CHAPTER XII ANALYZING INTERNATIONAL OPPORTUNITIES 1 Learning Objectives

CHAPTER XII ANALYZING INTERNATIONAL OPPORTUNITIES 1

Learning Objectives Explain each of the four steps in the market- and site-screening process. Describe three primary difficulties of conducting international market research. Identify the main sources of secondary international data, and explain their usefulness. Describe the main methods used to conduct primary international research. 2

I. SCREENING POTENTIAL MARKETS AND SITES 1. Step 1: Identify Basic Appeal. 2. Step 2: Assess the National Business Environment 3. Step 3: Measure Market or Site Potential 4. Step 4: Select the Market or Site 3

SLECT THE MARKET OR SITE Step 4 + Field Trips +Competitor Analysis MEASURE MARKET OR SITE POTENTIAL Step 3 + Current sales, Income Elasticity, Market Potential Indicator. + Quality of Workforce, Material, Infrastructure c ASSESS THE NATIONAL BUSINESS ENVIRONMENT Step 2 Step 1 + Language, attitudes, religious beliefs, traditions, work ethic + Government regulation, government bureaucracy, political stability. + Fiscal and monetary policies, currency issues + Cost of transporting goods, country image IDENTIFY BASIC APPEAL + Suitability of climate, absolute bans + Access to materials, labor, financing 4

I. 1 Step 1: Identify Basic Appeal Determining Basic Demand Determining Available of Resources 5

I. 1. 1 Determining Basic Demand Climate Regulations (Foods, Smuggling…) 6

I. 1. 2 Determining Available of Resources § Carry out local activities § National market or imported § Relocate to countries § Available and cost of local capital (Secure financing in a market abroad) 7

I. 2 Step 2: Assess the National Business Environment Cultural Forces Political and Legal Forces Economic and Financial Forces Other Forces 8

I. 2. 1 Step 2: Cultural Forces Some countries display cultural similarities. Most differ in many ways: Languages/ Attitudes toward business/ Religious belief/ traditions/ customs. What kinds (and How) of products are sold? 9

I. 2. 2 Political and Legal Forces Government Regulation Government Bureaucracy Political Stability 10

I. 2. 2 Political and Legal Forces Government Regulation § Create investment barriers to ensure domestic control of a company or industry. § Restrict international companies from freely removing profits earned in the nation. § Impose very strict environmental regulations. § Require companies divulge certain information. 11

I. 2. 2 Political and Legal Forces Government Bureaucracy § A lean and smoothly operating government bureaucracy can make a market or site more attractive. § A bloated and cumbersome system of obtaining approvals and licenses from government agencies can make it less appealing. 12

I. 2. 2 Political and Legal Forces Political Stability § Every nation’s business environment is affected to some degree by political risk. § The key element of political risk that concerns companies is unforeseen political change § The perception of a market’s political risk is often affected by managers’ memories of past political unrest in a nation. § Managers may assign company personnel to gather information on the level of political risk in a country. 13

I. 2. 3 Economic and Financial Forces Managers must carefully analyze a nation’s economic policies before selecting it as a new market or site for operations. The poor fiscal and monetary policies of a nation’s central bank can cause high rates of inflation, increasing budget deficits, a depreciating currency, falling productivity levels, and flagging innovation. Currency and liquidity problems pose special challenges for international companies. 14

I. 2. 4 Other Forces Costs of Transporting Materials and Goods. The cost of transporting materials and finished goods affects any decisions about where to locate manufacturing facilities. 15

I. 2. 4 Other Forces Logistics Management of the physical flow of products from the point of origin as raw materials to end users as finished products. 16

I. 2. 4 Other Forces Country Image Country image embodies every facet of a nation’s business environment Highly relevant to the selection of sites for production, R&D, or any other activity. 17

I. 3 Step 3: Measure Market or Site Potential Measuring Market Potential Measuring Site Potential 18

I. 3. 1 Measuring Market Potential Industrialized Markets The most developed markets: sole purpose of supplying market data to companies. § Names, production volumes, and market shares of the largest competitors § Volume of exports and imports of the product 19

I. 3. 1 Measuring Market Potential Industrialized Markets… § Structure of the wholesale and retail distribution networks § Background on the market (population, social trend…) § Total expenditure on the product in the market § Retail sales volume and market prices of the product § Future outlook for the market and potential opportunities. 20

I. 3. 1 Measuring Market Potential Industrialized Markets… Income Elasticity Sensitivity of demand for a product relative to changes in income. 21

I. 3. 1 Measuring Market Potential Emerging Markets (China, India) § Market Size § Market Growth Rate § Market Intensity § Market Consumption Capacity § Commercial Infrastructure § Economic freedom § Market Receptivity. § Country Risk. 22

