Business
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IBM-4161_Chapter5.pptxSelecting a Foreign Market
Chapter 5
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The Decision ….
Decision to go international
Did someone call you & ask to buy your “stuff”?
Do you have excess inventory you need to sell?
Do you have production capacity?
Is the domestic market down?
Do you have outdated technology that’s still vital?
Do you like to travel???
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Why Foreign Market Selection Is Critical
Developing a strategy for a foreign market and making necessary adaptations can be resource intensive
These steps are of little use if targeted to a market that has poor demand, that is too risky, or in which the firm is not competitive
Developing a list of top foreign markets and ranking those opportunities is a key, yet sometimes neglected task
However, foreign market selection is frequently done wrong or not done at all
Firms often fail to do adequate research or react to market opportunities rather than proactively seek the best ones
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Market Indicators to Analyze & Rank
Market Viability
Size & Average annual growth
Strength
Competition
Channels of Distribution
Political Structure
Current Situation
Current relations with US
Economic Structure
Economic Strength
Currency Stability
Per capita income
Culture
Religion
Social Structure
Language
Aesthetics
Industry Data
Competitive Situation
Sales Data
Advertising Strength
Channels of Distribution
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What Data Is Important?
Potential Demand
Size of market
Population indicators
Income
Nature of the economy
Infrastructure of the nation
Entry Barriers
Tariffs and quotas
Non-tariff barriers
Market Risks
Political, legal, and economic risks
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Ranking Foreign Market Opportunities
Market screening allows firms to reduce the set of potential opportunities from 200-plus countries to a manageable list of researchable markets
Market Screening Steps
Identifying indicators for the selection criteria
Converting the data into comparable indicators
Weighing each indicator
Analyzing the results
In-depth research, both secondary and primary, follow the screening of markets to the short list
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Market Screening Steps 1 of 6
Step One: Identifying Indicators for the Selection Criteria
Indicators must be accurate predictors of potential demand
Indicators should be focused on demand, not risk or barriers, as strategy can overcome risk and barriers, but not poor demand
Five to ten market indicators should come from:
Product-specific indicators (e.g., trade statistics and past sales)
Industry indicators (e.g., industry growth rates and level of competition)
Demand indicators (e.g., population, population growth rates, and density)
Income, political, and economic indicators (e.g., GDP, GDP per capita, income distribution, and GDP growth rates)
Nature of the economy (e.g., climate, natural resources, and country size)
Infrastructure of the country (e.g., number of facilities linked to demand, paved roads, and access to the internet)
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Market Screening Steps 2 of 6
Step Two: Converting the Data into Comparable Indicators
Data is not in comparable units, for example, population data is in number of people while import statistics are in currency
A simple method is to convert the raw data for each indicator to a scale from 1 to 10
Divide each indicator by the value of the top performing country and multiply by ten such that the top country has a score of 10
This converts the data to the relative performance of each indictor against the top performer in that indicator
In some cases, the top performer may be so much larger as to skew the data
For example, if China is included in population data, all other countries are less than 1 while China is “10”
In these cases, it may be necessary to treat China as “10” but use the next highest country to create the rest of the scale (resulting in two countries with a value of “10”)
Alternatively, an average of the remaining countries could be used to create the scale
A final approach is to rank the countries instead of using a strictly numerical approach
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Market Screening Steps 3 of 6
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Market Screening Steps 4 of 6
Step Three: Weighing Each Indicator
After indicators are scaled to be comparable, each set of indicators should be weighed according to their relative importance
First, weighting should reflect the criticality of the indicator to demand
Second, weighting should promote accurate and dependent data so that potentially suspect data does not drive the market selection short list
Step Four: Analyzing the Results
The top markets do not necessarily indicate that these are the first markets a firm should enter
Instead, these are likely candidates for expansion
Rankings should be matched with the firm’s current level of international experience and its international expansion goals
Firm specific factors (e.g., current network and ability to transfer competitive advantage) play an important role
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Market Screening Steps 5 of 5
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Market Screening Steps 6 of 6
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Assessing Market Potential and Barriers
Market screening provides a guideline for conducting detailed market research to ensure that markets have good potential while matching the needs and strategy of the firm
Conducting primary research is important to answer detailed questions that cannot be answered by secondary measures of demand and consumer behavior as well as meet potential partners and learn about the markets
More detailed secondary sources such as the U.S. Department of Commerce “Country Commercial Guides” and Euromonitor reports can also provide the firm with more in-depth market information
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