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International Opportunities12 Analyzing International Opportunities Welcome to Chapter 12, Analyzing International Opportunities. Copyright © 2014 Pearson Education, Inc. publishing as Prentice Hall
Chapter Objectives Explain each of the four steps in the market- and site-screening process Describe the three primary difficulties of conducting international market research Identify the main sources of secondary international data and explain their usefulness Describe the main methods used to conduct primary international research In this chapter, you will explore how companies screen international business opportunities. You will also: Examine the difficulties of conducting international market research. Learn about sources of secondary market research data. And understand methods of conducting primary international research. Copyright © 2014 Pearson Education, Inc. publishing as Prentice Hall
Starbucks Entered Europe and then ChinaSuccess rooted in market research Focus on coffee and societal needs Starbucks learned the difficulty of staying on top in the intensely competitive world of coffeehouses. Market research helped it succeed against Europe’s traditional cafés when critics said it would fail. More recently, Starbucks has opened its American-style coffeehouses in China. Although it struggled in recent years, Starbucks has emerged as a leaner version of its former self, with a renewed focus on coffee and on its image as a socially responsible multinational. Copyright © 2014 Pearson Education, Inc.
Screening Markets and SitesCompanies should use a systematic approach to screening markets and sites as they explore international opportunities. The following four-step screening process helps contain costs while embracing high-quality research methods: Step 1: Identify basic appeal Step 2: Assess the national business environment Step 3: Measure market or site potential Step 4: Select the market or site Copyright © 2014 Pearson Education, Inc.
Identify Basic Appeal Basic demand Available resourcesIn step 1, “identify basic appeal,” managers determine basic product demand in markets and availability of resources in sites for operations. Determining basic product demand means exploring the general suitability of a nation’s climate and whether the product is locally banned from sale. Determining the availability of resources means exploring the quality and quantity of production factors including raw materials, labor, and financing. A company will drop from further consideration any market or site that does not satisfy these basic criteria. Available resources Copyright © 2014 Pearson Education, Inc.
Discussion Question What are the four main steps in the process of screening potential new markets and sites for operations? What are the four main steps in the process of screening potential new markets and sites for operations? Copyright © 2014 Pearson Education, Inc.
Answer to Discussion QuestionThe first step is to identify a location’s basic appeal in terms of product demand or resource availability. The second step is to analyze all forces in the national business environment. The third step is to measure market or site potential by collecting data on each one being considered. The fourth step is to select the best market or site by taking field trips and performing competitive analyses. Answer: The first step is to identify a location’s basic appeal in terms of product demand or resource availability. The second step is to analyze all forces in the national business environment. The third step is to measure market or site potential by collecting data on each one being considered. The fourth step is to select the best market or site by taking field trips and performing competitive analyses. Copyright © 2014 Pearson Education, Inc.
Cultural Forces Market selection Site selection Global productTailored product Site selection Education level Technical skills Work ethic In step 2, “assess the national business environment,” managers explore differences in cultures, politics, laws, and economies and incorporate their findings into market and site selection decisions. Cultural differences such as language, attitudes toward business, religious beliefs, traditions, and customs can influence product demand and how products are sold. Companies sometimes locate production in a local market when a product’s physical features must be adapted for cultural reasons. The local work ethic, education, and level of managerial skills also affect site-selection decisions. Copyright © 2014 Pearson Education, Inc.
Political and Legal ForcesGovernment regulation Investment barriers Profit repatriation Government bureaucracy Administrative delays A nation’s attitude toward trade and investment is reflected in its regulatory policies. A government may impose investment rules on business ownership to ensure domestic control of a company or industry. It may also restrict international firms from freely removing profits or force them to hold cash or reinvest it in the country. The amount of government bureaucracy that a company encounters in a market or site affects its appeal. A lean and efficient bureaucracy can encourage investment, while a cumbersome or corrupt one can be discouraging. Companies monitor local political events so that they are not surprised by unforeseen political change that can threaten operations and future earnings. Political stability Unforeseen changes Copyright © 2014 Pearson Education, Inc.
Social unrest can drive out international companiesPolitical Risk Social unrest can drive out international companies Social unrest can severely disrupt operations and drive out international companies. Riots erupted in Paranaque, a city in the Philippines, when demolition teams began to destroy the residences of people whom were said to have no legal claim to the land. Source: imago stock&people/Newscom Copyright © 2014 Pearson Education, Inc.
Economic Forces Country finances Currency and liquidityA country’s finances influence investor confidence and the proposed investments of businesses. Poor fiscal and monetary policies can increase inflation and budget deficits, weaken a currency, lower productivity, and slow innovation. Volatile currency values increase exchange rate risk and complicate the prediction of future foreign earnings. Copyright © 2014 Pearson Education, Inc.
