Assessing international market

opportunities
 Global Market Opportunity

A favorable combination of circumstances, locations,

or timing that offer prospects for exporting, investing,
sourcing, or partnering in foreign markets.
Opportunities include:
– marketing products and services;
– establishing factories or other production
facilities to make offerings more competently or
cost-effectively;
– procuring raw materials or components,
services of lower cost or superior quality;
– Entering into collaborative arrangements with
foreign partners.
 The Six Tasks of GMOA

1. Conduct an internal assessment of readiness to

initiate international business activity.
2. Assess suitability of products and services for
foreign markets.
3. Systematically identify the best markets to target
with the chosen product(s) or service(s).
4. Estimate industry market potential, or the “market
demand”, for the product(s) or service(s) in the
selected target markets.
5. Screen and select qualified business partners,
such as distributors or suppliers.
6. Estimate company sales potential for each target
market.
 Task 1. Organizational Readiness

Objective: To provide an objective assessment of

the company’s preparedness to engage in
international business activity.
Outcomes: A list of firm strengths and weaknesses,
regarding international business, and
recommendations for resolving deficiencies that
hinder achieving company goals.
Criteria: Relevant financial and tangible resources;
relevant skills and competencies; senior
management commitment and motivation
 Issues to be Resolved in
Organizational Readiness Analysis
• What does the firm hope to gain from international
business? E.g., increasing sales or profits,
challenging competitors in their home markets,
pursuing a global strategy, etc.
• Is international business expansion consistent with
other company goals, now or in the future?
• What demands will internationalization place on
company resources, such as management,
personnel, finance, production and marketing
capacity? How will such demands be met?
 Task 2. Product Suitability

Objective: To conduct a systematic assessment of the

suitability of the firm's products and services for international
customers; To evaluate the degree of the fit between the
product or service and customer needs.
Outcomes: Determination of factors that may hinder product or
service market potential in each target market; Identification
of needs for the adaptations that may be required to initial
and ongoing market entry.
Criteria: Assess the firm’s products and services with regard to:
– foreign customer characteristics and requirements
– government regulations
– expectations of channel intermediaries
– characteristics of competitors’ offerings
 Product Suitability

• Sell well in the domestic market. E.g.,

Microsoft Xbox, Iphone
• Cater to universal needs. E.g., cancer drug,
energy efficient refridgerator
• Address a need not well served in particular
foreign markets. E.g., mutual fund, home
mortgage
• Address a new or emergent need abroad.
E.g., major earthquake creates urgent need for
portable housing; AIDS in Africa creates need
for drugs and medical supplies.
 Task 3. Country Screening

Objective: To reduce the number of countries that

warrant in-depth investigation as potential target
markets to a manageable few.
Outcomes: Identification of 5 or 6 of the highest
potential country markets.
Criteria: Market size and growth rate; market intensity
(that is, buying power of the residents in terms of
income level); consumption capacity (that is, size and
growth rate of the country’s middle class); country’s
receptivity to imports; infrastructure appropriate for
doing business; economic freedom; political risk.
 Specific Considerations

• Cultural Similarity with Target Market may

Matter. Some firms target countries that are
“psychically” similar in terms of language
and culture.
• Nature of Information Sought varies with
product/industry. E.g., for farming equipment,
consider countries with much agricultural land and
farmers with higher incomes.
• Targeting a Region may Make Sense. E.g.,
European Union, Latin America
 Criteria Relevant to
Country Screening for FDI
• Long-term growth prospects
• Cost of doing business. Potential attractiveness of the
country based on the cost and availability of commercial
infrastructure, tax rates and wages, access to high-level
skills and capital markets
• Country risk. Regulatory, financial, political, and cultural
barriers and the legal environment for intellectual-property
protection
• Competitive environment. Intensity of competition from local
and foreign firms
• Government incentives. Availability of tax holidays,
subsidized training costs, grants, or low-interest loans.
 A.T. Kearney’s Offshore Location
Attractiveness Index
• Assists managers understand and compare the factors that
make countries attractive as potential locations for offshoring
of service activities such as IT, business processes and call
centers. Evaluates countries on 39 criteria categorized into
three dimensions:
• Financial structure accounts for cost of labor, infrastructure
costs (for electricity and telecom systems), and tax and
regulatory costs.
• People skills and availability accounts for supplier’s
experience and skills, labor force availability, education and
linguistic proficiency, and employee attrition rates.
• Business environment assesses economic and political
aspects of the country, commercial infrastructure, cultural
adaptability, and security of intellectual property.
 Task 4. Industry Market Potential
Analysis
Objective: To estimate the size of relevant industry
sales within each target country; To investigate
and evaluate any potential barriers to market entry.
Outcomes: 3 to 5- year forecasts of industry sales
for each target market. Delineation of market entry
barriers in industry
Criteria: Market size, growth rate, and trends in the
industry; degree of competitive intensity; tariff and
non-tariff trade barriers; standards and regulations;
availability and sophistication of local distribution;
unique customer requirements and preferences;
industry-specific market potential indicators.
 Industry Market Potential

