International Market Selection

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  • 1. International Market Selection Madhup Srivastava
  • 2. Learning objectives
    • Identify the different problems faced in selecting an overseas market between firms inexperienced and experienced in international business
    • Assess a country’s attractiveness in terms of potential, membership of trading blocs, competitive intensity and entry barriers.
    • Create a portfolio of the most attractive markets to enter, given the circumstances of the firm and potential offered by the market.
  • 3. Two important questions
    • Which of the vast range of markets overseas should the firm enter?
    • What mode should the involvement in the selected market take?
  • 4. Alternative approaches to market selection
    • Take both the situation of the firm and the circumstances of the overseas market(s) into account.
    • Doing so the charecteristics of the individual markets as well as the extent to which one overseas market is integrated with another need to be considered.
    • Entering one market may facilitate subsequent or simultaneous entry into others.
  • 5. Alternative approaches to market selection
    • Selection of overseas market involves comparison--- can be difficult for quality of data emanating from various countries.
    • These difficulties may make a more structured approach to overseas market selection desirable.
  • 6. Alternative approaches to market selection
    • The first category of approaches focuses on whether to enter overseas markets on an incremental basis or whther to enter a number of overseas markets simultaneously and on the basis of experience decide which markets to concentrate on.
  • 7. Alternative approaches to market selection
    • The second category of approaches focusses on whether a concentrated as opposed to a diversified approach should be adopted.
  • 8. Screening for market selection
    • The purpose of screening is to enable the firm to arrive at a portfolio of attractive overseas markets.
    • AUSTRADE (Australian Trade Commission ) developed two grids that compares attractiveness of the overseas market with the competitiveness of Australian firm in order to decide the merits of entering the specific market.
    • Time consuming and beyond the resources of many SMEs.
  • 9. Screening for market selection
    • Alternative could be to consider all markets in the World and then screening markets in relation to a succession of criteria. Unsuitable markets are eliminated leaving a small cluster of markets that offer the greatest potential.
    • The approach is made up of five stages.
  • 10. Five stage overseas market selection process
    • Stage 1: Domestic regulations and management preferences
    • Stage 2: Initial entry assessment
    • Stage 3: Competitive environment
    • Stage 4: Marketing responsiveness
    • Stage 5: Internal trade-off analysis
  • 11. Stage 1
    • Question1: Which overseas markets are of no interest to the firm regardless of their apparent potential?
      • Does influence market selection. It is often due to the prejudice of the senior executives. For example, an unhappy holiday experience in India may result in a refusal by the CEO to contemplate exporting to that country.
  • 12. Stage 1
    • Question 2:Which remaining overseas markets should be excluded because of regulations initiated by or involving support of your country’s government?
      • Generally political but important.
    • At the conclusion of stage 1 analysis it is likely that around 20% of the world markets can be excluded from further consideration.
  • 13. Stage 2
    • This stage is described as ‘initial entry assessment’ screens out unattractive markets.
    • Question 3: Which remaining overseas markets have the least attractive political and social environments?
      • Considerations such as the ease with which profits can be repatriated, freedom to convert local currency, and the volatility of the exchange rates should also be considered.
  • 14. Stage 2
    • Question 4: Which remaining overseas markets are the least attractive because of their nature and potential size?
      • Involves assessing potential demand as well as any untapped or unfilled demand that may exist in a particular market. Some techniques to assess are:
        • Demand pattern analysis
        • International product life cycle
        • Income elasticity measurement
        • Proxy and multiple factor indices
    • At the end of this stage around 50% of world markets would have been eliminated from further consideration.
  • 15. Stage 3
    • Only 30% of world markets remain. Now more expensive and time consuming elements of evaluation are applied to remaining countries.
    • Question 5: Which remaining overseas markets have substantial entry barriers to products from your country to protect domestic industry or to confirm to trade relations arrangements with other countries
    • Question 6: Which remaining overseas markets should be avoided because competitors (bothe domestic and foreign ) are already entrenched in them?
    • End of this stage will see dropping of another 10% markets from the list.
  • 16. Stage 4
    • Question 7: Which remaining overseas markets are not large enough to justify the marketing effort that will be necessary to gain a satisfactory market share?
    • Question 8: Which remaining overseas markets are unlikely to respond to those marketing activities which are considered necessary to effectively establish the product/service in the market place?
    • Question 9: Which remaining overseas markets prohibit the form of presence that your firm considers optimal and can afford when entering a new overseas markets?
    • Question 10: Which remaining overseas markets are unattractive because of cost and difficulty in reaching them from your country?
  • 17. Stage 5
    • Likely that less than 10% markets remain for consideration
    • Question 11: Which remaining overseas markets are no longer attractive because of the extent to which resources need to be committed and changes made to existing company resources?
    • Question 12: Do any of the markets still under consideration fail to meet the company’s objectives or match its competitive advantages?
    • With the several remaining markets having promise, no final decision should be made until these markets have been visited by a responsible executive to see whether the impressions of potential are justified. It is only then that they should be ranked in order of attractiveness.
  • 18. Some useful websites
    • www.state/gov/www/background_notes/index