Analyzing International Opportunities Chapter 5 Dr Senem SNMEZ

Analyzing International Opportunities Chapter 5 Dr. Senem SÖNMEZ SELÇUK

2 Basic Appeal and National Factors Two important issues concern managers during the market- and site-screening process. First, they want to keep search costs as low as possible Second, they want to examine every potential market and every possible location. INTF 3380 – Global Trade in the Modern World INTF 3380 –

3 To accomplish these two goals, managers can segment the screening of markets and sites into the following four-step process: 1) Identify basic appeal. 2) Assess the national business environment. 3) Measure market or site potential. 4) Select the market or site INTF 3380 – Global Trade in the Modern World INTF 3380 –

4 This screening process involves spending more time, money, and effort on the markets and sites that remain in the later stages of screening. Expensive feasibility studies (conducted later in the process) are performed on a few markets and sites that hold the greatest promise. This approach creates a screening process that is cost effective yet does not overlook potential locations. INTF 3380 – Global Trade in the Modern World INTF 3380 –

5 INTF 468 - MNCs & Global Strategy

6 Basic Appeal and National Factors Step 1: Identify Basic Appeal Determining Basic Demand Determining Availability of Resources

7 Determining Basic Demand The first step in searching for potential markets means finding out searching for potential markets whethere is a basic demand for a company’s product. Important in determining this basic appeal is a country’s climate For example, no company would try to market snowboards in Indonesia, Sri Lanka, or Central America because they receive no snowfall. The same product, on the other hand, is well suited for markets in the Canadian Rockies, northern Japan, and the Swiss Alps. Although this stage seems simple, it cannot be taken too lightly. A classic example is when, during its initial forays into international business, Walmart found ice-fishing huts in its Puerto Rico inventory and no snowshoes at its stores in Ontario, Canada.

8 Certain countries also ban specific goods. Islamic countries, for instance, forbid the importation of alcoholic products, and the penalties for smuggling are stiff. Although alcohol is available on the planes of international airlines such as British Airways and KLM, it cannot leave the airplane, and consumption cannot take place until the plane has left the airspace of the country operating under Islamic law. INTF 3380 – Global Trade in the Modern World INTF 3380 –

9 Determining Availability of of Resources Companies that require particular resources to carry out particular resources local business activities must be sure they are available Raw materials needed for manufacturing either must be found in the national market or must be imported. Yet imports may encounter tariffs, quotas, or other government barriers. Managers must consider the additional costs of importing to ensure that total product cost does not rise to unacceptable levels. INTF 3380 – Global Trade in the Modern World INTF 3380 –

10 The availability of labor is essential to production in any availability of labor country. Many companies choose to relocate to countries where workers’ wages are lower than they are in the home country. This practice is most common among makers of laborintensive products—those for which labor accounts for a large portion of total cost. Companies considering local production must determine whethere is enough labor available locally for production operations. INTF 3380 – Global Trade in the Modern World INTF 3380 –

11 Companies that hope to secure financing in a market abroad must determine the availability and cost of local capital. If local interest rates are too high, a company might be forced to obtain financing in its home country or in other markets in which it is active. On the other hand, access to low-cost financing may provide a powerful inducement to a company that is seeking to expand internationally. British entrepreneur Richard Branson opened several of his Virgin Megastores in Japan despite its reputation as a tough market to crack. One reason for Branson’s initial attraction to Japan was a local cost of capital that was roughly one-third the cost in Britain. INTF 3380 – Global Trade in the Modern World INTF 3380 –

12 Markets and sites that fail to meet a company’s requirements for basic demand or resource availability in Step 1 are removed from further consideration. INTF 3380 – Global Trade in the Modern World INTF 3380 –

Basic Appeal and National Factors 13 Step 2: Assess the National Business Environment Cultural Forces Political and Legal Forces Economic and Financial Forces Other Forces (Transport Costs and Country Image)

