Chapter 13 Identifying and Forecasting Global Markets Sales Management: A Global Perspective Earl D....

Chapter 13Identifying and Forecasting

Global Markets

Sales Management:

A Global PerspectiveEarl D. Honeycutt

John B. Ford

Antonis Simintiras

Identifying and Forecasting Global MarketsFigure 13-1: Useful Criteria for Cross-Cultural Market

Potential Assessment

Market SizeMarket Potential

Economic Conditions

Cultural Factors

Political/ Legal

Factors

Salesperson and Market

Fit

Competition

Identifying and Forecasting Global Markets

• Useful Criteria for Cross-Cultural Market Potential Assessment – Economic Conditions:– Population:

• Population figures are important indicators of where customers are located.

• Population figures, by themselves, can be misleading because access to concentrated buyer pockets is more cost effective than reaching customers spread over a large area.

• Population distribution is therefore important.• Population figures may not sufficiently categorize data into

small enough subgroups for targeting purposes. It therefore becomes necessary to apportion out the figures from aggregated numbers for reasonable comparisons to be made.


• Useful Criteria for Cross-Cultural Market Potential Assessment – Economic Conditions:– Population:

• Population density is helpful in determining potential. The question is whether customers are highly concentrated or not.

• Population density, as measured by population per square kilometer, can be found in the annual World Bank’s World Development Indicators.

• In 1999, Nepal had a population of 23 million versus 16 million for the Netherlands; however, when population density is considered, 1999 figures indicated that there are 466 people per square kilometer in the Netherlands versus 164 in Nepal.

• Sales managers must be able to make useful comparisons across potential markets that reflect a variety of views of population.


• Useful Criteria for Cross-Cultural Market Potential Assessment – Economic Conditions:

– Population:• Another important informational variable is the level of

urbanization.

• Urbanization is the percentage of the population located in an urban (or city) setting as opposed to rural (or country) setting.

• Urbanization can be viewed as a measure of modernization or development since people tend to move to the city to improve their economic as well as life prospects.


• Useful Criteria for Cross-Cultural Market Potential Assessment – Economic Conditions:

– Income:• Income is an important component for assessing buying

power, but income is often unevenly distributed.

• When income is fairly evenly distributed, then per capita income becomes an effective measure.

• When income is unevenly distributed (e.g., small very wealthy individuals offsetting a large low income group), per capita income may incorrectly appear large and reasonable.

• Additional information can help in this case.


• Useful Criteria for Cross-Cultural Market Potential Assessment – Economic Conditions:– Income:

• An effective mechanism for cross-country comparisons is the use of gross national product (GNP) per capita.

• GNP includes all domestic and foreign value-added that is claimed by the residents of the country, and when it is calculated on a per person basis, it produces a more accurate measure of actual purchasing power.

• This data is readily available from the World Bank, and the Nepal and the Netherlands example now shows an even wider disparity with GNP per capita figures for 1999 of $24,320 (US$) for the Netherlands (18th in the world) versus $220 (US$) for Nepal (194th in the world).


• Useful Criteria for Cross-Cultural Market Potential Assessment – Economic Conditions:– Income:

• The best comparative measure for purchasing power involves an adjustment for international currencies.

• GNP purchasing power parity (PPP) adjusts GNP per capita to reflect real price levels across countries by placing different currencies and buying ability into a more comparable and meaningful framework.

• Adjusted PPP figures for the Netherlands for 1999 are $23,052 (US$ - 17th in the world) versus $1,219 (US$ - 177th in the world) for Nepal.

• This narrows the gap a bit, for this example, but the results confirm significantly greater purchasing power in the Netherlands than in Nepal.


• Useful Criteria for Cross-Cultural Market Potential Assessment – Economic Conditions:– Consumption:

• An important aspect of sales potential would also involve the existing consumption of the product or service in question across the market(s) of interest.

• Numerous sources exist for this type of information from World Bank data to United Nations sources to individual country statistical reports.

• Since official government data can be biased, information from objective outside organizations like the World Bank, United Nations, International Monetary Fund, or Euromonitor are more reliable.

• Caution is warranted when consumption levels are very high as this may signal market saturation.


• Useful Criteria for Cross-Cultural Market Potential Assessment – Economic Conditions:– Economic Development:

• The level of economic development significantly impacts demand levels of particular goods and services in both consumer and industrial markets.

• Over time economies become increasingly sophisticated and demand patterns change. Four important levels are:

– Agricultural or subsistence economies (e.g., Cameroon)– Industrializing economies (e.g., Brazil, China)– Industrialized economies (e.g., Australia, Sweden)– Post-industrial economies (e.g., United States, Japan)

• Products and services are needed in all of these economies, but market potential is best understood when countries and target markets are categorized into comparable groupings.


• Useful Criteria for Cross-Cultural Market Potential Assessment – Cultural Factors:– Culture affects the success of the individual salesperson that calls

upon cross-cultural customers with the goal of building successful relationships over time.

– Culture has an effect upon the potential use of a product or service in a new market since tastes and habits are so often culturally driven.