• Estimate of the likely sales that can be expected

for all firms in a particular industry during a specific
time period.
• Industry Market Potential is different from company
sales potential, which refers to the share of
industry sales the firm itself expects during a
specific period.
• Most companies forecast sales at least three years
into the future, of both industry market potential
and company sales potential.
 Indicators of Industry Market
Potential
• Market size, growth rate, and trends in the specific
industry
• Tariff and non-tariff trade barriers to enter the
market
• Standards and regulations that affect the industry
• Availability and sophistication of local distribution
• Unique customer requirements and preferences
• Industry-specific market potential indicators
 Examples of Industry-Specific
Indicators
• Cameras: Examine climate-related factors
such as the average number of sunny days
in a typical year.

• Laboratory equipment: Examine

government expenditures on health care.

• Cooling equipment: Examine the number of

institutional buyers, such as restaurants
and hotels.
 Practical Methods for Estimating
Industry Market Potential

• Simple Trend Analysis. Aggregate production for the industry as a

whole, adding imports from abroad and deducting exports.
• Monitoring Key Industry-Specific Indicators. Caterpillar, examines
announced construction projects, building permits, growth rate of
households, and infrastructure development.
• Monitoring Key Competitors. If Caterpillar is considering Chile as a
potential market, it investigates the current involvement in Chile of its
number-one competitor, the Japanese firm Komatsu.
• Following Key Customers. Automotive suppliers can anticipate where
their services will be needed next by monitoring the international
expansion of their customers such as Honda or Mercedes Benz.
• Tapping into Supplier Networks. Firms can gain valuable leads from
current suppliers by inquiring with them about competitor activities.
• Attending International Trade Fairs. Industry trade fairs and exhibitions
are excellent venues for obtaining valuable market information.
 National Trade Data Bank

• Best Market Reports identify the top 10 country

markets for specific industry sectors.
• Country Commercial Guides analyze economic
and commercial environments of countries.
• Industry Sector Analysis reports analyze market
potential for sectors such as telecommunications.
• International Market Insight reports cover country
and product-specific topics, with various ideas for
approaching markets of interest.
 Task 5. Foreign Partner Selection

Objectives: To decide on the type of foreign business

partner; clarify ideal partner qualifications; and plan
mode of entry.
Outcomes: Determination of most suitable types of foreign
business partners. List of attributes desired of foreign
business partners. Determination of value-adding
activities foreign business partner contribute.
Criteria: Manufacturing and marketing expertise in the
industry; commitment to the international venture;
access to distribution channels in the market; financial
strength; quality of staff; technical expertise;
infrastructure & facilities.
Types of Foreign Business Partners

• Exporters tend to collaborate with foreign market

intermediaries, such as distributors and agents.
• Licensing partners are independent businesses that
apply intellectual property to produce products in
their own country.
• Franchising partners are franchisees –independent
businesses abroad that acquires rights and skills
from the focal firm to conduct local operations
• International collaborative venture, include joint
venture and strategic alliance partners.
• Others: global sourcing, contract manufacturing,
and basic suppliers.
 Ideal Qualifications of Foreign
Distributors