14 If the business environments of all countries were the same, deciding where to market or produce products would be rather straightforward. Managers could rely on data that report the performance of the local economy and analyze expected profits from proposed investments. Countries differ significantly in their cultures, politics, laws, and economies. International managers must work to understand these differences and to incorporate their understanding into market- and site-selection decisions. Let’s examine how domestic forces in the business environment actually affect the location-selection process. INTF 3380 – Global Trade in the Modern World INTF 3380 –

15 1) Cultural Forces Although countries display cultural similarities, they differ in language, attitudes toward business, religious beliefs, traditions, customs, and countless other ways. Some products are sold in global markets with little or no modification. These products include industrial machinery modification. such as packaging equipment, consumer products such as toothpaste and soft drinks, and many other types of goods and services. Yet many products must undergo extensive adaptation to adaptation suit local preferences, such as books, magazines, ready-toeat meals, and others. INTF 3380 – Global Trade in the Modern World INTF 3380 –

16 Cultural elements can influence what kinds of products are sold and how they are sold. A company must assess how the local culture in a candidate market might affect the salability of its product. Consider Coca-Cola’s experience in China. Many Chinese take a traditional medicine to fight off flu and cold symptoms. As it turns out, the taste of this traditional medicine—which most people do not find appealing—is similar to that of Coke. Because of Coca-Cola’s global marketing policy of one taste worldwide, the company had to overcome the aversion to the taste of Coke among Chinese consumers. It did so by creating a marketing campaign that associated drinking a Coke with experiencing a piece of American culture. What initially looked like an unattractive market for Coke became very successful through a carefully tailored marketing campaign. INTF 3380 – Global Trade in the Modern World INTF 3380 –

17 Cultural elements in the business environment can also affect site-selection decisions. When substantial product site-selection decisions modifications are needed for cultural reasons, a company might choose to establish production facilities in the target market itself. A qualified workforce is important to a company no matter A qualified workforce what activity it is to undertake at a particular site. Also, a strong work ethic among the local workforce is essential to having productive operations. Managers must assess whether an appropriate work ethic exists in each potential country for the purposes of production, service, or any other business activity. INTF 3380 – Global Trade in the Modern World INTF 3380 –

18 2) Political and Legal Forces Political and legal forces also influence the market and sitelocation decision. Important factors include government regulation, government bureaucracy, and political stability. Let’s take a brief look at each of these factors. INTF 3380 – Global Trade in the Modern World INTF 3380 –

19 - Government Regulation Some governments take a strong nationalistic stance, whereas others are quite receptive to international trade and investment. A government’s attitude toward trade and investment is reflected in the quantity and types of restrictions it places on imports, exports, and investment in its country. Government regulations can quickly eliminate a market or site from further consideration. INTF 3380 – Global Trade in the Modern World INTF 3380 –

20 First of all, they can create investment barriers to ensure domestic control of a company or industry. One way in which a government can accomplish this is by imposing investment rules on matters such as business ownership—for example, forcing foreign companies into joint ventures. Governments can extend investment rules to bar international companies entirely from competing in certain sectors of the domestic economy. The practice is usually defended as a matter of national security. Economic sectors commonly declared off-limits include TV and radio broadcasting, automobile manufacturing, aircraft manufacturing, energy exploration, military-equipment manufacturing, and iron and steel production. INTF 3380 – Global Trade in the Modern World INTF 3380 –

21 Second, governments can restrict international companies from freely removing profits earned in the nation. This policy can force a company to hold cash in the host country or to reinvest it in new projects there. Such policies are normally rooted in the inability of the host-country government to earn the foreign exchange needed to pay for badly needed imports. INTF 3380 – Global Trade in the Modern World INTF 3380 –

22 Third, governments can impose very strict environmental regulations. In most industrial countries, factories that produce industrial chemicals as their main output or as byproducts must adhere to strict pollution standards. Regulations typically demand the installation of expensive pollution-control devices and close monitoring of nearby air, water, and soil quality. While protecting the environment, such regulations also increase short-term production costs. Many developing and emerging markets have far less strict environmental regulations. Regrettably, some companies are alleged to have moved production of toxic materials to emerging markets in order to take advantage of lax environmental regulations and, in turn, of lower production costs. INTF 3380 – Global Trade in the Modern World INTF 3380 –