– Culture should always be included when evaluating market potential.


• Useful Criteria for Cross-Cultural Market Potential Assessment – Market Size:– Market size is an essential piece of information when evaluating

market potential.– Market size can be estimated fairly easily; however, accuracy is

often sacrificed when dealing with less-developed country markets.– Useful reports are available for many countries from research firms

like A.C. Nielsen; however, these reports may be quite expensive and focused primarily on frequently purchased products or services.

– If the market in question has not yet been developed, it may be necessary for the sales manager to compile his or her own estimate of the market size.


• Useful Criteria for Cross-Cultural Market Potential Assessment – Market Size:– The following are techniques which can be used in a global

context to estimate market size:

– Estimation by analogy

– Trade audits

– Maximum market potential

– Chain ratio method

– Extrapolation.


• Useful Criteria for Cross-Cultural Market Potential Assessment – Market Size:– Estimation by Analogy:

– The technique involves finding a market size that is known in a similar country and extending from that information to the size of the market in question.

– The key is to find a country at a similar stage of economic development and use a surrogate measure for a parallel type of product that allows the two countries to be appropriately compared.

– It is important that demand figures represent the same time period for the relevant quantitative inputs.


• Useful Criteria for Cross-Cultural Market Potential Assessment – Market Size:

– Estimation by Analogy:– The formula is as follows:Demand for Product 1 in Country A = Demand for Product 1 in Country B

Demand for Product 2 in Country A Demand for Product 2 in Country B

– This can be rewritten as:Demand for Product 1 = Demand for Product 2 x Demand for Product 1 in Country B

in Country A in Country A Demand for Product 2 in Country B


• Useful Criteria for Cross-Cultural Market Potential Assessment – Market Size:– Estimation by Analogy:

– Suppose that we are interested in estimating market size for Video Camcorders in Poland. If we have access to size for comparable markets in the Czech Republic, for example, then we can estimate the size of the market in Poland.

– Suppose the following information is found: Video Camcorder sales in the Czech Republic for 2000=96,000 and VCR sales in Poland in 2000=230,000 and VCR sales in the Czech Republic in 2000=250,000

– Then the formula can be used as follows:Demand for Camcorders = Demand for VCRs x Demand for Camcorders (Czech Rep.) (Poland) (Poland) Demand for VCRs (Czech Republic)

Demand = 230,000 x 96,000/250,000 = 88,320 units



– The Trade Audit:– This estimation examines the level of local manufacture

for the product in question, along with imports and exports of that product.

– The formula is as follows:

Market Size for Country A = Local Production + Imports - Exports


• Useful Criteria for Cross-Cultural Market Potential Assessment – Market Size:– The Trade Audit:

– Suppose that we need to determine the market size for tobacco products in Italy. Suppose also that we have the necessary figures for Italy as follows:

1996 tobacco production = 4,909,000,000,000 Lira1996 imports of tobacco products = 1,982,000,000,000 Lira1996 exports of tobacco products = 268,000,000,000 Lira

Market Size for tobacco products in Italy = 4,909,000,000,000 + 1,982,000,000,000 – 268,000,000,000 = 6,623,000,000,000 Lira

1996 Exchange Rate US$1.00 = 1,703.1 Lira, so converting to US$:6,623,000,000,000/1703.1 = US$388,879,100



– Maximum Market Potential:• This approach requires information about consumption in terms of average

amount consumed per target customer, average price paid per unit, and the total number of consumers.

• This method can be tailored to the specific product and sales area in question.• It requires information searching, and at times may necessitate conducting

primary research (e.g., asking potential customers about their consumption habits) to estimate the necessary pieces of the formula, but the result is worthwhile.

• The formula is as follows: Q=n x p x q, where:Q=total market potential, n=number of buyers in the specific market, p=price

for an average unit of the product in question, and q=quantity purchased by the average buyer during the time period in question



– Maximum Market Potential:• Suppose that we need to know the potential market for office

computers in a particular market.

• We know from Chamber of Commerce statistics that the total number of buying companies in the market is 1,245, and that on average these businesses buy 12 computers per year. If the average price per computer for the current year is US$1,200, then:

Q = 1,245 x 12 x $1,200 = US$17,928,000 per year


• Useful Criteria for Cross-Cultural Market Potential Assessment – Market Size:– Chain Ratio Method:

• This estimation technique begins with a general estimate for the entire population involved (e.g., total population figures) and applies to this base a series of percentage reductions.

• Suppose that a company is interested in the potential market for a new infant care product in Malaysia. One could start this method with the total population figures for Malaysia (23,000,000 in 1999 according to World Bank data).

• Since only population in urban locations would be of interest, the urbanization rate must be adjusted for. In 1999 the urbanization level for Malaysia was 57%, so the urban population in question would be 23,000,000 x .57 = 13,110,000.

• The last calculation here is to adjust for new births in the population, and the birth rate for Malaysia in 1996 was 27 per 1000 people, so a further reduction is necessary:

13,110,000 x .027 = 353,970 new births


• Useful Criteria for Cross-Cultural Market Potential Assessment – Market Size:– Extrapolation:

• One of the biggest problems with information gathering is that data are often out-of-date.

