1. Global Market Opportunity Assessment
International Business: The New Realities, 4th Edition, Global Edition by
Cavusgil, Knight, and Riesenberger
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2. Copyright © 2017 Pearson Education, Ltd.
Learning Objectives
12.1 Understand analyzing organizational readiness to internationalize.
12.2 Determine the suitability of products and services for foreign markets.
12.3 Describe screening countries to identify target markets.
12.4 Understand assessing industry market potential.
12.5 Explain about choosing foreign business partners.
12.6 Know about estimating company sales potential.
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3. Global Market Opportunity
A favorable combination of circumstances, locations, or timing that offer prospects for exporting, investing, sourcing, or partnering in foreign markets.
Typical opportunities include the option to:
market products and services;
establish factories or other production facilities to make offerings more competently or cost-effectively;
procure raw materials or components, services of lower cost or superior quality; and
Enter collaborative arrangements with foreign partners.
Central to a firm’s research is identifying and defining the best business opportunities in the global marketplace. A global market opportunity is a favorable combination of circumstances, locations, and timing that offers prospects for exporting, investing, sourcing, or partnering in foreign markets. In such locations, the firm may perceive opportunities to sell its products and services; establish factories or other production facilities to produce its offerings cheaper or more competently; procure raw materials, components, or services of lower cost or superior quality; or enter beneficial collaborations with foreign partners. Global market opportunities can enhance company performance, often far beyond what the firm can normally achieve in its home market. For example, John Deere & Company saw an opportunity to sell small tractors to India’s 300 million small farmers. After conducting extensive research, the firm developed four small tractor models for the new market and is now doing considerable business there.
Vendors of automatic dishwashers and dishwasher soap, such as Sweden’s Electrolux and Britain’s Reckitt Benckiser, aim to expand their markets. Researchers consider markets for such products relatively saturated in Germany and the United States, where more than three-quarters of households own a dishwasher. More promising are affluent countries where few households own dishwashers. In the United Kingdom, only 40 percent of households have a dishwasher. The numbers are similarly low in Spain (49 percent), France (52 percent), and Turkey (25 percent). Vendors argue that dishwashers are more convenient; manual dish cleaning amounts to spending one week a year at the kitchen sink. But researchers have uncovered various challenges to future sales. First, many Europeans believe automatic dishwashers waste water, which is generally not true, especially with the latest energy-saving models. Space is limited in many European kitchens. Finally, old habits die hard – many homeowners see no reason to buy a dishwasher. Market research is helping firms overcome such challenges and generating dishwasher sales across Europe.
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4. The Six Tasks of Global Market Opportunity Assessment (GMOA)
Org
readiness
firm’s products
Screen countries
Market potential
Choose
partners
Estimate sales
11-7
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5. Task 1. Organizational Readiness
Analyze organizational readiness to internationalize to provide an objective assessment of the firm’s preparedness to engage in international business.
It is achieved by examining company strengths and weaknesses for international business, by evaluating availability in the firm of key factors, such as:
– Appropriate financial and tangible resources.
– Relevant skills and competencies.
– Management’s commitment to internationalization.
Eliminate deficiency that hinder achieving firm goals
Homeinstead.
When assessing the firm’s readiness to internationalize, managers peer into their organization to determine the degree to which it has the motivation, resources, and skills necessary to successfully engage in international business. They measure the firm’s degree of international experience; the goals and objectives it envisions for in ternationalization; the quantity and quality of skills, capabilities, and resources available for internationalization; and the actual and potential support provided by the firm’s network of relationships. If one or more key resources is lacking, management must acquire or develop them before allowing the contemplated venture to go forward. Organizational culture plays an important role, because key employees should possess the motivation and commitment to expand the firm’s activities into foreign markets.
Managers also examine conditions in the external business environment by studying opportunities and threats in the markets where the firm seeks to do business. They research the specific needs and preferences of buyers, as well as the nature of competing products and the risks inherent in foreign markets.
Consider Home Instead, Inc. ( a small U.S. firm that provides services for the elderly who choose to live independently at home but require companionship, assistance with meal preparation, and help with shopping and housekeeping. Following an assessment of its readiness to internationalize, management perceived substantial international opportunities, particularly in Japan, but also recognized deficiencies in certain key capabilities. The firm hired Yoshino Nakajima, who is fluent in Japanese and an expert on the Japanese market, to be vice president for international development. She launched the franchise in Japan, which captured substantial market share. Next, management tapped into the global network of 1,700 trade specialists of the United States Commercial Service, a government agency that provided the firm with leads and contacts in countries it had identified as the best target markets. Today, Home Instead has numerous franchises in Australia, Canada, Ireland, and Portugal. Its international operations are thriving.