I. 3. 2 Measuring Site Potential Managers must carefully assess the quality of the resources (Human resources-both labor and management) § Training local managers requires a substantial investment of time and money. § Examine the local infrastructure: roads, bridges, air-ports, seaports, telecommunications systems. 23

I. 4 Select the Market or Site Field Trips Competitors Analysis 24

I. 4. 1 Field Trips Making a personal visit to each remaining potential market or site cannot be overstated. 25

I. 4. 2 Competitors Analysis § Number of competitors in each market § Market share of each competitors § 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 26

I. 4. 2 Competitors Analysis… § Whether competitors tightly control channels of distribution. § Customers loyalty commanded by competitors § Potential threat from substitute products § Potential entry of new competitors into the market § Competitors control of key production inputs. 27

II. CONDUCTING INTERNATIONAL RESEARCH 1. Difficulties of conducting International research 2. Sources of Secondary International data 3. Methods of conducting Primary International Research 4. A Final word 28

II. 1 Difficulties of Conducting International Research Availability of Data Comparability of Data Cultural Problems 29

II. 1. 1 Availability of Data Highly industrialized countries: Both agencies and private research firms supply information. Emerging and Developing countries: To deliberate misrepresentation specialize in gathering data (Research agencies) 30

II. 1. 2 Comparability of Data obtained from other countries must be interpreted with great caution. (Poverty, consumption, literacy) Data must be accompanied by precise definitions. 31

II. 1. 3 Cultural Problems In unfamiliar markets must pay attention to the ways in which cultural variables influence information. Need to survey potential buyers (questionnaires written in the local language) Companies that have little experience in an unfamiliar market often hire local agencies to perform some or all of their market research. 32

II. 2 Sources of Secondary International Data International Organizations Government Agencies Industry and Trade Associations Service Organizations Internet and World Wide Web 33

II. 2 Sources of Secondary International Data Secondary Market Research Process of obtaining information that already exists within the company or that can be obtained from outside sources. 34

II. 2. 1 International Organizations A variety of international organizations are excellent sources of much free and inexpensive information about product demand in particular countries. International development agencies: WB, IMF… provide valuable secondary data. 35

II. 2. 2 Government Agencies The commerce department and international trades agencies of most countries typically supply information about import and export regulations, quality standards, and the sizes of various markets. The Trade Information Center (TIC) operated by the U. S Department of commerce The TIC details product standards in other countries and offers advice on opportunities and best prospects for US companies in individual markets. 36

II. 2. 2 Government Agencies… Other TIC information includes: § Information on federal export-assistance programs that can be essential for first-time exporters § National trade laws and other regulations § Trade shows, trade missions, and special events § Export counseling for specific countries § Import tariffs and customs procedures § The value of exports to other countries. 37

II. 2. 3 Industry and Trade Associations Companies often join associations composed of firms within their own industry or trade. The publications of these organizations keep members informed about current events and help managers to keep abreast of important issues and opportunities. Sometimes industry and trade associations will commission specialized studies of their industries. 38

II. 2. 4 Services Organizations Many international service organizations in fields such as: banking, insurance, management consulting, and accounting offer information to their clients on cultural, regulatory, and financial conditions in a market. 39

II. 2. 5 Internet and World Wide Web Companies engaged in international business are quickly realizing the wealth of secondary research information available on the internet and the World Wide Web. 40

II. 3 Methods of Conducting Primary International Research Primary Market Research Process of collecting and analyzing original data and applying the results to current research needs. 41

II. 3. 1 Trade Shows and Trade Missions Trade Show Exhibition at which members of an industry or group of industries showcase their latest products, see what rivals are doing, and learn about recent trends and opportunities. 42

II. 3. 1 Trade Shows and Trade Missions… Trade Mission International trip by government officials and businesspeople that is organized by agencies of national or provincial governments for the purpose of exploring international business opportunities. 43

II. 3. 2 Interviews and Focus Groups Focus Group Unstructured but in- depth interview of a small group of individual (8 -12 people) by a moderator to learn the group’s attitudes about a company or its product. 44

II. 3. 2 Interviews and Focus Groups… Consumer Panel Research in which people record in personal diaries, information on their attitudes, behaviors, or purchasing habits. 45

II. 3. 3 Surveys Survey Research in which an interviewer asks current or potential buyers to answer written or verbal questions to obtain fact, opinions, or attitudes. 46

II. 3. 4 Environmental Scanning Environmental scanning Ongoing process of gathering, analyzing, and dispensing information for tactical or strategic purpose. 47

III A Final word In order to keep pace with an increasingly hectic and competitive global business environment, companies should follow a systematic screening process that incorporates high quality research methods. 48

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