ecommerce in China.
- The new website, eBay Style (ebay.xiu.com) provides Chinese consumers with access sold by eBay internationally.
- eBay --- brings in more than 5,000 brands in apparel, handbags, shoes, watches, health and beauty products
- Xiu.com – handles shipping, customer service and returns.
2013 updates
370 million registered users (more than all population of US) out of a total of 564 million Chinese’ internet users (in January 2013).
Has 90% market share (est. 2013)
It is the third-most visited site in China and the 15th-most visited site in the world. (Alexa, a Web tracking firm, 2013)
Goldman Sachs predicts the company will be worth $14.3 billion at the end of 2013.
May 18, 2017 updates
Revenue = $5,605 million (an increase of 60% year-over-year)
Revenue from core commerce increased 47%
Revenue from cloud computer increased 103%
Revenue from digital media and entertainment increased 234%
Revenue from innovation initiatives increased 88%
Annual active buyers in China = 454 million (an increase of 11 million since Dec. 2016).
Alibaba files to go public
~ Maketplace May 6, 2014
- Alibaba raised $21.8 billions in initial public offering (NYT, Sep 18, 2014).
Chinese e-commerce conglomerate Alibaba Group filed a Form F-1 registration statement on Tuesday, saying it intended to raise $1 billion in an initial public offering. But analysts say the company will likely raise more in the end -- as much as $20 billion. That would make it the biggest since Facebook raised $16 billion in an IPO in 2012. One note: The company says it sells more stuff, and thus generates more package deliveries every year, than UPS does globally.
Analysts have predicted that all told the company could be valued upwards of $150 to $200 billion. Its high valuation is a factor of its scale, its dominance in the Chinese e-commerce market, and its highly successful monetization of its platform through ad revenue.
As a company, Alibaba is often described as a combination of eBay and Amazon, but you could throw in a little PayPal, Yahoo, and Citigroup too. Alibaba has a sizable role in mobile banking and online advertising technology.
So here is a comparison of Alibaba with those companies for some perspective on just how big it is.
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Alibaba files to go public
~ Maketplace May 6, 2014
- Alibaba sells more stuff, and thus generates more package deliveries every year, than UPS does globally.
- As a company, Alibaba is often described as a combination of eBay and Amazon, but you could throw in a little PayPal, Yahoo, and Citigroup too.
- Alibaba has a sizable role in mobile banking and online advertising technology.
- 2015, 81.5% market share
Chinese e-commerce conglomerate Alibaba Group filed a Form F-1 registration statement on Tuesday, saying it intended to raise $1 billion in an initial public offering. But analysts say the company will likely raise more in the end -- as much as $20 billion. That would make it the biggest since Facebook raised $16 billion in an IPO in 2012. One note: The company says it sells more stuff, and thus generates more package deliveries every year, than UPS does globally.
Analysts have predicted that all told the company could be valued upwards of $150 to $200 billion. Its high valuation is a factor of its scale, its dominance in the Chinese e-commerce market, and its highly successful monetization of its platform through ad revenue.
As a company, Alibaba is often described as a combination of eBay and Amazon, but you could throw in a little PayPal, Yahoo, and Citigroup too. Alibaba has a sizable role in mobile banking and online advertising technology.
So here is a comparison of Alibaba with those companies for some perspective on just how big it is.
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Number of online orders generated on Alibaba e-commerce properties on Singles Day from 2013 to 2017 (in millions)
Source: Statista 2018
Proactive Market Selection
First mover advantages
Develop a list of potential markets
Establish a time frame to enter
Incorporate those decisions into the international marketing plan
Market research, research goals
What data is important?
What Data is Important?
Potential demand:
For many products and services, two types of market indicators are particularly important: to assess the size of the market:
Population
Income
I. Population Indicators
Population
Population growth rate
Distribution of population (market segment)
Density and urbanization
Distribution of Population
Developed nations
Developing nations:
- population growth
- shorter life expectancy
The largest population increase is projected to occur in Asia, particularly in China, India and Southeast Asia
Accounting for about 60% of the world’s population by 2050 (UN Population Division, 2007).
Density & Urbanization
Why these two indicators are important?
| US | 33 people/sqr Kilometer |
| Netherlands | |
| Singapore | |
| Egypt | |
| Canada |
Density & Urbanization
What is population density?