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6. Task 2. Product Suitability
Assess suitability of the firm’s products and services for foreign markets by conducting a systematic assessment of company offerings for international customers. Evaluate the fit between the offerings and foreign customer needs.
For each possible target market, identify the factors that may hinder market potential. Determine how the offering may need to be adapted for each market. Specifically, assess the offering regarding such factors as foreign customer characteristics, laws and regulations, channel intermediary requirements, and nature of competitors.
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7. Products with the best foreign sales prospects:
Sell well in the domestic market. For example, Microsoft Xbox.
Respond to universal needs. Such as a cancer drug, an energy efficient refrigerator.
Address a need not well served in foreign markets. For example, mutual funds, mini notebooks.
Address a new or emergent need abroad. For example, a major earthquake creates urgent need for portable housing; AIDS in Africa creates need for drugs and medical supplies
The products or services with the best international prospects tend to have the following four characteristics:
1. Sell well in the domestic market. Offerings received well at home are likely to succeed abroad, especially where similar needs and conditions exist.
2. Cater to universal needs. For example, buyers worldwide demand personal-care products, medical devices, and banking services. International sales may be promising if the product or service is unique or has important features that are appealing to foreign customers and are hard for foreign firms to duplicate.
3. Address a need not well served in particular foreign markets. Potential may exist in countries where the product or service does not currently exist, or where demand is just starting to emerge.
4. Address a new or emergent need abroad. Demand for some products and services can suddenly emerge after a disaster or emergent trend. For example, a major earthquake in Haiti created an urgent need for easy-to-build housing. An increase in AIDS cases in South Africa suggests a need for drugs and medical supplies. Growing affluence in emerging markets is spurring demand for restaurants and hospitality services.
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8. Task 3. Country Screening
Screen countries to identify target markets. Reduce the number of countries that warrant in-depth investigation as potential target markets to a manageable few.
Identify five or six countries that hold the best potential by assessing each country regarding such criteria as: size and growth rate, “market intensity” (customers’ buying power), “consumption capacity” (size and growth rate of the middle class), country’s receptivity to imports, infrastructure for doing business, economic freedom, and country risk.
Exporters first examine such criteria as population, income, demographic characteristics, government stability, and nature of the general business environment in individual countries. Statistics that span several years help determine which markets are growing and which are shrinking. The exporter can purchase research reports from professional market research firms that provide assessments of and key statistics for particular markets. National governments also provide much useful information, typically free of charge. In the United States, for example, the Department of Commerce ( conducts and publishes numerous market surveys, such as The Water Supply and Wastewater Treatment Market in China, Automotive Parts and Equipment Industry Guide in France, and Country Commercial Guide for Brazil. Some firms target countries that are psychically near—that is, countries similar to the home country in language, culture, legal environment, and other factors. Such countries fit management’s comfort zone. Australian firms often choose Britain, New Zealand, or the United States as their first target markets abroad. As managerial experience, knowledge, and confidence grow, firms expand into more complex and culturally distant markets, such as China or Japan. Other firms are more venturesome and target nontraditional, higher-risk countries. The born-global companies exemplify this trend. Ongoing globalization, as well as advances in communication and transportation technologies, have reduced the foreignness of most countries, and hence the cost and risk of entering them. Even small firms now routinely reach out to culturally distant countries, including emerging markets and developing economies. The information necessary for country screening varies by product type or industry. For example, in marketing consumer electronics, the researcher emphasizes countries with large populations having adequate discretionary income and ample energy production. For farming equipment, the best targets are countries with substantial agricultural land and large numbers of farmers. Health insurance companies target countries with many hospitals and doctors.
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9. Specific Considerations
Cultural similarity with target market may matter. Some firms target countries that are “psychically” similar in terms of language and culture.
Nature of information sought varies with product and industry. For farming equipment, consider countries with much agricultural land and farmers with higher incomes. For semiconductors, target countries that manufacture computers.
Targeting a region may make sense. For example, the European Union, Latin America.
Some firms target countries that are psychically near—that is, countries similar to the home country in language, culture, legal environment, and other factors. Such countries fit management’s comfort zone. Australian firms often choose Britain, New Zealand, or the United States as their first target markets abroad. As managerial experience, knowledge, and confidence grow, firms expand into more complex and culturally distant markets, such as China or Japan.
