International Business Project

Please read the final project requirements.

The project should include visual aids, such as photos, graphs, etc.

Final Research Project
International Business
Marks: 50%
Submission (individual): Online (via Blackboard)
PROJECT DESCRIPTION:
Select a Saudi company (manufacturing or service) that is willing to enter an international
market. The company is considering two potential countries to select one best. As a Business
Development Executive, you have been asked to prepare an official report suggesting the best
country to enter with the best entry strategy/mode.
The report should include the following two essential steps:
1. Evaluate two potential countries (any two of your choice)
2. Select the best strategy to enter the selected market.
As an EMBA student, a high standard of written English is expected. Your project report should
be clear, concise, neatly presented, and easy to read. Your project is expected to be a creative
piece of work written by you and not submitted for assessment purposes for any program of
study at this, or any other, institution.
INSTRUCTIONS:
1. The written report should not be less than 2000 words and not more than 3000 words
(Including title page, table of content, references, and any appendices).
2. Writing Guidelines: Paper size: A4, Line spacing: 1.15, Margins: 1” (inch) all sides,
Font: Times New Roman, Font Size: 12 for text, 14 for headings and 13 for subheadings.
3. The project should have a nice title page containing all the required information such as;
the title of the project, university logo, course name, name and ID of student.
4. Project Grading:
i)
The project report will be graded based on the rubric attached at the end of this
document.
1
Plagiarism
Plagiarism will not be accepted. If proved, the student will not get any grades for the project and
will be subject to disciplinary action as per the university policy.
Plagiarism may take several forms, for example:
• Copying, in whole or in part, from printed or other sources without acknowledgment
• Paraphrasing material (stating something in different words) without acknowledging the
source.
• Not acknowledging the source of ideas, even when they are put in your own words.
• Copying materials from internet sites or other electronic media without acknowledgment.
• Directly quoting another’s work without acknowledgment.
• Submitting work written in whole or in part by others
• Submitting statistical information or other facts reported by another without due
acknowledgment.
• Taking phrases or terms from some source and placing them in your own work without
acknowledgment.
• Self-plagiarism’ – submitting work that has already been submitted in another course
• Using unpublished materials or summarizing another person’s work without appropriate
referencing.
• Copying from another student’s work.
• Cutting and pasting from sources without acknowledgment.
2
PROJECT FORMAT
Executive summary (Maximum one page; Briefly describe the 1. The purpose of the report-why
you are doing this project? 2. Method- how did you do it? 3. The result- what was findings 4.
Conclusion & recommendation)
1. Company’s background (Introduce your selected Saudi company: a brief history,
mission, vision, corporate goals).
2. Alternative foreign countries (Provide a brief introduction to each potential country in
one medium-sized paragraph.)
3. Assessment of Alternative Foreign Countries [For each country, provide a PEST
Analysis (Political, Economic, Social, Technological, environments) and other relevant
factors such as demand of your product, transportation cost, trade barriers, level of
competition, first-mover advantage and any other factors as discussed in the course]
4. Comparison of alternative foreign countries (Provide a comparison between the
potential foreign countries based on PEST analysis outcomes and other relevant factors;
the comparison can be presented in tabular form).
5. Final foreign country selection (Summarize, finally chosen country and justify your
choice based on the comparison provided in the previous section.)
6. Assessment of alternative market entry strategies (In the context of your company,
explain each possible entry mode such as exporting, licensing, joint venture, wholly
owned subsidiary-greenfield or acquisition, etc.)
7. Final market entry strategy selection (Explain what entry mode is best for your
company. Justify your selected entry mode).
8. Conclusion (Briefly summarize the results of your assessment sections 4-8. Briefly
describe the finding and provide recommendations to the company based on your
analysis)
9. References (Harvard Referencing method should be used for citations)
3
Project Evaluation Rubric
Marking Criterion
1. Project Report Presentation
Assigned
Grades
Grades
Obtained
Comments
5
-Fulfilled the required structure, cover sheet, words limit, etc.
2. Executive Summary
– Background to report.
5
– Statement of purpose.
-Outline of the report.
3. Body
-Paragraph structure (topic sentences etc.).
50
-Main points are debated
-Cohesion (logic sequence, links between paragraphs).
4. Conclusion
-Restate the report & relates to its purpose.
-Summarize main points.