Concentration of the population
Why it matters?
Pros:
- promotion is facilitated
- ease for distribution and communication
Cons:
- high land prices
- high rent office spaces
- more competition
| US | 33 people/sqr Kilometer |
| Netherlands | 487 |
| Singapore | 6,943 |
| Egypt | 82 |
| Canada | 4 |
Carefully Interpret Density Data
Egypt Density = 82 /sqr kilometer
This number is misleading.
Egypt’s population is among the world’s most concentrated.
Located almost entirely along the Nile River.
The rest of the country (about 80%) is desert.
Carefully Interpret Density Data
Canada Density = 4 /sqr kilometer
The population is more concentrated and reachable than indicated.
Concentrated in a narrow band along the US border.
Density & Urbanization
Density is often closely related to urbanization
What’s important about urbanization?
Attitude and behavior of people in urban vs. rural cities
- cities offer possibilities for education
- affect the literacy, skills, attitudes
- less conservative
- less tradition-oriented more likely to adapt new products
Product adaptation in urban vs. rural cities?
Products aimed at rural markets in developing nations might need more adaptation than that sold in urban mkt.
The choice and use of communication medias
II. Income
GDP
Per capita income
Purchasing power parity (PPP)
Distribution of income
- Gini index
A higher Gini index indicates greater inequality, with high income individuals receiving much larger percentages of the total income of the population.
- The more skewed the distribution of income, the ____ meaningful the per capita income figure.
- The poor group must be studied separately from the wealthy group.
Global Wealth Inequality
~ Hurun Global Rich List 2017
The world has at least 2,257 billionaires, with about half of those residing in the U.S. (552) and China (609)
1,453; US 405; China 317 (2013)
Billionaires by city
Moscow (59; 76)
New York (86; 70)
Hong Kong (72; 52)
Beijing (94; 41)
London (55; 40)
Shenzen (62)
These billionaires account for $1.6 trillion in combined net worth – equivalent to the GDP of Canada
In 2013, there were 1,453 billionaires
US = 409
China = 317
(2013) - These billionaires account for $5.5 trillion in personal wealth -- equivalent to the GDP of China
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The World’s Richest Countries by Biggest Economy
~ NPR 2012 (*Source: the World Bank)
Income Distribution vs. Market Segment
China GDP = $6,807 PPP = $8,600 (The World Bank, 2013)
Suggest weak market for luxury goods
The concentration of the wealth in a few major cities (Shanghai, Hong Kong, Beijing, Guangzhou, and Chengdu).
However, China is the 3rd largest market for Rolls Royce (after US and UK).
GDP = $10,099 PPP = $19,504 (2019 est) IMF
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‘Year of the Dragon’ collection
In 2012, Rolls Royce created the “Year of the Dragon” collection vehicle for Chinese market.
This $380,000 car has completely sold out!
China’s number of millionaires has now risen to third worldwide behind US and Japan.
III. Market Barriers
Tariffs and quotas
Lead to higher prices paid by consumers
Making the product less competitive
Strategies to overcome these barriers:
Take the advantages of free trade agreements
Could be mitigated by selecting an entry mode that utilize some foreign assembly or foreign manufacturing
25 American Products That Rely On Huge Protective Tariffs To Survive
~ United States International Trade Commission (USITC) 2010
Canned tuna -- 35%
Most vegetables -- 20%
Wool clothes -- 25%
Most auto parts -- 25%
25 American Products That Rely On Huge Protective Tariffs To Survive
Chinese tires -- 35%
Leather shoes -- 37.5%
Sneakers -- 48%
Decorative glassware -- 38%
25 American Products That Rely On Huge Protective Tariffs To Survive
Tobacco -- 350%
Unshelled peanuts -- 163.8%
French jam, chocolate, and ham -- 100%
Shelled peanuts -- 131.8%
Market Barriers
Non-tariff barriers
Product quality standards
- for protecting local customers
- act as barriers
- require significant engineering or mfg changes
EX: CE mark in EU (European conformity)
- Product must meet EU health, safety, and environmental requirements
- Without a CE mark on a product, many items may not be sold in EU
Market Barriers
Ban on the importation of certain products
Egypt bans the importation of chicken parts
Canada prohibits imports of fresh or processed fruits and vegetables if the packages exceed certain standard package sizes.
