Country Selection and Evaluation

Submitted By:-

Ashutosh Singh (138)

Yogesh Jakhotia (186)

Devashish Agarwal (200)

SatyaMoorthy(233)

Agenda

Systematic Approach

Market entry strategies

HBS case - TCS Ibero America

Key Learning

Conclusion

Non Systematic Approach

Relational Approach

Approaches for Market Selection

Approaches

Systematic approach

•Market selection process•Market selection model•Normative nature

Non Systematic Approach

•Psychic distance•Descriptive nature

Relational Approach

•Awareness•Exploration•The choice of partners

Systematic Approach

Market Selection Process

Macro level research

Economic (GNP; GNP/capita; Income/capita)

Political (political structure)

Demographic (total population; growth rate, structure)

Social (religion, race)

Industry level research

Growth trends for similar products

Cultural acceptance of type of products

Taxes and duties for the category of the

products

Micro level Research

Competitors

Market entry costs, ease of entry

Forecasted sales

Compatibility with the future company strategy

Resources Objectives Strategies

Market selection Models

Listing of selection criteria

• Developing a set of criteria• Setting limits

Scoring market selection Model

• Number of indicators compiled in a final score• Different percentage according to degree of importance

Compensatory Model

• Trade off between demand potential and trade barrier for the countries

Non Systematic Approach

Non Systematic Approach(Opportunistic Approach)

Occurs when a company enters a foreign market

• As a consequence of receiving orders from abroad• Or when markets are selected by rules of thumb

Psychic Distance

The psychic distance refers to those factors that are preventing or disturbing the flow of information between firms and the market and include aspects such as differences in language, in culture, in the level of education, in political systems or the level of industrial development. The smaller is the psychic distance the more attractive is the market and vice-versa.

Elements of psychic distance

1) LanguageContext

2) Religion

3) Values and Attitudes

4) Manners/Customs

5) Material ElementsInfrastructureConvergence

6) Aesthetics7) Education8) Social Institutions

Key Concepts• High-context culture

– is where the social context in which what is said strongly affects the meaning of the message.

– Examples: Japan and Saudi Arabia

• Low-context culture– is where the meaning of the message

is explicitly expressed by the words and is less affected by the social context.

– Example: North America

Contextual background of various countries

High context

Implicit

Low context explicit

Japanese

Arabian

Latin American

Spanish

Italian

English (UK)

French

North American (US)

Scandinavian

German

Swiss

Language

• Verbal– How words are spoken– Gestures made– Body position assumed– Degree of eye contact

• Local language capability’s important role in international marketing– Aids in information gathering and evaluation– Provides access to local society– Important to company communications– Allows for interpretation of contexts

Non Verbal Language

• Hidden language of cultures– Time flexibility and sensibility– Social acquaintance and rapport– Personal physical space and personal

touching– Non-verbal gestures and signaling

Religion

Elements Implications for MarketingA. Unity. (Concept of Centrality, oneness of God, harmony in life.)

Product standardization, mass media techniques, centralbalance, unity in advertising copy and layout, strong brandloyalties, a smaller evoked set size, loyalty to company,opportunities for brand extension strategies.

B. Legitimacy. (Fair dealings, reasonable level of profits.)

Less formal product warranties, need for institutionaladvertising and/or advocacy advertising, especially byforeign firms, and a switch from profit-maximizing to aprofit-satisficing strategy.

C. Zakat. (2.5% per annum compulsory tax binding on all classified as “not poor.”

Use of “excessive” profits, if any, for charitable acts;corporate donations for charity, institutional advertising.

“A house should be dusted and polished three times a week”

• Italy 89%• United Kingdom 59• France 55• Spain 53• Germany 45• Australia 33• United States 25

“I attend church regularly”

• Spain 77%• Italy 75• Germany 70• United States 65• United Kingdom 36• France 23• Australia 16

“My children are the most important thing in my life”

• Germany 86%• Italy 84• France 73• United States 71• Spain 67• Australia 48

Material Elements

• Material culture– Results from technology and is directly related

to how a society organizes its economic activity.– Material culture is manifested in

• Economic infrastructure• Social infrastructure• Financial infrastructure• Marketing infrastructure• Cultural convergence

– The degree of industrialization can provide a marketing segmentation variable.

Aesthetics

• What is or is not acceptable as good taste varies widely in cultures.

• The symbolism of colors, forms, and music carries different meanings in different cultures.

