USE OF SECONDARY DATA IN INTERNATIONAL MARKETING RESEARCH

1. USES OF SECONDARY DATA

2. USES OF SECONDARY DATA
• Three major uses of secondary data were identified:
• Selecting different markets to evaluate for initial entry.
• Estimating demand for a company’s products or services in
international markets.
• Assessing market interconnectedness to guide resource deployment
across country markets or between and within regions.

3. Market Entry
• Companies entering international markets for the first time face the
dual decision of selecting the appropriate country or countries to
enter and determining the best mode of entry into these markets.
• Data must be collected to assess the market potential and investment
climate in all countries that are being considered, as well as the risks
and costs of operating in these different environments.
• The first step is to establish screening procedures to select those for
further investigation.

4. Generalized Procedures
• At the broadest level, countries can be grouped together based on
their similarities to each other. This provides some indication of what
countries have common macroeconomic environments.
• To examine this assumption in more depth, countries can be grouped
based on market potential, attractiveness or growth.
Country Classification Schemes
• Number of studies have been done to identify the variables that can
be used to classify the countries into different clusters.
• The most common variables which are used for this segmentation
involve primarily social and political indicators.

5. • The political factors are likely to be important where a substantial
investment is being considered, for companies in strategic industries,
such as extractive industries, or high-technology industries such as
telecommunications.
• For a company engaged primarily in export or dealing in consumer
goods, political considerations are likely to be less important.

6. Multiple-factor Indexes
• Multiple-factor indexes are published by various commercial services.
• The Economist Intelligence Unit (EIU), for example, regularly publishes
information on the global business environment for the 60 countries
covered in its Country Forecasts. The information can be useful for
businesses that are trying to assess the quality of the business
environment, particularly for market entry and investment decisions.
• The indicators are grouped into 10 different categories:
• (1) political environment, (2) macroeconomic environment, (3) market
opportunities, (4) policy toward private enterprise and competition, (5)
policy toward foreign investment, (6) foreign trade and exchange controls,
(7) taxes, (8) financing, (9) the labor market and (10) infrastructure.
• The results are used to create a five-year historical score and rank as well
as a forecast for the next five years.

8. Customized Models
• The variables used to screen countries are selected by management based
on objectives relative to international market operations.
• Some companies may, for example, attach greater importance to political
risk than other factors, while other companies may be more concerned
with the rates of inflation or future market growth.
• Similarly, the kinds of criteria that may be relevant for one industry may
not be the same for other industries.
• For example, Companies marketing snack foods might be concerned with
the growth of consumption outside the home and the size of population
aged 12–30. While agricultural equipment manufacturers, on the other
hand, would be more concerned with agricultural production and the
percentage of the population employed in agriculture.

9. • First establishes a number of initial screening criteria to eliminate
countries from further consideration, such as minimum population
size or minimal levels of GDP per capita.
• Next, macroeconomic indicators suggesting a high-risk or
unfavorable business climate might be examined. These might
include, for example, indicators of political risk or economic
instability, rate of economic growth and the regulatory
environment.
• The third level might consist of indicators specific to the product
market. For example, a marketer of pasta sauces might examine
sales of packaged pasta as well as other ready-to-prepare sauces.
• The final level might consist of indicators relating to the cost or
ease/difficulty of marketing in a given country.

10. Demand Estimation
• It involves the dual task of estimating initial demand potential and
projecting future market trends.
• Where the industry or product market is already well developed and
historical sales data are available, procedures similar to those used in
the domestic market can be followed. For example, time-series or
trend analysis can be used.
• In situations where management is considering entry into new
markets or is in the initial stages of market development, Data
extrapolation techniques are very useful to estimate demand when
limited data are available.

