Foreign Market Selection – Managerial Issues Chapter 6 Foreign Market Selection – Managerial Issues

International Market Selection Process- Steps 1. Segmentation, targeting & positioning 2.Collection of relevant data on each country 3. Analysis of relevant data 4. Filtering less promising countries 5. Selecting most promising countries

Model for Selecting Foreign Markets Macro Level Research ( General Market Potential) Economic Statistics, Political Environment, Social Structure, Geographic Features Filter 1 Preliminary Opportunities General Marketing Relating to the Products Growth Trends for Similar Products, Cultural Acceptance of Such Products, Market Size, State of Development, Taxes and Duties Filter 1 Rejected Country

( Specific Factors Affecting the Product) Possible Opportunity Micro Level Research ( Specific Factors Affecting the Product) Existing and Potential Competition, Ease of entry, Reliability of Information, /Sales Projections, Cost of Entry, Probable Product Acceptance, Profit Potential Filter 3 Probable Opportunity Target Markets Corporate Factors Influencing Implementation Filter 4

Filtering Process- First Stage Using macro variables discriminating countries- Opportunities, little opportunity, no opportunity, excessive risk. Macroeconomic statistics- GNP, Per Capita GNP, Personal Disposable Income. Political conditions. Relation between the home and host country. Geographical distance

Filtering Process- Second Stage Variables indicating potential market size and acceptance of the product or similar products are used. Year to year growth rates and total sales of similar products are indicators of market size and growth. Also consider the stage of economic development, taxes and duty requirements.

Filtering Process- Third Stage Consider a limited number of countries. Get more detailed, reliable and updated information. Focus of screening process switches from market size to profitability. Issues- Looking to the competitors, how much should be invested to gain a particular market share?

Third Stage Issues- Given the prices currently charged in the market, what margin can your company expect? Given the cost of entry and the expected sales, what is the likely profit? Micro-level factors influence the success or failure of specific product in market.

Filtering Process- Fourth Stage Evaluates and ranks the potential target countries based on corporate resources, objectives and strategies.

Criteria For Selecting Target Countries Critical factors influence market selection are: Market size Political environment Legal environment Social and culture environment

Market Size and Growth Macro Indicators of Market Size Geographic Indicators Size of the country in terms geographic area Climatic condition Topographical characteristics Demographic Characteristics Total Population Population growth rate Distribution of the population age-wise, gender-wise, income-wise, rural-urban wise, etc. Population density

Economic Characteristics Total gross national product Per capital income (Also income growth rate) Personal or household disposable income Income distribution Industrial, mineral, agriculture infrastructure and development plans Balance of payments /Trade position Import size and growth Commercial policy instruments Nature and export of restrictions and incentives Trade agreements with the other countries

Micro Indicators of Market Size Alcoholic Liquor Consumption Coffee Consumption Petrol/Diesel Consumption Telephones Tourist Arrivals Radios Television sets Cinema seats Scientists and Engineers Hospitals and Beds Physicians

Micro Indicators of Market Size Passenger cars Civil airline passengers Steel production Land under cultivation Electricity consumption Number of farms Micro indicators indicate actual consumption of the product that a firm wants to sell or a similar product.

Political Environment Indicators of Political Risk Probability of nationalization Bureaucratic delays Number of riots and assassinations Political executions Percent of members of the communist party Restrictions on capital movement Government intervention

Social and Cultural Conditions Main elements are: Material Culture Language Esthetics Education Religion

Errors in Selection Ignoring countries with significant potential for the company’s products. Spending resources investigating countries that may turn out to be poor prospects.