Market Assessment and Analysis

Heineken Brews Up Global Strategy

Within a few years of its founding, in 1864, Heineken was exporting beer to France, Italy, Spain, Germany, and the Far East. In 1914 Heineken’s managers decided to export beer to the United States, and contracted with Van Munching & Company to distribute its products in North America.

After World War II, Alfred Heineken came to New York to study marketing and advertising with Van Munching, and returned to the Netherlands in 1948 with knowledge to help launch Heineken into other foreign markets worldwide.

Heineken Brews Up Global Strategy (cont.)

Heineken has refused to establish a brewery in the United States. Why?

Heineken learned from the experience of other breweries. Lowenbrau had begun to brew in the U.S. and sales began to drop. The beer was no longer an import and lost its cachet as an authentic Bavarian beer. Heineken continues to ship its beer into the U.S. market even though it might be cheaper to produce it there.

Heineken recently bought Van Munching & Company, and now owns its U.S. distribution arm outright.

Foreign Market Analysis

To successfully increase market share, revenue, and profits, firms must normally follow three steps:– Assess alternative markets– Evaluate the respective costs,

benefits, and risks of entering each– Select those that hold the most

potential for entry or expansion

Selection of Foreign Markets

Initial ScreeningBasic Needs Potential/Foreign Trade Investment

Second ScreeningEconomic and Financial Forces

Third ScreeningPolitical and Legal Forces

Fourth ScreeningSociocultural Forces

Fifth ScreeningCompetitive Forces

Final SelectionPersonal Visit

Initial Screening

Basic Need Potential Identify locales where product or service is needed

Foreign Trade and Investment Assess similar products already in market International Trade Statistics Yearbook (U.N.)

Limitations of Import data Foreign Exchange indexing changing restrictions of liberties import situation may change political change

Assessing Alternative Foreign Markets

Market potential– The first step in foreign market selection is assessing

market potential. Many publications provide data about population, GDP, per capita GDP, public infrastructure, and ownership of such goods as cars and televisions. Such data permit firms to conduct a preliminary screening of foreign markets.

Levels of competition– To assess the competitive environment, a firm

should identify the number and sizes of firms already competing in the target market, their relative market shares, their pricing and distribution strategies, and their relative strengths and weaknesses, both individually and collectively.

Second Screening--Financial and Economic

Forces Inflation Rate Exchange Rate Interest Rates (Nominal and Real) Credit Availability Volatility of all

Second Screening--Financial and Economic

Forces Market indicators

Measures of relative market strength

Market factors Estimates demand for specific products

Second Screening--Financial and Economic

Forces Trend Analysis Cluster Analysis All analysis should be updated

regularly

Third Screening--Political/Legal Forces

Market entry barriers Profit repatriation barriers Political instability Taxes Standards Price controls

Assessing Alternative Foreign Markets (cont.)

Legal and political environment– A firm may choose to forego exporting its goods to a

country that has high tariffs and other trade restrictions in favor of exporting to one that has fewer or less significant barriers. Conversely, trade policies and/or trade barriers may induce a firm to enter a market via FDI.

Sociocultural influences– Managers assessing foreign markets must also

consider sociocultural influences, which, because of their subjective nature, are often difficult to quantify. To reduce the uncertainty associated with these factors, firms often focus their initial internationalization efforts in countries culturally similar to their home markets.

Fourth Screening--Sociocultural Factors

Language Regional Dialects

Education Religious Attitudes

Holidays

Social Values

Fifth Screening--Competitive Forces

Size and strength of competitors Competitors’ promotion methods Competitors’ product mixes Prices Distribution channels employed Market share distribution Market coverage

Evaluating Costs, Benefits, and Risks

Costs– Two types of costs are relevant at this point: direct

and opportunity. Direct costs are those the firm incurs in entering a new foreign market and include costs associated with setting up a business operation. Opportunity costs are those that result from entering one market as opposed to another—a firm forfeits or delays its opportunity to earn profits in one market by dedicating its resources to another.

Benefits– Among the most obvious potential benefits are the

expected sales and profits from the market. Others include lower acquisition and manufacturing costs, foreclosing of markets to competitors, competitive advantage, access to new technology, and the opportunity to achieve synergy with other operations.

Evaluating Costs, Benefits, and Risks (cont.)

Risks– Generally, a firm entering a new

market incurs the risks of exchange rate fluctuations, additional operating complexity, and direct financial losses due to inaccurate assessment of market potential.

Final Selection

Field Trip Research local markets

Secondary data (UN IMF, WTO, et al) Primary data

Cultural problems Technical problems

Research as a Reality Highly developed in Developed Countries Less Developed Countries simpler and less of it