The information necessary for country screening varies by product type or industry. For example, in marketing consumer electronics, the researcher emphasizes countries with large populations having adequate discretionary income and ample energy production. For farming equipment, the best targets are countries with substantial agricultural land and large numbers of farmers. Health insurance companies target countries with many hospitals and doctors.
Often, the firm may target a region or group of countries rather than individual countries. This approach is more cost effective, particularly in markets with similar characteristics. The European Union includes twenty-seven countries that are relatively similar in income levels, regulations, and infrastructure. When entering Europe, firms often devise a pan-European strategy that considers many EU member countries simultaneously, rather than planning separate efforts in individual countries.
In other cases, the firm may target so-called gateway countries, or regional hubs, that serve as entry points to nearby or affiliated markets. For example, Singapore is the gateway to southeast Asian countries, Hong Kong is an important gateway to China, Turkey is a good platform for the central Asian republics, Panama is a friendly entry to Latin America, and Finland provides easy access to Russia. Firms base their operations in a gateway country so they can serve the larger adjacent region.
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10. Regional Hubs Hong Kong is an important entry hub for China
When deciding on target markets, internationalizing firms often choose regional hubs, which serve as critical entry points for important national or regional markets. Pictured here is Hong Kong, an important entry hub for China.
Source: MasterLu/Fotolia
Hong Kong is an important entry hub for China
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11. Variables Used in the Potential Index
The Exhibit defines the variables and relative weights in the index. The assigned weights can be adjusted up or down to fit the unique characteristics of any industry. For example, in evaluating market size, food industry firms may attach more weight to market size, while firms in the telecommunications equipment industry give more weight to infrastructure and country risk. The researcher can add variables or countries to refine the tool for greater precision.
Source: Market Potential Index—2014, globalEDGE™ (
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12. Market Potential Index for Emerging Markets
The Exhibit reveals some interesting patterns. Russia ranks third in market size but 24th in economic freedom. It also ranks low in market intensity and market receptivity, revealing there are always trade-offs in selecting target countries. No single country is attractive on all dimensions. Along with desirable features, the researcher also must contend with less desirable ones. For example, both Singapore and Hong Kong are favorable in terms of commercial infrastructure, but they are city-states with small populations.
The top four countries in the index in the Exhibit are all East Asian emerging economies. In recent years, these have made tremendous strides in market liberalization, industrialization, and modernization. South Korea is a champion of economic growth, with annual per-capita GDP growth often exceeding 5 percent (it has grown tenfold in the last 40 years). South Korean firms have become world leaders in many industries, such as shipbuilding, mobile communications, and flat-screen televisions. They use pioneering technologies years ahead of their competitors and are overtaking other countries in broadband and mobile technologies. Asia’s rapid economic development is a primary factor in the current phase of globalization.
Country rankings like those in the Exhibit are not static; they change over time with macroeconomic events or country-specific developments. While India ranks relatively high, it may dramatically fall if a new political regime reverses market liberalization. The recent accession of Bulgaria and Romania into the European Union will likely improve the economic prospects of these countries. The introduction of modern banking systems and legal infrastructure should increase Russia’s attractiveness as an export market.
Note: Only the top 20 countries are provided here; consult for a more complete list
Source: Market Potential Index (MPI) – 2014, globalEDGE™ (
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13. Market Potential Index for Emerging Markets 2017
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14. Task 4. Assess Industry Market Potential
An estimate of the likely sales that can be generated by all firms in a particular industry during a specific time period.
It is different from company sales potential, which refers to the share of industry sales the firm itself expects during a specific period.
Most companies forecast sales at least three years into the future, of both industry market potential and company sales potential.
The methods for screening countries we’ve discussed so far are most useful for gaining comparative insights into individual markets and for reducing the complexity of choosing appropriate foreign locations. Once the number of potential countries has been reduced to a manageable few, the next step is to conduct an in-depth analysis of each. In earlier stages, the researcher examined macro-level indicators. Now, because market potential is industry-specific, the researcher narrows the focus to examine industry-level indicators.
Industry market potential is an estimate of the likely sales for all firms in a particular industry over a specific period. It is different from company sales potential, the share of industry sales the focal firm itself can expect to achieve during a given year. Most firms forecast both industry market potential and company sales potential at least three years into the future. Estimating industry market potential enables the researcher to refine the analysis and identify the most attractive countries for the firm’s product or service, as well as gain industry-specific insights and understand how the firm needs to adapt its product and marketing approaches.
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15. Task 4. Assess Industry Market Potential
The firm estimates the most likely share of sales that can be achieved in each target country, including consideration of market entry barriers. Firm should develop a 3 to 5-year forecast of industry sales.