23 Finally, governments can also require that companies divulge certain information. Coca-Cola actually left India when the government demanded that it disclose its secret Coke formula as a requirement for doing business there. Coca-Cola returned only after the Indian government dropped its demand. INTF 3380 – Global Trade in the Modern World INTF 3380 –

24 - Government Bureaucracy A lean and smoothly operating government bureaucracy can A lean and smoothly operating government bureaucracy make a market or site more attractive. On the other hand, a bloated and cumbersome system of a bloated and cumbersome system obtaining approvals and licenses from government agencies can make it less appealing. In many developing countries, what should be a relatively simple matter of obtaining a license to establish a retail outlet often means acquiring numerous documents from several agencies. INTF 3380 – Global Trade in the Modern World INTF 3380 –

25 The bureaucrats in charge of these agencies generally are little concerned with providing businesses with high-quality service. Managers must be prepared to deal with administrative delays and a maze of rules. For example, country managers for Millicom International Cellular in Tanzania needed to wait 90 days to get customs clearance on the monthly import of roughly $1 million in cellular telephone equipment. Millicom endured this bureaucratic obstacle because of the local market’s potential. INTF 3380 – Global Trade in the Modern World INTF 3380 –

26 Companies will endure a cumbersome bureaucracy if the opportunity is sufficient to offset any potential delays and expenses Companies entering China cite the patience needed to navigate a maze of government regulations that often contradict one another, and they complain about the large number of permissions required from different agencies. The trouble stems from the fact that China is continually revising and developing its system of business law as its economy develops. But an unclear legal framework and inefficient bureaucracy are not deterring investment in China because the opportunities for both marketers and manufacturers are simply too great to ignore. INTF 3380 – Global Trade in the Modern World INTF 3380 –

27 - Political Stability Every nation’s business environment is affected to some degree by political risk. Political risk is the likelihood that a society will undergo political changes that negatively affect local business activity. Political risk can threaten the market of an exporter, the production facilities of a manufacturer, or the ability of a company to remove profits from the country in which they were earned. Stability can attract international business, but social unrest Stability can severely disrupt operations and drive out international firms. INTF 3380 – Global Trade in the Modern World INTF 3380 –

28 The key element of political risk that concerns companies is unforeseen political change Political risk tends to rise if a company cannot estimate the future political environment with a fair degree of accuracy. An event with a negative impact that is expected to occur in the future is not, in itself, bad for companies because the event can be planned for and necessary precautions taken. It is the unforeseen negative events that create political risk for companies. INTF 3380 – Global Trade in the Modern World INTF 3380 –

29 Managers’ perceptions of a market’s political risk are often affected by their memories of past political unrest in the market. Yet managers cannot let past events blind them to future opportunities. International companies must try to monitor and predict political events that threaten operations and future profits. By investigating the political environment proactively, managers can focus on political risk and develop action plans for dealing with it. INTF 3380 – Global Trade in the Modern World INTF 3380 –

30 But where do managers get the information to answer such questions? They may assign company personnel to gather information on the level of political risk in a country, or they may obtain it from independent agencies that specialize in providing political-risk services. The advice of country and regional specialists who are knowledgeable about the current political climate of a market can be especially helpful. Such specialists can include international bankers, political consultants, reporters, countryrisk specialists, international relations scholars, political leaders, union leaders, embassy officials, and other local businesspeople currently working and living in the country in question. INTF 3380 – Global Trade in the Modern World INTF 3380 –

31 3) Economic and Financial Forces Managers must carefully analyze a nation’s economic policies before policies selecting it as a new market or site for operations. The poor fiscal and monetary policies of a nation’s central bank can poor fiscal and monetary policies cause high rates of inflation, increasing budget deficits, a depreciating currency, falling productivity levels, and flagging innovation. Such consequences typically lower investor confidence and force international companies to scale back or cancel proposed investments. For instance, India’s government finally reduced its restrictive trade and investment policies and introduced more-open policies. These new policies encouraged investment by multinationals in production facilities and R&D centers, especially in the computer software industry.