5
-Consistency between the arguments provided in the body section
and the statement of conclusion
5. Academic English
-Grammar, spelling, syntax, punctuation, expression, tone,
vocabulary, flow.
10
6. Critical analysis and use of evidence
-Critical approach.
10
-Appropriate & sufficient evidence.
-Integration of evidence & depth of analysis.
7. Overall the quality of the report
-Represents an excellent report and provides a significant
contribution.
15
-Engages with the environmental analysis elements & the degree
of success in doing so.
Total Grades
100
4
5
Chapter 1:
Introduction: What is
International Business?
International Business: The New Realities, 4th Edition, Global Edition
by
Cavusgil, Knight, and Riesenberger
Instructor: Dr. Tarig Eltayeb
Copyright © 2017 Pearson Education, Ltd.
1
Learning Objectives
1.1 Describe the key concepts in international business.
1.2 Understand how international business differs from
domestic business.
1.3 Identify major participants in international business.
1.4 Describe why firms internationalize.
1.5 Appreciate why you should study international business.
1-2
The Nature of International Business
• All value-adding activities – including sourcing,
manufacturing, and marketing – can be
performed in international locations.
• International trade can involve products,
services, capital, technology, know-how, and
labor.
• Firms internationalize through various entry
strategies, such as exporting and foreign direct
investment.
Copyright © 2017 Pearson Education, Ltd.
1-4
Key Concepts in International Business
• International business: Performance of trade and
investment activities by firms across national borders.
• International trade: Exchange of products and services
across national borders; typically, through exporting and
importing.
• Exporting: Sale of products or services to
customers located abroad, from a base in the
home country or a third country. Boeing and Airbus export
billions in commercial aircraft every year.
• Importing or global sourcing: Procurement of
products or services from suppliers located abroad for
consumption in the home country or a third country. Toyota
imports many parts from China
1-6
when it manufactures cars in Japan.
Key Concepts (cont’d)
International investment: Transfer
of assets to another country or the
acquisition of assets in that country.
Also known as ‘foreign direct
investment’ (FDI), we will focus on
this type of investment.
International portfolio
investment: Passive ownership of foreign securities
such as stocks and bonds, in
order to generate financial
returns.
Copyright © 2017 Pearson Education, Ltd.
1-8
International and
Domestic Business: How They Differ
1. International business….
● is conducted across national borders.
● uses distinctive business methods.
● is in contact with countries that differ in terms
of culture, language, political system, legal
system, economic situation, infrastructure,
and other factors.
2. International business requires specialized knowledge,
commitment of resources, and considerable time to
develop foreign business partnerships
3. Stated differently, when they venture abroad, firms
encounter four major
types of risk.
Copyright © 2017 Pearson Education, Ltd.
1-18
The Four Risks of International Business
Copyright © 2017 Pearson Education, Ltd.
1-19
Who Participates in International Business?
• Multinational enterprise (MNE): A large company with
substantial resources that performs various business
activities through a network of subsidiaries and affiliates
located in multiple countries. e.g., Caterpillar, Samsung,
Unilever, Vodafone, Disney.
• Small and medium-sized enterprise (SME): Typically,
companies with 500 or fewer employees, comprising
over 90% of all firms in most countries. SMEs
increasingly engage in international business.
• Born global firm: A young, entrepreneurial SME that
undertakes substantial international business at or near
its founding.
Copyright © 2017 Pearson Education, Ltd.
1-27
Geographic Locations of the
500 Largest Multinational Enterprises
Sources: Scott Decarlo, “Global 500: A New World Order,” Fortune, February 1, 2015, pp. 18–19; Fortune,“ Global 500,” Special
Section, July 21, 2014, pp. F1–F8.
1-28
Copyright © 2017 Pearson Education, Ltd.
Who Participates in International Business? (cont’d)
• Non-governmental organizations (NGOs): Many of
these non-profit organizations conduct cross-border
activities. They pursue special causes and serve as
advocates for social issues, education, politics, and
research.
Examples
• The Bill and Melinda Gates Foundation and the British
Wellcome Trust both support health and educational initiatives.
• CARE is an international non-profit organization dedicated to
reducing poverty.
Copyright © 2017 Pearson Education, Ltd.
1-29
Why do Firms Participate in IB?
• Seek opportunities for growth through
market diversification. e.g., Harley-Davidson,
IKEA, H&M.