• The sales manager may have access to data which are 5-6 or more years old, and the problem is how to estimate the present situation with old data.

• Looking at the change from period to period in the most recent data available can identify a trend that can be applied to the last know data.

• The trend percentage can then be applied to the last known data and carried forward to present and into future periods.



• Suppose that a company is interested in selling window air conditioners in Thailand.

• If we have estimates for air conditioner sales in Thailand for the period 1990-1995, then we can calculate the percentage change during that time and bring the figures forward to the present.

• Suppose that we have the following information regarding sales of window air conditioners in Thailand (in US$):

1990 = $16,600,000; 1991 = $19,350,000; 1992 = $22,608,000; 1993 = $25,260,000; 1994 = $27,540,000; and 1995 = $30,280,000



• From these figures we can calculate the percentage change from 1990-1995, and then average the year-to-year change to develop a trend percentage to use to carry the figures forward to future years.

• From 1990-1991 the change was (19,350,000 – 16,600,000)/16,600,000 = 2,750,000/16,600,000 = 16.6%.

• The remaining % changes were as follows:1991-1992 = 3,258,000/19,350,000 = 16.8%1992-1993 = 2,652,000/22,608,000 = 11.7%1993-1994 = 2,280,000/25,260,000 = 9.0%1994-1995 = 2,740,000/27,540,000 = 9.9%Average change – (.166+.168+.117+.090+.099)/5 = .128 = 12.8%



• The 12.8% trend can be carried forward.• The projected sales for 1996 could be calculated as follows:1996 Projected Sales = 1995 Sales ($30,280,000) + 1995 Sales ($30,280,000) x

% change (12.8%) = $30,280,000 + $3,875,840 = $34,155,840 (estimated). As a result the following calculations can be made:

1997 Projected Sales = $34,155,840 + $4,371,948 = $38,527,7881998 Projected Sales = $38,527,788 + $4,931,557 = $43,459,345

This can be taken forward as far as needed. Two points: 1) the greater the number of years being projected forward, the less accuracy, and 2) the larger the number of years of reported data for trend calculations, the greater the accuracy.


• Useful Criteria for Cross-Cultural Market Potential Assessment – Market Size:– The global sales manager must be able to arrive at the most accurate

estimation of size of the potential markets under consideration, and the best way to accomplish this is to seek corroboration by using more than one method for estimating market size.

– Each technique should be evaluated by the quality of the data used for calculations. When discrepancies in estimates are found, then estimates should be averaged together, or the highest and lowest estimates can be eliminated.

– Adjustments must be made in all estimation techniques to account for market conditions that impact total market potential.

– An assessment of the number of competitors must be undertaken for the market in question to determine the maximum share that can reasonably be attained by entering that market.


• Useful Criteria for Cross-Cultural Market Potential Assessment – Political/Legal Factors:– Another important criterion for assessing market attractiveness is the

political/legal structure of the target market.

– A political risk assessment (PRA) is an important exercise to assess the health and stability of the political situation faced in the country.

– The PRA is an examination of the current government and its economic policies and relationships with other governments as well as its own citizens.

– Legal issues are also important since what the salesperson can say and do is governed by local laws along with such important issues as what constitutes a binding sales agreement/contract and what are the rights of the parties.


• Useful Criteria for Cross-Cultural Market Potential Assessment – Political/Legal Factors:– The following types of laws can affect sales of products and business

operations and should be examined:• Tariffs (government taxes placed on specific imports or exports)

• Antidumping Laws (pricing restrictions)

• Import/Export/Business Licenses (licensing may be needed to engage in any kind of business)

• Product Standards Regulations (what is being sold may have standards which are government mandated)

• Inspections (imports may be subject to inspections with accompanying fees and delays)

• Business Operation Laws (laws may regulate what people must be paid, the hours they work, the conditions under which they work)


• Useful Criteria for Cross-Cultural Market Potential Assessment – Salesperson and Market Fit:– An important consideration is the fit of the salesperson with the market in

which they operate.

– Fit is normally influenced by cultural components:• Communication

• Religion

• Education

• Aesthetics

• Social Organizations

• Technology

• Time

• Values and Norms


• Useful Criteria for Cross-Cultural Market Potential Assessment – Salesperson and Market Fit:– Fit may also require an evaluation of the following personal

characteristics:• Gender

• Age

• Nationality/Ethnicity

• Lifestyle/Personality


• Useful Criteria for Cross-Cultural Market Potential Assessment – Competition:– The last of the criteria used to assess the attractiveness of new

market opportunities involves the nature of the competition the company will face in the potential market.

– The following questions should be asked when assessing competition:

• How many competitors are there in the market?• How well established are these competitors?• Are any of the competitors connected to the government?• How intense is the rivalry among the competitors?• Do any of the competitors have significant competitive advantages?• What stage of the industry life cycle is this market in presently?

Chapter 13 Identifying and Forecasting Global Markets Sales Management: A Global Perspective Earl D....

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