32 Currency and liquidity problems pose special challenges for and liquidity problems international companies. Volatile currency values make it difficult for firms to predict future earnings accurately in terms of the home-country currency. Wildly fluctuating currency values also make it difficult to calculate how much capital a company needs for a planned investment. Unpredictable changes in currency values can also make liquidating assets more difficult because the greater uncertainty will likely reduce liquidity in capital markets— especially in countries with relatively small capital markets, such as Bangladesh and Slovakia. INTF 3380 – Global Trade in the Modern World INTF 3380 –

33 In addition to their home government’s resources, managers can obtain information about economic and financial conditions from institutions such as the World Bank, the International Monetary Fund, and the Asian Development Bank. Other sources of information include all types of business and economic publications and the many sources of free information on the Internet. INTF 3380 – Global Trade in the Modern World INTF 3380 –

34 4) Other Forces Transport costs and country image also play important roles Transport costs country image in the assessment of national business environments. Let’s take a brief look at each of these forces. INTF 3380 – Global Trade in the Modern World INTF 3380 –

35 - Cost of Transporting Materials and Goods The cost of transporting materials and finished goods affects any decision about where to locate manufacturing facilities. Some products cost very little to transport through the production and distribution process, whereas others cost a great deal. Logistics refers to management of the physical flow of products Logistics from the point of origin as raw materials to end users as finished products. Logistics weds production activities to the activities needed to deliver products to buyers. It includes all modes of transportation, transportation storage, and distribution. storage distribution

36 - Country Image Because country image embodies every facet of a nation’s business environment, it is highly relevant to the selection business environment of sites for production, R&D, or any other activity. For example, country image affects the location of manufacturing or assembly operations because products must typically be stamped with labels identifying where they were made or assembled —such as “Made in China” or assembled “Assembled in Brazil”. Although such labels do not affect all products to the same degree, they can present important positive or negative images and boost or dampen sales.

37 Products made in relatively developed countries tend to be evaluated more positively than products from less-developed countries. This relation is due to the perception among consumers that the workforces of certain nations have superior skills in making particular products. For example, consumer product giants Procter & Gamble and Unilever have manufacturing facilities in Vietnam. But Vietnamese consumers tend to shun these companies’ locally made Close-Up toothpaste and Tide detergent, instead seeking out identical products and brands produced in neighboring countries, such as Thailand. One Vietnamese shopper said that Tide from Thailand simply smells better to her. A general perception among Vietnamese consumers is that goods from Japan or Singapore are the best, followed by Thai goods.

38 A country’s image can be positive in one product class but negative in another. For example, the fact that Volkswagen’s new Beetle is made in Mexico for the U. S. market has not hurt the Beetle’s sales. But would affluent consumers buy a hand-built Rolls-Royce automobile if it were produced in Bolivia? Because Rolls-Royce buyers pay for the image of a brilliantly crafted luxury car, the Rolls-Royce image probably would not survive intact if the company were to produce its cars in Bolivia. Finally, note that country image can and does change over time. For example, “Made in India” has traditionally been associated with low-technology products such as soccer balls and many types of textile products. But today, world-class computer software companies increasingly rely on the software-development skills of engineers located in and around Madras and Bangalore in southern India.