Assess industry market potential in each market by examining such criteria as:
Size and growth rate of the market, and industry trends.
Tariff and nontariff trade barriers to market entry.
Standards and regulations that affect the industry.
Availability and sophistication of distribution.
Unique customer requirements and preferences.
Industry-specific market potential indicators.
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16. Methods for Estimating Industry Market Potential
Simple trend analysis examines aggregate production for the industry as a whole.
Monitoring key industry-specific indicators examines unique industry drivers of market demand.
Monitoring key competitors to estimate their sales levels provides an estimate of market potential.
More British pubs are serving food, creating a new market potential for firms in the food catering industry.
Simple trend analysis. This method quantifies the total likely amount of industry market potential by examining aggregate production for the industry as a whole, adding imports from abroad and deducting exports. Trend analysis provides a rough estimate of the size of current industry sales in the country.
Monitoring key industry-specific indicators. The manager examines unique industry drivers of market demand by collecting data from various sources. For example, Caterpillar, a manufacturer of earth-moving equipment, examines the volume of announced construction projects, number of issued building permits, growth rate of households, infrastructure development, and other pertinent leading indicators as a way of anticipating countrywide sales of its construction equipment.
Monitoring key competitors. Here, the manager investigates the degree of major competitor activity in the countries of interest. If Caterpillar is considering Chile as a potential market, its managers investigate the current involvement of its number-one competitor, the Japanese firm Komatsu, in Chile and gather competitive intelligence to anticipate Komatsu’s likely future moves in Chile.
Source: atm2003/Fotolia LLC.
Demand is growing in Europe for environmental technologies and green products. These workers are installing solar panels on a house in Italy.
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Methods (cont’d)
Following key customers around the world can provide an estimate of likely sales in an industry that the firm supplies.
Tapping into supplier networks can offer valuable information for assessing sales and competitor activity.
Attending international trade fairs facilitates learning about market characteristics and sales potential.
Following key customers around the world. Automotive suppliers can anticipate where their services will be needed next by monitoring the international expansion of their customers such as Honda or Mercedes-Benz. Caterpillar follows its current customers such as Bechtel and Fluor as they bid for contracts or establish operations in specific foreign markets.
Tapping into supplier networks. Many suppliers serve multiple clients and can be a major source of information about competitors. Firms can gain valuable leads from current suppliers by asking them about the activities of competitors, as long as the questions are ethical and don’t expose competitors’ trade secrets and other proprietary information.
Attending international trade fairs. By attending a trade fair in the target country, a manager can learn a great deal about market characteristics that help indicate industry sales potential. Trade fairs are also helpful for identifying potential distributors and other business partners.
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18. A Sampling of Sites for Conducting International Business Research
The Exhibit summarizes numerous sites useful for estimating industry market potential, as well as accessing various statistics for conducting market opportunity assessment and other international business research.
One useful source in the United States is the market research section at export.gov
( Specific reports available at this site include:
Best Market and Market Update reports provide extensive industry, country, and market research to pinpoint the best export markets and develop entry strategies.
Country Commercial Guides comprehensively profile the political, economic, and commercial environment of some 150 countries.
Industry Overviews and Industry/Regional Reports describe conditions in specific industries.
Managers must be creative in finding and consulting resources that shed light on the task at hand. Data and resources in international research are rarely complete or precise. Consider Teltone Inc. The firm wished to enter Mexico with its inexpensive brand of cellular telephones and needed to estimate industry-wide demand. It consulted numerous sources, including reports by the International Telecommunications Union (in Geneva, Switzerland), Export.gov, and several United Nations publications. Managers researched the size of the Mexican upper class and its average income, the nature of support infrastructure for cellular systems in Mexico, and the nature and number of retail stores that could handle cell phones. They also found some statistics from the National Telecommunications Trade Association on the number of competitors already active in Mexico and their approximate sales volumes. From these sources, the firm was able to arrive at a rough estimate of market size for telephones and prevailing prices in Mexico.
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19. Task 5. Choose foreign business partners
The firm decides on the type of foreign business partner, clarifies ideal partner qualifications, and then crafts an appropriate market entry strategy.
Initially the firm determines what value-adding activities must be performed by foreign business partners, and then seeks the appropriate partners.
The firm assesses and selects partners based on criteria such as industry expertise, commitment to the venture, access to distribution channels, financial strength, quality of staff, and appropriate facilities.
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20. Types of Foreign Business Partners
Exporters tend to collaborate with foreign market intermediaries, such as distributors and agents.
Licensing partners are independent businesses that apply intellectual property to produce products in their own country.