Lack of intellectual property protection
Hesitate firms to enter the market
IV. Market Screening Steps
Weighing each indicator
Identifying indicators for the selection criteria
Analyzing the results
Converting the data into comparable indicators
What should be the correct order?
Tips for Selecting Market Indicators
Use a single source for each indicator
- the indicators must be comparable across all countries
- this ensures the def. and measure are the same for all countries
Incorporate trade statistics
- the imports could be a good indicator for demand
- particularly useful if no strong local industry
Avoid general or vague indicators
- quantitative indicators are the best
- easy to compare across nations
Market Potential Indicators
| Dimensions | Indicators/Measures |
| Potential Market Size | - Not the size of a market for a particular product, but the size of the overall economy |
| Market Growth Rate | - It measures the ‘potential’ of a market - It helps managers avoid markets that are large but shrinking and target those that are small but rapidly expanding. |
| Commercial Infrastructure | - Assess channels of distribution and communication. |
| Market Consumption Capacity | - Estimate spending capacity. |
| Competition Intensity | - Estimate the competition intensity in the market. |
| Market Receptivity | - Estimate market ‘openness”. |
Convert Data into Comparable Indicators
Make them comparable across all countries
How?
Source: World Bank (2008)
GNI: is the total income received by the country from its residents and businesses regardless of whether they are located in the country or abroad.
| Country | GNI (PPP) per capita |
| China | $6,010 |
| Columbia | $8,430 |
| Japan | $35,190 |
| Spain | $30,830 |
| Thailand | $7,770 |
Convert Data into Comparable Indicators
Ranking
| Country | GNI (PPP) per capita | Rank |
| China | $6,010 | 5 |
| Columbia | $8,430 | 3 |
| Japan | $35,190 | 1 |
| Spain | $30,830 | 2 |
| Thailand | $7,770 | 4 |
Convert Data into Comparable Indicators
Scale from 1 to 10
| Country | GNI (PPP) per capita | Formula to convert | Result |
| China | $6,010 | 6010/35190 x 10 | 1.7 |
| Columbia | $8,430 | 8430/35190 x 10 | 2.4 |
| Japan | $35,190 | 35190/35190 x 10 | 10 |
| Spain | $30,830 | 30830/35190 x 10 | 8.8 |
| Thailand | $7,770 | 7770/35190 x 10 | 2.2 |
Convert Data into Comparable Indicators
5-point Likert scale
1 Very inadequate
2 Inadequate
3 Adequate
4 Good
5 Excellent
| Country | GNI (PPP) per capita | Scale |
| China | $6,010 | 2 |
| Columbia | $8,430 | 3 |
| Japan | $35,190 | 5 |
| Spain | $30,830 | 5 |
| Thailand | $7,770 | 2 |
Weigh Each Indicator
A firm that manufactures handheld video games
Foreign market selection screening for 20 countries
Indicators (criteria) used for country screening:
- GDP (PPP)
- GDP per capita (PPP)
- Internet subscribers
- Number of TVs
- Total imports (of video games)
- Exports from the US (of video games)
- Population, age 10-29
- Market size, toys and games
How would you weigh each indicator according to their relative importance?
Weigh Each Indicator
GDP (PPP)
Purchase of video games are more a personal decision
Even low GDP countries will have some part of the population that wants video games
GDP per capita (PPP)
A good differentiator b/w individuals who can afford video games vs. those that want but cannot afford
Also research per capita incomes of large capital cities
Internet subscribers
A good related indicator of demand
Weigh Each Indicator
Number of TVs
A good related indicator of demand
Total imports (of video games)
Indicates level of demand for the product purchased from all countries
An important indicator assuming demand has been developed
Population, ages 10-29
The target population of the video games
Weigh Each Indicator
Exports from the US (of video games)
Indicates level of demand for the product purchased from US
b/c US is a strong competitor, a good indicator of receptivity to US video games vs. those from other countries
An important indicator assuming demand has been developed
Market size, toys and games
Total size of the toy and game industry
An excellent indicator, especially for countries that are still developing their demand for video games but have an established base of toys
