Chapter 6

Foreign Market Selection –

Managerial Issues

2

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

3

Model for Selecting Foreign Markets

Preliminary Opportunities

Macro Level Research ( General Market Potential)

Economic Statistics, Political Environment, Social Structure,

Geographic Features

General Marketing Relating to the Products

Growth Trends for Similar Products, Cultural Acceptance of Such Products, Market Size, State of Development, Taxes and Duties

Rejected Country

Filter 1

Filter 1

4

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

Target Markets

Corporate FactorsInfluencing Implementation

Probable Opportunity

Filter 3

Filter 4

5

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

6

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.

7

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?

8

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.

9

Filtering Process- Fourth Stage

Evaluates and ranks the potential target countries based on corporate resources, objectives and strategies.

10

Criteria For Selecting Target Countries

Critical factors influence market selection are: Market size Political environment Legal environment Social and culture environment

11

Market Size and Growth Macro Indicators of Market Size Geographic Indicators Size of the country in terms geographic area Climatic condition Topographical characteristicsDemographic Characteristics Total Population Population growth rate Distribution of the population age-wise,

gender-wise, income-wise, rural-urban wise, etc.

Population density

12

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

13

Micro Indicators of Market Size Radios

Television sets Cinema seats Scientists and

Engineers Hospitals and Beds Physicians

Alcoholic Liquor Consumption

Coffee Consumption Petrol/Diesel

Consumption Telephones Tourist Arrivals

14

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.

15

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

16

Social and Cultural Conditions

Main elements are: Material Culture Language Esthetics Education Religion

17

Errors in Selection

1. Ignoring countries with significant potential for the company’s products.

2. Spending resources investigating countries that may turn out to be poor prospects.