11. • However, there are a number of implicit assumptions concerning the
relevance of data collected in one country and applied to another.
• First, the countries must be equivalent in certain relevant respects.
• Second, the measurement units need to be comparable or equivalent for
all countries. If monetary units are used, then the appropriate currency
conversions have to be made.
• Third, some care has to be taken to be certain that the underlying
relationship between demand determinants and sales is the same in all
countries. Thus, a model may assume that if GDP is related to consumption
of a particular product in one country, it is related to consumption of the
product in another.
• Fourth, the product categories should be comparable and equivalent in all
countries.
• Finally, if projections over time are to be made, the rate of change in all
markets should be approximately the same.

12. Lead–Lag Analysis
• This is based on the use of time-series data from one country to
project sales in other countries.
• It assumes that determinants of demand in the two countries are
identical and the only factor that separates them is time.
• Thus, for example, sales of televisions in the UK might be used to
predict the sales of televisions in India, with a lag of x years.
• This requires the assumption that the diffusion process and
specifically the rate of diffusion is the same in all countries.

14. Shift–Share Analysis
• The shift–share approach can be used to identify export opportunities.
• The basic approach involves collecting data on imported products for a
number of countries at the beginning and end of a time period, for
example five years. The average growth in the import of the product is
calculated for all countries.
• An expected growth rate is calculated for each country based on the
average for all countries.
• The expected growth rate is then compared with the actual for each
country.
• For countries gaining share of the particular import the net shift in share
will be positive, and for those losing share the net shift will be negative.

15. Surrogate Indicators
• Two types of indicators can be used:
• (1) market potential indexes, for countries where survey data are
available; and
• (2) macro surveys, where greater reliance has to be placed on visual
indicators or observational measures.

16. Market Potential Indexes
• Market potential is assumed to be a function of the trade-off
between demand potential for a product in a given country and the
barriers that would make it more difficult to import goods into that
country.
• Demand potential is estimated based on consumption – that is,
domestic production plus imports minus exports.
• Import barriers are estimated based on tariff barriers, nontariff
barriers, geographical distance and exchange rates.
• Countries can either be grouped based on the relative score of these
two factors, or alternatively each individual factor can be weighted
and summed to derive an overall score for the country.

17. The Macro Survey
• This can be useful in developing countries, where there is low market
potential that is widely dispersed in rural areas.
• A first step is to develop a scale consisting of several indicators,
comprised of objects or indicators that can be observed.
• For example, the presence of a fiber mill, place of worship, an
elementary school and some shops suggest markets for mopeds,
hardware, school supplies and simple motorized agricultural
equipment.

18. Assessing Market Interconnectedness
• Up to this point, it has been assumed that country markets are
independent and demand can be analyzed and predictions developed
on a country-by-country basis.
• As markets become increasingly interrelated, it becomes important to
assess how interrelated different country markets are.
• When a set of markets is highly interconnected, they should be
treated as a whole and plans and estimates developed for all highly
connected markets.

19. • In considering the interconnectedness of markets, two different
aspects need to be distinguished:
• (1) interconnectedness of geographical markets at the
macroeconomic, product market or firm-specific level; and
• (2) interconnectedness across product businesses within a strategic
planning unit.
• The first type of interconnectedness is of primary concern in demand
estimation.
• Here again, two aspects need to be considered: the extent to which
markets are interlinked and the extent to which they are similar.

20. Markets are linked when they share
• common customers or competitors,
• have a high volume of trade with each other,
• can be reached through common distributors or media networks, or
• when actions in one market affect operations in another.
• Where markets are closely linked, they should be treated as one unit
for the purposes of forecasting or demand estimation.

21. Markets are similar
• where customers have the same tastes, interests or purchase
behavior, and
• where market environments are similar regarding, for example,
product or advertising regulation or media and distribution
infrastructure.
• Where markets are similar, actions in one market will not necessarily
affect results in another, but demand estimates for one market, or
relevant estimation parameters, may be extrapolated from one
market to another.

22. • Where markets are closely linked, they should be treated as one unit
for the purposes of forecasting or demand estimation.
• Where markets are similar, actions in one market will not necessarily
affect results in another, but demand estimates for one market, or
relevant estimation parameters, may be extrapolated from one
market to another.