Other Forces Logistics Country imageThe costs of transporting materials and goods affect the location of manufacturing facilities. Logistics involves managing the physical flow of products from point of origin as raw materials to end users as finished products. It weds production to delivery and plays a growing role in an age of global supply chains. Country image embodies all facets of a nation’s business environment. It can positively or negatively influence a product’s image. Copyright © 2014 Pearson Education, Inc.
e-Business Forces Market access Legal issues Financial mattersInfrastructure Content and standards Legal issues Privacy and security Intellectual property Here are several issues that managers should consider when attempting to generate sales through e-business. Learn whether potential customers have adequate Internet access. Follow guidelines regarding sensitive topics such as truthful advertising. Respect local law on the gathering of consumer data and how it is used. Know that nations safeguard copyrights, patents, and trademarks to different degrees. Online payment systems and tax collection for international sales vary around the world. Financial matters Electronic payments Tariffs and taxation Copyright © 2014 Pearson Education, Inc.
Discussion Question The key element of political risk that concernscompanies in markets abroad is __________. a. Slowing innovation b. Spiking logistics costs c. Unforeseen political change The key element of political risk that concerns companies in markets abroad is __________. a. Slowing innovation b. Spiking logistics costs c. Unforeseen political change Copyright © 2014 Pearson Education, Inc.
Answer to Discussion QuestionThe key element of political risk that concerns companies in markets abroad is __________. a. Slowing innovation b. Spiking logistics costs c. Unforeseen political change The correct answer is c. Unforeseen political change Copyright © 2014 Pearson Education, Inc.
Industrialized Markets PotentialDemographics Competitor market shares Import/Export volumes Distribution network Marketing approaches Retail sales levels Income elasticity In step 3, “measure market or site potential,” a market’s level of economic development affects the selection of products sold, how they are sold, and their features. The following information provides an overview of the market’s size and structure in industrialized nations: Demographics of the local target market. Competitors’ production volumes and market shares. Import and export volumes for the product. Structure of distribution networks. Market background including social trends and marketing approaches. Retail sales levels, market price, and total expenditure on the product. One way to forecast market demand is to determine a product’s income elasticity, which is the sensitivity of demand for a product relative to a change in income. Income-elastic products are discretionary purchases such as video games and jewelry. Income-inelastic products are essential items and include food, utilities, beverages, and so forth. Copyright © 2014 Pearson Education, Inc.
Emerging Markets PotentialMarket size Market growth rate Market intensity Market consumption capacity Commercial infrastructure Economic freedom Market receptivity Country risk In step 3, the following information can be used to create a market-potential indicator when considering exporting to emerging markets: Market size is a static estimate of market size at the moment. Market growth rate identifies whether a market is shrinking or expanding. Market intensity estimates the buying power of individuals and businesses. Market consumption capacity estimates a market’s spending capacity. Commercial infrastructure analyzes channels of distribution and communication. Economic freedom estimates the prevalence of free-market principles. Market receptivity estimates market “openness.” Country risk estimates the political, economic, and financial risks of doing business in a market. Copyright © 2014 Pearson Education, Inc.
Measuring Site PotentialLabor and management Productivity Wage levels Training needs Local infrastructure Measuring site potential in step 3 involves determining whether a site has adequate resources to carry out the proposed business activity. The most important issues include: The availability, productivity, and wage levels of labor and management. The cost of training local managers, which can mean substantial investments of time and money. And the efficiency of local infrastructures, including roads, bridges, airports, seaports, and telecommunications systems. Copyright © 2014 Pearson Education, Inc.
Select the Market or SiteField trips Engage in negotiations Meet customers/others Gain firsthand exposure Competitor analysis Competitor numbers/shares Competitor strategies Channel access Customer loyalty Access to inputs In step 4, “select the market or site,” managers perform their final analyses on all remaining locations. Field trips to each potential site let senior managers engage in any final negotiations, meet potential customers and distributors, and experience the culture firsthand. Competitor analyses typically address the following types of issues: The number of domestic and international competitors and their market shares. And each competitor’s market strategy, control over distribution channels, customer loyalty, and access to production inputs. Copyright © 2014 Pearson Education, Inc.
Discussion Question What are the key components of a market-potential indicator and why is it useful to firms exporting to emerging markets? What are the key components of a market-potential indicator and why is it useful to firms exporting to emerging markets? Copyright © 2014 Pearson Education, Inc.
Answer to Discussion QuestionThe main components of a market-potential indicator are market size, market growth rate, market intensity, market consumption capacity, commercial infrastructure, economic freedom, market receptivity, and country risk. The indicator provides a quantitative measure of market size when data is limited in emerging markets. Answer: The main components of a market-potential indicator are market size, market growth rate, market intensity, market consumption capacity, commercial infrastructure, economic freedom, market receptivity, and country risk. The indicator provides a quantitative measure of market size when data is limited in emerging markets. Copyright © 2014 Pearson Education, Inc.