39 INTF 468 - MNCs & Global Strategy

40 Measure and Select the Market or Site Markets and sites passing the first two steps in the screening process undergo further analysis in order for companies to arrive at a more manageable number of potential locations. In this section, we explore the factors that further influence the potential suitability of markets and sites for operations. INTF 3380 – Global Trade in the Modern World INTF 3380 –

41 Measure and Select the Market or Site Step 3: Measure Market or Site Potential

42 Despite the presence of a basic need for a product and an adequately stable national business environment, potential customers might not be ready or able to buy a product for a variety of reasons. Despite the availability of resources, certain sites may be unable to supply a given company with the level of resources it needs. It is, therefore, crucial that management arrive at numerical estimates for each key success factor that contributes to a location’s potential market size or location’s potential market size its suitability as a site for operations INTF 3380 – Global Trade in the Modern World INTF 3380 –

43 - Measuring Market Potential As barriers to trade are reduced worldwide, companies are looking to increase sales in industrialized and emerging markets alike. But businesses can seldom create one marketing plan that will cover every market in which they sell their products. Nations enjoy different levels of economic development that affect what kinds of goods are sold, the manner in which they are sold, and their inherent features. Likewise, different levels are sold, and their inherent features. of economic development require varying approaches to researching market potential. INTF 3380 – Global Trade in the Modern World INTF 3380 –

44 But how do managers estimate potential demand for particular products? Let’s look at the factors managers consider when analyzing industrialized markets and then examine a special tool for analyzing emerging markets. INTF 3380 – Global Trade in the Modern World INTF 3380 –

45 1) Industrialized Markets The information needed to estimate the market potential for a product in industrialized nations tends to be more readily available than for emerging markets. available In fact, for the most-developed markets, research agencies exist for the sole purpose of supplying market data to companies. Euromonitor is one such company with an extensive global Euromonitor reach in consumer goods. The company sells reports and does company-specific studies for many international corporations and entrepreneurs. INTF 3380 – Global Trade in the Modern World INTF 3380 –

46 Some of the information in a typical industry analysis includes the following: Names, production volumes, and market shares of the largest competitors Volume of exports and imports of the product Structure of the wholesale and retail distribution networks Background on the market, including population figures and key social trends Total expenditure on the product (and similar products) in the market Retail sales volume and market prices of the product Future outlook for the market and potential opportunities INTF 3380 – Global Trade in the Modern World INTF 3380 –

47 The value of such information supplied by specialist agencies is readily apparent —these reports provide a quick overview of the size and structure of a nation’s market for a product. Reports vary in their cost (depending on the market and product), but many can be had for around $750 to $1, 500. The company also allows online purchase of reports in small segments for as little as $20 each. Thus, companies that enter the market in industrialized countries often have a great deal of data available on that particular market. What becomes important then is the forecast for the growth or contraction of a potential market INTF 3380 – Global Trade in the Modern World INTF 3380 –

48 One way of forecasting market demand is by determining a product’s income elasticity —the sensitivity of demand for a product relative to changes in income The income-elasticity coefficient for a product is calculated by dividing a percentage change in the quantity of a product demanded by a percentage change in income. A coefficient greater than 1. 0 conveys an income-elastic product, or income-elastic product one for which demand increases more relative to an increase in income. These products tend to be discretionary purchases, such as purchases computers, video games, jewelry, or expensive furniture—generally not considered essential items. A coefficient less than 1. 0 conveys an income-inelastic product, or income-inelastic product one for which demand increases less relative to an increase in income. These products are considered essential and include food, essential utilities, and beverages.

49 2) Emerging Markets The biggest emerging markets are more important today than ever. Nearly every large company engaged in international business is either already in or is considering entering the big emerging markets such as China and India. China India With their large consumer bases and rapid growth rates, they whet the appetite of marketers around the world. Although these markets are surely experiencing speed bumps along their paths of economic development, in the long term they cannot be ignored. INTF 3380 – Global Trade in the Modern World INTF 3380 –

50 Companies considering entering emerging markets often face special problems related to a lack of information. Data on market size or potential may Data may not be be available, for available example, because of undeveloped methods for collecting such data in a country. But there are ways companies can assess potential in emerging markets. One way is for them to rank different locations by developing a so-called market-potential indicator for each. This method, however, is only useful to companies considering exporting. Companies considering investing in an emerging market must look at other factors, which we examine next in the discussion of measuring site potential. INTF 3380 – Global Trade in the Modern World INTF 3380 –

