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This week, you will explore how companies screen international business opportunities.

You will also:

•Examine the difficulties of conducting international market research.

•Learn about sources of secondary market research data.

•And understand methods of conducting primary international research.

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Starbucks the Seattle (USA) based MNC chain learned the difficulty of staying on top in the intensely competitive world of coffeehouses. It brewed its way to the “global number one” spot in the 1990s and succeeded against Europe’s traditional cafés when critics said it would fail. Starbucks stays competitive with its fresh-brewed coffee, fair-trade products, and in-depth marketing research.

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A systematic approach to screening markets and sites aids companies as they pursue international opportunities at continually earlier points in their growth. The following four-step screening process for potential markets and sites helps contain costs while embracing high-quality research methods:

Step 1: Identify basic appeal

Step 2: Assess the national business environment

Step 3: Measure market or site potential

And, Step 4: Select the market or site

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In step 1, “identify basic appeal,” managers determine basic product demand in markets and availability of resources in sites for operations.

•Determining basic product demand means exploring the general suitability of a nation’s climate and whether the product is locally banned from sale, such as alcohol in Islamic nations.

•Determining the availability of resources means exploring the quality and quantity of production factors including raw materials, labor, and financing.

•A company will drop from further consideration any market or site that does not satisfy these basic criteria.

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Answer: What are the four main steps in the process of screening potential new markets and sites for operations?

First, a company must identify a location’s basic appeal, whether this be product demand or resource availability. Second, it must assess the national business environment, including cultural, political, legal, and economic forces, as well as the cost of logistics and the image of a country. Third, it must measure the market or site potential, which requires collecting detailed data on each market and site under consideration. And fourth, a company must select the single best market or u de co s de at o . d fou th, a co pa y ust se ect t e s g e best a et osite by taking field trips to sites making the final cutoff and performing competitive analyses.

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In step 2, “assess the national business environment,” managers explore differences in cultures, politics, laws, and economies and incorporate their findings into market and site selection decisions.

• Cultural differences such as language, attitudes toward business, religious beliefs, traditions, and customs influence demand for products and how they are sold.

• Companies sometimes locate production in a local market when a product’s physical features must be adapted for cultural reasonsphysical features must be adapted for cultural reasons.

• The local work ethic, education, and level of managerial skills also affect site-selection decisions.

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A nation’s attitude toward trade and investment is reflected in the way it regulates them.

•Governments may impose investment rules on business ownership to ensure domestic control of a company or industry.

•They may restrict international firms from freely removing profits, force them to hold cash in the country, or demand reinvestments in new projects there.

The amount of government bureaucracy that a company encounters in a market or site affects its appeal.

•A lean and efficient bureaucracy can encourage investment, while a cumbersome or corrupt one can be discouraging.

•A company will endure a troublesome bureaucracy if it determines that potential benefits outweigh the costs.

And, companies monitor local political events so that they are not surprised by f li i l h h h i d f iunforeseen political change that can threaten operations and future earnings.

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Social unrest can severely disrupt operations and drive out international companies. Riots erupted in Paranaque, a city in the Philippines, when demolition teams began to destroy the residences of people whom were said to have no legal claim to the land.

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A country’s finances influences investor confidence and the proposed investments of businesses.

•Poor fiscal and monetary policies can increase inflation and budget deficits, weaken a currency, lower productivity, and slow innovation.

•Volatile currency values increase exchange rate risk and complicate the prediction of future foreign earnings.

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The costs of transporting materials and goods help determine the location of manufacturing facilities.

•Logistics involves managing the physical flow of products from point of origin as raw materials to end users as finished products.

•It weds production to delivery and plays a growing role in an age of global supply chains.

Country image embodies all facets of a nation’s business environment.

•Country image can positively or negatively influence a product’s image, although it can, and does, change over time.

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Here are several issues that managers should consider when attempting to generate sales through e-business.

•Learn whether potential customers have adequate Internet access.

•Follow guidelines regarding sensitive topics such as truthful advertising.

•Respect local law on the gathering of consumer data and how it is used.

•Know that nations safeguard copyrights, patents, and trademarks to different degrees.g

•Online payment systems and tax collection for international sales vary around the world.

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The key political is Unforeseen political change

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In step 3, “measure market or site potential,” managers exploring new markets must know that a market’s level of economic development affects the products sold, how they are sold, and their features. The following information provides an overview of the market’s size and structure in industrialized nations:

• Demographics of the local target market.

• Competitors’ production volumes and market shares.

• Import and export volumes for the product.

• Structure of wholesale and retail distribution networks.

• Market background including social trends and marketing approaches.

• Retail sales levels, market price, and total expenditure on the product.

• Future market outlook for the product and potential opportunities.

One way to forecast market demand is to determine a product’s income elasticityOne way to forecast market demand is to determine a product s income elasticity, which is the sensitivity of demand for a product relative to a change in income. Income-elastic products are discretionary purchases such as video games and jewelry. Income-inelastic products are essential items and include food, utilities, beverages, and so forth.

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In step 3, the following information can be used to create a market-potential indicator when considering exporting to emerging markets:

• Market size is a static estimate of market size at the moment.

• Market growth rate identifies whether a market is shrinking or expanding.