Social Institution

• Kinship relationships– immediate and extended family

• Social stratification• Reference groups

– Primary reference groups• family, coworkers

– Secondary reference groups• professional associations,

trade organizations

Relational Approach

Relational Approach to market Selection

Focuses on business relationship

• Foreign customer as unit of analysis

Design process to identify and select exchange partners

• Screening process involves gathering information about each partner and filter out the less desired one

Process

Awareness

• Identify feasible international partners• Use information internal as well as external• Identify the skills and qualification of potential partners

Exploration

• Identify potential partners that are attractive• Huge bargaining takes place• Duration can be short if partner is not found attractive

Choice of partner

• Choosing among the existing alternatives• Criteria such as goal compatibility and performance are used

Market entry strategies

Internal firm-specific criteria

Company objectivesNeed for controlInternal resources, assets and capabilitiesFlexibility

External environment specific criteria

Market size and growthRiskGovernment regulationsCompetitive environmentLocal infrastructure

Market Entry Alternatives

Resource Deployment

Con

trol

and

Fo

reig

n M

arke

t Pre

senc

e

Indirect Exporting

Direct Exporting

Licensing

Franchising

Joint Ventures

Acquisition/Wholly-Owned Subsidiary

Production in theHome Market

Production Abroad

low high

low

high

Source: Adapted from Günther Müller-Stewens and Christoph Lechner, ” in: Klaus Macharzina and Michael-Jörg Oesterle

Advantages and Disadvantages of Entry Modes

Entry Mode Advantage Disadvantage

Franchising Low development costs and risks

Lack of control over quality Inability to engage in global strategic

coordination

Joint ventures

Access to local partner’s knowledge

Sharing development costs and risks

Politically acceptable

Lack of control over technology Inability to engage in global strategic

coordination Inability to realize location and

experience economies

Wholly owned subsidiaries

Protection of technology Ability to engage in global

strategic coordination Ability to realize location and

experience economies

High costs and risks

Entry Mode Advantage Disadvantage

Exporting Ability to realize location and experience curve economies

High transport costs Trade barriers Problems with local marketing agents

Turnkey contracts

Ability to earn returns from process technology skills in countries where FDI is restricted

Creating efficient competitors Lack of long-term market presence

Licensing Low development costs and risks

Lack of control over technology Inability to realize location and

experience curve economies Inability to engage in global strategic

coordination

Advantages and Disadvantages of Entry Modes

HBR-Case Study

TCS Ibero America - Case

TCS

• Created in 1968 as a division of Tata Sons• First office abroad in New York City in 1979• Capitalised on Outsourcing Offshore Model• Became Tata Consultancy Services Ltd in Dec 2002

2001-2004

• Revenues CAGR – 33% , Net Income CAGR – 28%• Mar 31, 2004 –First billion dollar Indian IT company• Employed 32000 employees in 32 countries

TCS Ibero America -2001• Interest driven

– Not by the perception of an unmet demand from existing clients

– But by penetration of new Markets– Post 9/11, obtaining visas for Indian citizens

became increasingly difficult and cumbersome– Cost of Indian engineers was being driven up

relentlessly– Location is in a similar time zone to that of US

and Canada

Sizeable MNC corporate clientele

Technical superiority of TCS vis-à-vis firms operating in the region

Several major governments had plans to redesign their operating systems to an internet environment

Mercosur -3rd largest trading block in the world

High availability of highly skilled personnel

Plans to form an Americas Free Trade Association (AFTA) by 2005

Optimism based on following considerations

Academic centers of Technical Excellence, particularly in Computer Science

Easy Access to an Up-to-date telecommunication infrastructure

Transportation links to both regional and major global urban centers

Quality of life that could attract and retain professional talent

First Choice – Buenos Aires, Argentina

Political instability – President De La Rua resigned after a turbulent periodArgentine Peso, was devalued , reached a peak of AR$4 in the open marketDollar deposits were forcibly converted into pesos at a below market rate

Severe restrictions were placed on withdrawals

Money effectively stolen by government in forex

Problems – Buenos Aires, Argentina

Choosing Uruguay

Demographics

Political

EconomicLegal

Technology

Choosing Uruguay

• Demographics – Educational level was amongst the highest in

the region– Friendly Environment– Lifestyle was quite relaxed and easy-going– Uruguayans were viewed neutrally by other

Latin Americans– Uruguay products generally acceptable

across the entire geography

• Political– Stable Democracy– Clear Agenda Regarding Software Industry– Good fiscal policies to attract foreign investment– Already a cluster of knowledge industries – due to

opening of a technology park – Zonamerica

• Economic– Zonameria- Tax free zone – with imported

components and exported components – exempted from tariffs for 30 years

– Exemption from Value Added Tax

Choosing Uruguay

• Legal– Visa for Indian to Brazil – average 4 months– Mexico – 8 weeks– TSCI worked out a procedure with Ministry of

Foreign Relations – Visa to Uruguay – within 24 hours

• Technology– TCSI was offered a rate of 4.54 cents per

minute – much lower than the prevailing rate

Choosing Uruguay

Conclusion

•Process of market selection through systematic approach is carried out mainly by MNCs and huge corporations•Softer skills are increasingly playing predominant role•Approach based on mutual trust and relations is akin to walking a two-edged sword•TCS venturing into Latin America was a glaring example of strategic convenience

Key Learning

•Companies select country for business based on their strategic alignment with the market•Market size may not always be the sole criteria•Cultural aspects are also of utmost significance•Certain broad patterns are universal where as some are highly specific•Relational approach is a relatively new phenomena but is gathering momentum thick and fast

Thank You