International Market ResearchData analysis Field research Marketing strategy International market research supplies information on local cultural practices, regulations, economy, market potential, buyer behavior, logistics, and other factors. Market research helps managers to design marketing strategies and to understand buyer preferences and attitudes when selecting a new market. It informs managers about employment levels, wage rates, and the local infrastructure when exploring a potential new site for operations. Good research is timely and relevant to decision making and can help a company to anticipate changes in a market. Source: Alexander Joe/Getty Images/Newscom Copyright © 2014 Pearson Education, Inc.
Market Research DifficultiesComparability of data Availability of data Cultural differences The unique circumstances of international business present three difficulties of conducting market research in other nations. First, whereas industrialized nations tend to have a great deal of published data on product markets, emerging markets can lack data availability. And when market data is available, its reliability may be questionable or suspect. Second, because terms like poverty, consumption, and literacy are often defined and measured differently across nations, the comparability of data can be difficult. Misinterpreting data can sabotage the best marketing and production strategies. Third, cultural differences can influence marketing research data. Interpreters might unintentionally misrepresent certain comments in another language or incorrectly convey the sentiment of certain statements. Copyright © 2014 Pearson Education, Inc.
Top Research Firms This table shows the top global market research firms, ranked by total worldwide sales. Copyright © 2014 Pearson Education, Inc. 24
Secondary Data SourcesInternational organizations Government agencies Industry/Trade associations Service organizations World Wide Web International organizations are excellent sources of free and inexpensive information to form first impressions of markets and sites. These include the United Nations, International Trade Center, World Bank, International Monetary Fund, and Asian Development Bank. Government agencies including commerce and trade departments, trade libraries, and embassies can supply information on import/export regulations, product quality standards, overall market size, and customs procedures. Industry and trade associations cover industry events and new opportunities. They may also offer specialized studies of their industry. International service organizations in banking, insurance, management consulting, and accounting offer information on cultural, regulatory, financial conditions, and global trends. Finally, the World Wide Web can be a source of inexpensive secondary data, news reports, executive profiles, and financial information. Copyright © 2014 Pearson Education, Inc.
Methods of Primary ResearchTrade shows and missions Interviews and focus groups Consumer panels Primary market research collects and analyzes original data and applies the results to current research needs. Trade shows highlight the latest products, recent trends, and new opportunities. Trade missions give firms clout in a host country because they have the visible support of home-country government officials who travel with them on the trip. Interviews and focus groups help uncover buyers’ emotions, attitudes, and impressions of a company and its product. To not miss subtle cues in verbal and body language, interviews and focus groups are best run by moderators who are native to the country being investigated. A consumer panel, in which people record their attitudes, behaviors, and purchasing habits in personal diaries, is useful when people in a focus group might agree with others in the group—as in group-oriented cultures. Surveys gather a vast amount of data in a single sweep and obtain facts, opinions, and attitudes. Survey methods are often adapted to local markets. Environmental scanning gathers, analyzes, and dispenses information on a business environment. It contributes to well-informed decisions and strategies by helping develop contingency plans in a volatile environment. Surveys Environmental scanning Copyright © 2014 Pearson Education, Inc.
Discussion Question Each of the following is a difficulty of researching international markets except __________. a. Data comparability b. Cultural differences c. Data availability d. Environment scanning Each of the following is a difficulty of researching international markets except __________. a. Data comparability b. Cultural differences c. Data availability d. Environment scanning Copyright © 2014 Pearson Education, Inc.
Answer to Discussion QuestionEach of the following is a difficulty of researching international markets except __________. a. Data comparability b. Cultural differences c. Data availability d. Environment scanning The correct answer is d. Environment scanning Copyright © 2014 Pearson Education, Inc.
Copyright © 2014 Pearson Education, Inc.All rights reserved. No part of this publication may be reproduced, stored in a retrieval system, or transmitted, in any form or by any means, electronic, mechanical, photocopying, recording, or otherwise, without the prior written permission of the publisher. Printed in the United States of America. Copyright © 2014 Pearson Education, Inc.
international strategic management
Terms. 1. Globalization 2. Financing 3. Inputs.
CHAPTER 1 Basic Concepts of Strategic Management
CHAPTER 4 Environmental Scanning and Industry Analysis
Chapter 1 The Study of Body Function Image PowerPoint
CHAPTER 8 The Buying Process and Buyer Behavior.
Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall Chapter 5 The Voice of the Customer.
formulation of national trade policies
The Global Marketplace
15-1 Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall Chapter 15 Money and Banking.
Chapter 16 Organizational Culture
New-Product Development and Product Life-Cycle Strategies
Foreign Direct Investment Copyright © 2010 Pearson Education, Inc. publishing as Prentice Hall.
Chapter Ten Marketing Communications and Customer Response.
Chapter 9 Understanding Work Teams
Part One Background For International Business
Chapter 14 Foundations of Organizational Structure
Marketing Strategy and the Marketing Plan
Designing and Managing Integrated Marketing Channels
Managing International Operations
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