51 The main variables commonly included in market-potential analyses are as follows: Market Size: This variable provides a snapshot of the size of a Market Size: market at any point in time. It does not estimate the size of a market for a particular product but rather the size of the overall economy Market-size data allows managers to rank countries from largest to smallest, regardless of a particular product. Market size is typically estimated from a nation’s total population or the amount of energy it produces and consumes. Market Growth Rate: This variable reflects the fact that, although the Rate: overall size of the market (economy) is important, so too is its rate of growth. It helps managers avoid markets that are large but shrinking and instead target those that are small but rapidly expanding. It is generally obtained through estimates of growth in gross domestic product (GDP) and energy consumption. product (GDP)

52 Market Intensity: This variable estimates the wealth or buying power of a Market Intensity: market from the expenditures of both individuals and businesses. It is market estimated from per capita private consumption and/or per capita gross domestic product (GDP) at purchasing power parity. Market Consumption Capacity:  The purpose of this variable is to estimate Capacity: spending capacity. It is often estimated from the percentage of a market’s spending capacity population that is in the middle class, thereby concentrating on the core of an economy’s buying power. Commercial Infrastructure:  This factor attempts to assess channels of Infrastructure: distribution and communication. Variables may include the number of distribution and communication telephones, TVs, fax machines, or personal computers per capita; the density of paved roads or number of vehicles per capita; and the population per retail outlet. An increasingly important variable for businesses relying on the Internet for sales is the number of Internet hosts per capita. But because these data become outdated quickly, care must be taken to ensure accurate information from the most current sources.

53 Economic Freedom:  This variable attempts to estimate the extent to which Freedom: free-market principles predominate. It is typically a summary of government free-market principles predominate trade policies, government involvement in business, the enforcement of property rights, and the strength of the black market. A useful resource is the annual Freedom in the World report published by Freedom House. Market “openness”. Market Receptivity:  This variable attempts to estimate market Receptivity: One way it can be estimated is by determining a nation’s volume of international trade as a percentage of GDP. If a company wants to see how international trade as a percentage of GDP receptive a market is to goods from its home country, it can ascertain the amount of per capita imports entering the market from the home country. Managers can also examine the growth (or decline) in these imports. Country Risk:  This variable attempts to estimate the total risk of doing Country Risk: business, including political, economic, and financial risks. Some marketrisks potential estimation techniques include this variable in the marketreceptivity variable. This factor is typically obtained from one of the many services that rate the risk of different countries, such as Political Risk Services Group.

54 After each of these factors is analyzed, they are assigned values according to their importance to the demand for a particular product. Potential locations are then ranked (assigned a marketpotential indicator value) according to their appeal as a new market. INTF 3380 – Global Trade in the Modern World INTF 3380 –

55 Measure and Select the Market or Site Step 3: Measure Market or Site Potential (Cont. ) Measuring Site Potential Labor and management Productivity Wage levels Training needs Local infrastructure INTF 3380 – Global Trade in the Modern World INTF 3380 –

56 In this step of the site-screening process, managers must carefully assess the quality of the locally available resources. For many companies, the most important of these will be human resources —both labor and management. both labor and management Wages are lower in certain markets because labor is abundant, relatively less skilled (though perhaps well less skilled educated), or both. Employees may or may not be adequately trained to may not be adequately trained manufacture a given product or to perform certain R&D activities. If workers are not adequately trained, the siteselection process must consider the additional money and time needed to train them. INTF 3380 – Global Trade in the Modern World INTF 3380 –

57 Training local managers also requires a substantial Training local managers investment of time and money. A lack of qualified local managers sometimes forces companies to send managers from the home market to the local market. This adds to costs because home-country managers must often receive significant bonuses for relocating to the local market. Companies must also assess the productivity of local labor and managers. After all, low wages tend to reflect low and managers productivity levels of a workforce. INTF 3380 – Global Trade in the Modern World INTF 3380 –

58 Managers should also examine the local infrastructure, including the local infrastructure roads, telecommunications roads bridges, bridges airports, airports seaports, and seaports telecommunications systems, when assessing site potential. systems Each of these systems can have a major impact on the efficiency with which a company transports materials and products. Of chief importance to many companies today is the state of a country’s telecommunications infrastructure. Much business today is conducted through e-mail, and many businesses relay information electronically about matters such as sales orders, inventory levels, and production strategies, which must be coordinated among subsidiaries in different countries. Managers, therefore, must examine each potential site to determine how well it is prepared for contemporary communications.