• Market intensity estimates the buying power of individuals and businesses.

• Market consumption capacity estimates a market’s spending capacity.

• Commercial infrastructure analyzes channels of distribution and• Commercial infrastructure analyzes channels of distribution and communication.

• Economic freedom estimates the prevalence of free-market principles.

• Market receptivity estimates market “openness.”

• Country risk estimates the political, economic, and financial risks of doing business in a market.

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Measuring site potential in step 3 involves determining whether a site can supply adequate resources needed to carry out the proposed business activity. Key issues include:

•For many companies the most important resources will be labor and management.

•The productivity and wage levels of local labor and managers.

•The cost of training local managers, which can mean substantial investments of time and money.

•And the efficiency of local infrastructures, including roads, bridges, airports, seaports, and telecommunications systems.

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In step 4, “select the market or site,” managers perform their final analyses on all remaining locations.

•Field trips to each remaining site let senior managers engage in any final negotiations, meet potential customers and distributors, and experience the culture firsthand. The firm may also evaluate each location’s potential contribution to cash flows by undertaking a financial evaluation.

•Competitor analyses typically address the following types of issues:

•The number of competitors in each market (domestic and international) and their market shares.

•Whether each competitor’s product appeals to the entire market or a market segment, and if it is of high quality or low price.

•Competitors’ control of channels of distribution and customer loyalty.

•Access to production inputs, such as labor, capital, and raw materials.

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The market-potential indicator is one way for companies to rank export markets in terms of their appeal. Components to include in a market-potential analysis are market size, market growth rate, market intensity, market consumption capacity, commercial infrastructure, economic freedom, market receptivity, and country risk. The indicator’s usefulness lies in the fact that hard data on market size is often unavailable in emerging markets.

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International market research supplies information on local cultural practices, regulations, economy, market potential, buyer behavior, logistics, and other factors.

•Market research helps managers to design marketing strategies and understand buyer preferences and attitudes when selecting a new market.

•It informs managers about employment levels, wage rates, and the local infrastructure when exploring a potential new site for operations.

•Findings of good research are timely and relevant to decision making and help a company anticipate shifts in markets, regulations, and the potential entry of new competitors.

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The unique circumstances of international business present three difficulties of conducting market research in other nations.

•First, whereas published data on product markets is readily available in industrialized nations, emerging markets can lack data availability. When market data is available, its reliability may be questionable or suspect due to tampering by government agencies.

•Second, terms like poverty, consumption, and literacy may be defined and measured differently from nation to nation and therefore cannot always bemeasured differently from nation to nation and therefore cannot always be compared across markets. Misinterpreting data can sabotage the best marketing plans and production strategies.

•Third, marketers researching unfamiliar markets must consider how cultural differences influence information. For example, interpreters might unintentionally misrepresent certain comments in another language or incorrectly convey the sentiment of certain statements. Hiring a local research agency in the market being explored may help alleviate this problem.

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Sources of secondary data (that which already exists within a company or within t id i ) i l d th f ll ioutside agencies) include the following:

•International organizations are excellent sources of free and inexpensive information to form first impressions of markets and sites. These include the United Nations, International Trade Center, World Bank, International Monetary Fund, and Asian Development Bank.

•Government agencies including commerce and trade departments, trade libraries, and embassies can supply information on import/export regulations,

d t lit t d d ll k t i d t dproduct quality standards, overall market size, and customs procedures.

•Industry and trade associations newsletters cover industry events and new opportunities. They may also commission specialized studies of their industry and offer them to members at discounted prices.

•International service organizations in banking, insurance, management consulting, and accounting offer information on cultural, regulatory, and financial conditions. They often publish newsletters on global market trends.

•And the Internet and World Wide Web can be a source of inexpensive secondary data, news reports, executive profiles, and financial information.

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Primary market research collects and analyzes original data and applies the results to current research needs.

•Trade shows highlight the latest products of industry rivals, recent trends, and new opportunities. Trade missions give firms clout in a host country because they have visible support of home-country government officials who travel with them on the trip. Australia has trade offices in many developed and developing countries

•Interviews and focus groups help uncover buyers’ emotions attitudes and•Interviews and focus groups help uncover buyers emotions, attitudes, and impressions of a company and its product. To not miss subtle cues in verbal and body language, interviews and focus groups are best run by moderators who are native to the country being investigated.

•A consumer panel, in which people record their attitudes, behaviors, and purchasing habits in personal diaries, is useful when people in a focus group might agree with others in the group—as in group-oriented cultures.

•Surveys gather a vast amount of data in a single sweep and obtain facts, opinions, and attitudes. Yet, survey methods are often adapted to local markets and written surveys are impractical in nations with high illiteracy.

•Environmental scanning gathers, analyzes, and dispenses information on a business environment. It contributes to well-informed decisions and strategies by helping develop contingency plans in a volatile environment.

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Each of the following is a difficulty of researching international markets

a. Data comparability

b. Cultural differences

c. Data availability

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next week you will learn how a firm can achieve its objectives through exporting, importing, and countertrade.

You will also:

•Understand the ways in which a firm finances its import and export activities.

•Explore various contractual and investment entry modes.

•And examine the strategic factors in selecting an entry mode.

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