MGMT 416 International Business II Evrim Tren Chapter

MGMT. 416 International Business II Evrim Tören

Chapter 14 Assessing and Analyzing Markets

Market screening It is a version of environmental scanning in which the firm identifies desirable markets by using environmental forces to eliminate the less desirable markets. It is used to determine the basic needs and potential of the markets.

Environmental scanning It is a procedure in which a firm scans the world for changes in the environmental forces that might affect it. It has been used by management during the planning process to assess opportunities and threats in the global environment.

Market screening helps two kinds of firms: Those that are exclusively selling in the domestic market but believes it might increase sales by expanding into overseas markets. Multinational firms that wants to be certain changing conditions are not creating markets about which its management is unaware.

Selection of foreign markets (1) Basic needs Unfavorable Favorable (2) Economic/financial screen Unfavorable Favorable (3) Political/legal screen Unfavorable Favorable (4) Sociocultural screen Unfavorable Favorable (5) Competitive screen Unfavorable Favorable (6) Final selection

Two types of screening: Country screening is done by using countries as the basis for market selection. Segment screening is done by using market segments as the basis for market selection.

Initial screening l l Basic need potential of certain goods is dependent on various physical forces such as climate, topography, and natural resources. Foreign trade and investment statistics of certain goods can give an idea about what goods are imported and exported, and their approxiamate prices.

Imports may not measure the market potential Import figures don’t give clues about; l Lack of FE l High prices (duties and markups) l Poor marketing l Potential demand for new products l Changes for import substitution l Future demand l Change in the country’s political structure

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Second screening – Financial and economic forces l Trends in inflation, exchange, and interest rates l Credit availability, paying habits of customers, and rates of return on similar investments

Demand can be estimated from; l Market indicators and market factors l Trend analysis and cluster analysis

Market indicators It is the economic data used to measure relative market strengths of countries or geographic areas, such as the buying power index, index of e-commerce potential: Market size = size of the urban population + electricity consumption Market growth rate = avg. growth rate in commercial energy use + real GDP growth E-commerce readiness = Mobile phones per 1, 000 + no. of PCs per 1, 000 + internet hosts per million people

Market factors Economic data that correlate highly with market demand for a product. Estimation by analogy is using a market factor that is successful in one market to estimate demand in a similar market. For example, a supplier of PCs knows that 20% of PCs is replaced in the US every year, he can calculate the number to be demanded in a similar market, like in UK.

Trend analysis It is a statistical technique by which successive observations of a variable at regular time intervals are analyzed to establish regular patterns that are used for establishing future values. If the historical growth rates are known, future growth can be forecasted. Caution is advised, because forecasting heavily depends on the past data.

Cluster analysis It is a statistical technique that divides objects into groups so that the objects within each group are similar. As multinational firms grow into new markets, they try to group the similar countries and markets together by common characteristics to simplify their control (so that a single promotional approach can be employed). Multidimensional scaling, factor analysis, and conjoint analysis are other techniques identifying differences and similarities among markets.

Periodic updating If the estimates are altered, periodic updatings are required and the firm management may change the extend of firm’s involvement in line with the new estimates. A firm enters the foreign market in stages: exporting, establishment of a foreign sales company, local assembly, and manufacturing.

Third screening – Political and legal forces: l l l Entry barriers import restrictions can be positive or negative. Management may require 100% ownership, some industries may be reserved for local citizens, technology transfer may be required by the local government, local content requirement may be too high, a government firm may be competing with the foreign firm. Profit remittance barrier may restrict the repatriation of profits. Foreign investment limits, or availability of FE may also cause problems. Policy stability may not be present if government decisions change too often. Unrests, change of governments (political instability), revolutions make planning difficult for the firm.

Fourth screening – Sociocultural forces: It can be difficult, because; 1. They are subjective, 2. Data are difficult to assemble, especially from a distance. If the analyst is not from that culture, he/she must rely on the opinions of the others.

For sociocultural analysis; The firm may hire consultants, or l Ask the opinions of recent immigrants or students. Example, a dessert company wanted to enter Japanese market, for example with cherry pies. They have not been successful. They asked a Japanese visiting speaker his opinion about the desserts. He told the company that the cherry pie is too sweet for Japanese taste. The company has never asked a Japanese person for a reaction to its products. l

Fifth screening – Competitive forces 1. 2. 3. 4. 5. 6. 7. 8. 9. 10. The number, size, and financial strength of the competitors Their market shares Their marketing strategies The apparent effectiveness of their promotional programs The quality levels of their product lines The source of their products – imported or locally produced Their pricing policies The levels of their after-sales service Their distribution channels Their coverage of the market (Could market segmentation produce niches that are currently poorly served? Regional or ethnic subcultures, for example. )

Final selection of new markets An executive of the firm should visit the markets that appear to have potential for the final selection. The executive should examine the suitability of the firm’s present marketing mix and availability of ancillary facilities, like warehousing, service agencies, media, credit, and so forth.

Field trip The field trip should not be hurried. The purpose is to develop a “feel” for what is going on in this market. For example, men shop in grocery stores in Chile. Mostly men make the payment in supermarkets in TRNC(? )

Government-sponsored trade missions and trade fairs Trade mission – A group of businesspeople and/or government officials that visits a market in search of business opportunities. The purpose is to get a first-hand information about the market, meet important customers face to face, and make contacts with people interested in representing their products. For example, in 2002, the prime minister of Canada led a trade mission to Germany and Russia, resulting in agreements worth of $548 million business for Canadian firms.

Trade fair It is a large exhibition, generally held at the same place and same time periodically, at which companies maintain booths to promote the sales of their products. Generally trade fairs are open to public but certain hours are limited to businesspeople. Some trade fairs are general, but some are specialized (displaying a certain type of products, like Ce. BIT, computer products, in Hannover, Germany).

Sometimes local researh is required When human and financial committments are too big, the firm will want to gather data, and it will not depend only on desk and field reports. In these situations, research in the local market will provide information about the market (definition and projection) and find the effective marketing mix.

Research in the local market When a firm’s research personnel have no experience in the country, the firm should hire local research group. Home country research techniques may be used with some adaptation to local conditions. If the secondary data is not available, the researchers must collect primary data.

Difficulties in collecting primary data l Cultural problems – The researchers may not be fluid in the local language or the dialect, then the answers should be translated. There could be more than one language spoken in that country. Low level of literacy poses a problem. Who should be interviewed? Social desirability bias causes respondents to give answers that the surveyor wants to hear. Some respondents will not tell their income fearing to pay higher taxes. (University students get more correct answers than professional surveyors. )

Difficuties in collecting primary data Technical difficulties – Up-to-date maps may not be available. The street names may not be properly labeled (the alphabet may be different). The houses may not be numbered. For surveys on the telephone, only the rich may have telephones in their houses. For mail surveys, the mail may take weeks to be delivered. In some countries, government permission is needed for research. In some countries, the surveyor can not ask certain questions (In Saudi Arabia, you are not permitted to ask questions about nationality. ) l

Research as practiced Generally, marketing research is not very popular. Most common technique is a combination of trend analysis and querying of knowledgeable persons such as salespeople, channel members, and customers.

Segment screening The segments should be: 1. Definable-we should be able to identify and measure the segments 2. Large-they should be large enough to be worth the effort, and also they should have potential for growth in the future 3. Accessible-we should hbe able to reach the target segment 4. Actionable-we should be able to activate the marketing programs (4 P’s) 5. Capturable-if market segments are completely captured, the task is much more difficult

Two screening methods The existence of subcultures within nations and Similarities between subcultures across nations