59 Measure and Select the Market or Site Step 4: Select the Market or Site Field Trips Competitor Analysis —Should address the following issues: Number of competitors in each market (domestic and international) Market share of each competitor Whether each competitor’s product appeals to a small market segment or has mass appeal Whether each competitor focuses on high quality or low price Whether competitors tightly control channels of distribution Customer loyalty commanded by competitors Potential threat from substitute products Potential entry of new competitors into the market Competitors’ control of key production inputs (such as labor, capital, and raw materials)

60 - Field Trips The importance of top managers making a personal visit to each top managers making a personal visit remaining potential market or site cannot be overstated. Such trips typically involve attending strings of meetings and engaging in tough negotiations. The trip represents an opportunity for managers to see firsthand what they have so far seen only on paper. It gives them an opportunity to experience the culture, observe in action the workforce that they might soon employ, or make personal contact with potential new customers and distributors. Any remaining issues tend to be thoroughly investigated during field trips so that the terms of any agreement are precisely known in the event that a particular market or site is chosen. Managers can then usually return to the chosen location to put the terms of the final agreement in writing.

61 - Competitor Analysis Intensely competitive markets typically put downward competitive markets pressure on the prices that firms can charge their pressure on the prices customers. In addition, intensely competitive sites for production and R&D activities often increase the costs of doing business. Naturally, lower prices and higher costs due to competitive forces must be balanced against the potential benefits offered by each market and site under consideration. INTF 3380 – Global Trade in the Modern World INTF 3380 –

62 Competitor analysis should address the following issues: Number of competitors in each market (domestic and international) Market share of each competitor Whether each competitor’s product appeals to a small market segment or has mass appeal Whether each competitor focuses on high quality or low price Whether competitors tightly control channels of distribution Customer loyalty commanded by competitors Potential threat from substitute products Potential entry of new competitors into the market Competitors’ control of key production inputs (such as labor, capital, and raw materials)

63 Secondary Market Research When trying to target specific population segments, marketing managers require highly detailed information. Fortunately, companies are often spared the time, money, and effort of collecting firsthand data for the simple reason that it has already been gathered. Companies can consult a variety of sources to obtain information on a nation’s business environment and markets. The particular source that managers should consult depends on many factors, including the company’s industry, the national markets they are considering, and how far along they are in the location-screening process.

64 The process of obtaining information that already exists within the company or that can be obtained from outside sources is called secondary market research. sources secondary market research Managers often use information gathered from secondary research activities to broadly estimate market demand for a product or to form a general impression of a nation’s business environment. Secondary data are relatively inexpensive because they relatively inexpensive have already been collected, analyzed, and summarized by another party. INTF 3380 – Global Trade in the Modern World INTF 3380 –

65 Main Sources of Secondary Data International Organizations Government Agencies Industry and Trade Associations Service Organizations Internet

66 Problems with Secondary Research 1) Availability of Data In many emerging and developing countries Information is hard to obtain Reliability is questionable 2) Comparability of Data Terms differ greatly from one country to another Different ways in which countries measure data INTF 3380 – Global Trade in the Modern World INTF 3380 –

67 1) Availability of Data There tends to be plenty of excellent sources of secondary data in highly industrialized countries This is especially true in Australia, Australia Canada, Canada Japan, Japan Western Europe, Europe the United States, and where government agencies States and private research firms supply information. Three of these information suppliers are ACNielsen, ACNielsen Symphony. IRI Survey Symphony. IRI Group, and Group Survey Research Group INTF 3380 – Global Trade in the Modern World INTF 3380 –