Franchising partners are franchisees – independent businesses abroad that acquires rights and skills from the focal firm to conduct local operations.
International collaborative ventures include joint venture and strategic alliance partners.
Other partners are include basic suppliers, or are involved in global sourcing and contract manufacturing.
Business partners are critical to success in international business. These partners include distribution-channel intermediaries, facilitators, suppliers, and collaborative venture partners such as joint venture partners, licensees, and franchisees. Once the firm has selected a target market, it must identify the types of partners it needs for its foreign-market venture, negotiate terms with chosen partners, and support and monitor their conduct. Exporters tend to collaborate with foreign-market intermediaries such as distributors and agents. Firms that choose to sell their intellectual property, such as know-how, trademarks, and copyrights, tend to work through foreign licensees. These licensing partners are independent businesses that apply intellectual property to produce products in their own country. In franchising, the foreign partner is a franchisee, an independent business abroad that acquires rights and skills from the focal firm to conduct operations in its own market (such as in the fast-food or car-rental industries). The focal firm can also internationalize by initiating an international collaborative venture, a business activity undertaken jointly with other firms. These collaborations may be project-based or require equity investments. Other types of international partnerships include global sourcing, contract manufacturing, and supplier partnerships.
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21. Ideal Qualifications of Foreign Distributors
Financially sound and resourceful.
Competent management.
Qualified technical and sales staff.
Willing and able to invest to grow the business.
Access to distribution channels and end-users.
Strong industry knowledge.
Known in the marketplace and well- connected with local government.
Committed and loyal.
One of the most important decisions for the focal firm is to identify the ideal qualifications of potential foreign partners. The firm should seek a good fit in terms of both strategy (common goals and objectives) and resources (complementary core competencies and value-chain activities). It is helpful to anticipate the potential degree of synergy with the prospective partner for the intermediate-term, three to six years into the future. The exhibit shows the criteria used by Brunswick Corporation ( a leading manufacturer of recreational goods such as boats and bowling equipment, when screening for potential foreign distributors.
Source: Stephen Coburn/Shutterstock
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22. Task 6. Estimate Company Sales Potential
An estimate of the share of annual industry sales that the firm expects to generate in a particular target market.
Requires obtaining highly refined information from the market.
Researcher must project the firm’s revenues and expenses for 3-5 years into the future; very challenging.
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23. Factors That Determine Company Sales Potential
Intensity of the competitive environment. Existing competitors may react strongly against entrants.
Pricing and financing of sales. Attractiveness of pricing and financing to buyers, channel members.
Human and financial resources. Major factor in the proficiency and speed of company success.
Partner capabilities. Partner skills and resources determine speed and effectiveness of entry.
In arriving at an estimate of company sales potential in the foreign market, managers will collect and review various research findings and assess the following: Intensity of the competitive environment. Local or third-country competitors are likely to intensify their own marketing efforts when confronted by new entrants. Their actions are often unpredictable and not easily observed. Pricing and financing of sales. The degree to which pricing and financing are attractive to both customers and channel members is critical to initial entry and ultimate success.
Financial resources. Sufficient capital is a prerequisite for any project. International ventures often require substantial financial outlays.
Human resources. Management must ensure it has personnel with sufficient capabilities in language, culture, and other areas to do business in target markets.
Partner capabilities. The competencies and resources of foreign partners, including channel intermediaries and facilitators, influence how quickly the firm can enter and generate sales in the target market.
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24. Factors Determining Company Sales Potential (cont’d)
Access to distribution channels. Ability to set up and use intermediaries and channel infrastructure.
Market penetration timetable. Fast or slow? Each has advantages and disadvantages.
Risk tolerance of senior managers.
Special links, contacts, capabilities of the firm. The firm’s network in the market.
Reputation. Success may be faster if customers are already familiar with the firm’s brands and reputation.
Access to distribution channels. The ability to establish and make best use of channel intermediaries and distribution infrastructure in the target market determines sales.
Market penetration timetable. Key decision is whether managers opt for gradual or rapid market entry. Gradual entry gives the firm time to develop and leverage resources and strategies but may cede market share to competitors. Rapid entry can ensure first-mover advantages but also tax the firm’s resources and capabilities.
Risk tolerance of senior managers. Results depend on the level of resources top management is willing to commit, which in turn depends on management’s tolerance for risk.
Special links, contacts, and capabilities of the firm. The extent of the focal firm’s network in the market—its existing relationships with customers, channel members, and suppliers—can strongly affect venture success.
Reputation. The firm can succeed faster in the market if target customers are already familiar with its brand name and reputation.
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