• Financially sound and resourceful

• Competent management
• Qualified technical and sales staff
• Willing and able to invest to grow the business
• Strong industry knowledge
• Access to distribution channels and end-users
• Known in the marketplace and well-connected with
local government
• Committed and loyal
 Task 6. Estimate Company Sales
Potential

Objective: To estimate the most likely share of

industry sales the company can achieve, over a
period of time, for each target market.
Outcomes: 3 to 5-year forecast of company sales in
each target market. Understanding of factors that
will influence company sales potential.
Criteria: Capabilities of partners; access to
distribution; competitive intensity; pricing and
financing; market penetration timetable of the firm;
risk tolerance of senior managers.
 Company Sales Potential

• Company sales potential is an estimate

of the share of annual industry sales that
the firm expects to generate in a particular
target market during a given time period.
• Requires obtaining highly refined
information from the market.
• Researcher must project the firm’s
revenues and expenses for 3-5 years into
the future; very challenging.
 Factors That Determine Company Sales
Potential

• Partner capabilities. The competencies and resources of

foreign partners determine how quickly the firm can enter and
generate sales in the target market.
• Access to distribution channels. The ability to establish and
make best use of channel intermediaries and distribution
infrastructure in the target market.
• Intensity of the competitive environment. Local or third-country
competitors are likely to intensify their own marketing efforts
when confronted by new entrants.
• Pricing and financing of sales. The degree to which pricing and
financing are attractive to both customers and channel
members is critical to initial penetration.
• Human and financial resources. Such resources are a major
factor in determining the proficiency and speed with which
success can be achieved.
 Factors Determining Company Sales
Potential (cont.)

• Market penetration timetable. Gradual entry gives the firm

time to develop and leverage appropriate resources and
strategies, but may cede some advantages to competitors in
getting established in the market. Rapid entry may allow the
firm to surpass competitors and obtain first-mover
advantages, but it can tax the firm’s resources and
capabilities.
• Risk tolerance of senior managers. Management’s tolerance
for risk in the market.
• Special links, contacts, capabilities of the firm. The focal
firm’s network in the market – its existing relationships with
customers, channel members, and suppliers.
• Reputation. The firm can succeed faster in the market if
target customers are already familiar with its brand name
and reputation.
 Practical Approaches to
Estimating Company Sales Potential
• Survey of end-users and intermediaries. The firm can
survey a sample of customers and distributors to identify a
potential market.
• Trade audits. Managers visit retail outlets and question
channel members to assess relative price levels of
competitors’ offerings and perceptions of competitor
strength. The trade audit can indicate opportunities for new
modes of distribution, identify types of alternative outlets,
and provide insights into relative competitive strength.
• Competitor assessment. The firm may benchmark itself
against principal competitor(s) in the market and estimate
the level of sales it can potentially attract away from them.
What rival firms will have to be outperformed? Even in those
countries dominated by large firms research may reveal
market segments that are underserved or ignored altogether.
 Practical Approaches to
Estimating Company Sales Potential
(cont.)
• Obtaining estimates from local partners.
Collaborators such as distributors, franchisees, or
licensees already experienced in the market are
often best positioned to develop estimates of
market share and sales potential.

• Limited marketing efforts to “test the waters.”

Some companies may choose to engage in a
limited entry in the foreign market – a sort of ‘test
market’ – as a way of gauging long-term sales
potential or gaining a better understanding of the
market. From these early results, it is possible to
forecast longer-term sales.
 The Method of Analogy

 When using the analogy method, the researcher draws on

known statistics from one country to gain insights into the
same phenomenon for a similar country.
 If the researcher knows the total consumption of citrus drinks
in India then -- assuming that citrus drink consumption
patterns do not vary much in the neighboring Pakistan – a
rough estimate of Pakistan’s consumption can be made,
making an adjustment, of course, for the difference in
population.
 If the marketer of antibiotics knows from experience that X
number of bottles of antibiotics are sold in a country with a Y
number of physicians per thousand people, then it can be
assumed that the same ratio (of bottles per 1,000
physicians) will apply in a ‘similar’ country.