68 In many emerging and developing countries, however, emerging and developing countries previously gathered quality information is hard to obtain. Even obtain when market data is available, its reliability is questionable For example, analysts sometimes charge the governments of certain emerging markets with trying to lure investors by overstating estimates of gross income and consumption levels. In addition to deliberate misrepresentation, deliberate misrepresentation tainted information can also result from improper local collection methods and analysis techniques. But research agencies in emerging and developing markets that specialize in gathering data for clients in industrialized countries are developing higher-quality techniques of collection and analysis.

69 2) Comparability of Data obtained from other countries must be interpreted with great caution. Because terms such as poverty, literacy poverty consumption, and consumption literacy differ greatly from one country to another, such data must be accompanied by precise definitions. In the United States, for example, a family of four is said to be below the poverty line if its annual income is $23, 850. The equivalent income for a Vietnamese family of four would place it in the upper class. INTF 3380 – Global Trade in the Modern World INTF 3380 –

70 The different ways in which countries measure data also affect comparability across borders. For instance, some countries state the total quantity of foreign direct investment in their nations in terms of its monetary value. Others value specify it in terms of the number of investment projects implemented during the year. But a single foreign direct investment into an year industrialized nation can be worth many times what several or more projects are worth in a developing nation. To gather a complete picture of a nation’s investments, researchers will often need to obtain both figures. Moreover, reported statistics may not distinguish between foreign direct investment (accompanied by managerial control) and portfolio investment (which is not accompanied by managerial control). Misinterpreting data because one does not know how they are compiled or measured can sabotage even the best marketing plans and production strategies.

71 Primary Market Research Although secondary information is very useful in the early stages of the screening process, sometimes more-tailored data on a location is needed. Under such circumstances, it might be necessary to conduct primary market research — primary market research the process of collecting and analyzing original data and applying the results to current research needs This type of information is very helpful in filling in the blanks left by secondary research. Yet, it is often more expensive to obtain than secondary research data because studies to obtain must be conducted in their entirety.

72 Common Methods of Primary Market Research Trade Show Focus Group Consumer Panel Survey Environmental Scanning

Problems with Primary Research 73 Market research serves essentially the same function in all nations. A market’s unique conditions and circumstances, however, can present difficulties that force adjustments in the way research is performed. Companies need to be aware of potential obstacles so that potential obstacles their research results are reliable. Cultural variables Language Illiteracy rates among the local population INTF 3380 – Global Trade in the Modern World INTF 3380 –

74 Marketers who conduct research in unfamiliar markets must pay attention to the ways in which cultural variables influence information. Perhaps the single most important variable is language For example, researchers unfamiliar with the language spoken in a market being investigated might be forced to rely on interpreters. Interpreters might unintentionally misrepresent certain comments or be unable to convey the sentiment with which statements are made. INTF 3380 – Global Trade in the Modern World INTF 3380 –

75 Researchers might also need to survey potential buyers through questionnaires written in the local language. To avoid any misstatement of questions or results, questionnaires must be translated into the language of the target market and the responses then translated back into the researcher’s language. Written expressions must be highly accurate so that results do not become meaningless or misleading. The potential to conduct written surveys is also affected by the illiteracy rates among the local population. A written survey is illiteracy rates generally impossible to conduct in countries with high illiteracy rates. Researchers would probably need to choose a different information-gathering technique, such as personal interviews or personal interviews observation of retail purchases

76 Companies that have little experience in an unfamiliar market often hire local agencies to perform some or all of their market research. Local researchers know the cultural terrain. They understand which practices are acceptable and which types of questions can be asked. And they typically know whom to approach for certain types of information. Perhaps most importantly, they know how to interpret the information they gather and are likely to understand its reliability. But a company that decides to conduct its own market research must, if necessary, adapt its research techniques to the local market. Many cultural elements that are taken for granted in the home market must be reassessed in the host business environment.