• Earn higher margins and profits. Often,
foreign markets are more profitable.
• Gain new ideas about products, services,
and business methods.
e.g., GM refined its knowledge
for making small, fuel-efficient
cars in Europe.
Copyright © 2017 Pearson Education, Ltd.
Source: gyn9037/Shutterstock
1-31
Why do Firms Participate in IB? (cont’d)
• Serve key customers that have relocated
abroad. e.g., When Toyota launched its
operations in Britain, many of its suppliers
followed suit.
• Be closer to supply sources, e.g., Apple
sources parts and components from the best
suppliers worldwide.
• Gain access to lower-cost or better-value
factors of production. e.g., Sony does much
manufacturing in China.
Copyright © 2017 Pearson Education, Ltd.
1-32
Why do Firms Participate in IB? (cont’d)
• Develop economies of scale in sourcing,
production, and marketing.
e.g., Airbus lowers its
overall costs by sourcing,
manufacturing, and selling
aircraft worldwide.
• Confront international competitors or thwart the
growth of competition in the home market.
Chinese appliance maker Haier established
operations in the United States, partly to gain
competitive knowledge about Whirlpool, its chief US
Source: robepco/Fotolia
Copyright © 2017 Pearson Education, Ltd.
rivals.
1-33
Why Study International Business?
✓ Facilitator of the global economy and
interconnectedness. IB brings nations closer
together.
✓ Contributor to national economic well-being. IB
fuels economic growth and rising living standards.
✓ A competitive advantage for the firm. IB provides
companies with many benefits, leading to
profitability and competitive advantages.
✓ A competitive advantage for you. Working
internationally offers a range of enlightening
experiences, new knowledge, and other benefits
that enhance careers….and
it’sLtd.exciting!
Copyright © 2017 Pearson Education,
1-36
The End
1-15
Chapter 2:
Globalization
International Business: The New Realities, 4th Edition, Global Edition
by
Cavusgil, Knight, and Riesenberger
Instructor: Dr. Tarig Eltayeb
Copyright © 2017 Pearson Education, Ltd.
1
Learning Objectives
2.1 Understand globalization and drivers of
globalization.
2.2 Comprehend the dimensions of
globalization.
2.3 Understand the societal consequences
of globalization.
1-2
What Is Globalization?
• Globalization refers to the interconnectedness
of national economies and the growing
interdependence of buyers, producers,
suppliers, and governments around the world.
• Globalization refers to the shift toward a more
integrated and interdependent world economy.
• Globalization of Markets
• Globalization of Production
Watch this Video
https://www.youtube.com/watch
?v=3oTLyPPrZE4
Copyright © 2017 Pearson Education, Ltd.
3
The Death of Distance
21st Century
Bullet Trains
320 KM/hr
Hyperloops
1200 Km/hr
Copyright © 2017 Pearson Education, Ltd.
2-4
Phases of Globalization
21st Century
Internet
5G Technology
Copyright © 2017 Pearson Education, Ltd.
2-5
Copyright © 2017 Pearson Education, Ltd.
6
Globalization of Production
Firms source goods and services from
locations around the globe to capitalize on
national differences in the cost and quality of
factors of production like land, labor, and
capital
Companies can
lower their overall cost structure
improve the quality or functionality of their
Watch this Video
product offering
https://www.youtube.com/watch?v=owQzo
82ac_M
2-7
Globalization of Markets
▪ Globalization allows firms to view the world
as one large marketplace for goods,
services, capital, labor, and knowledge.
▪ there is the “global market”
▪ falling trade barriers make it easier to sell
globally.
▪ consumers’ tastes and preferences are
converging on some global norm
▪ firms promote the trend by offering the same
basic products worldwide
Copyright © 2017 Pearson Education, Ltd.
1-9
The Drivers, Dimensions, and
Consequences of Market Globalization
1. Drivers of Market Globalization
• Worldwide reduction of barriers to trade and investment
• Worldwide reduction of barriers to trade and investment
• Industrialization, economic development, and modernization
• Integration of world financial markets
• Advances in technology
2. Dimensions of Market Globalization
▪
▪
▪
▪
▪
▪
Integration and interdependence of national economies
Rise of regional economic integration blocs
Growth of global investment and financial flows
Convergence of buyer lifestyles and preferences
Globalization of production activities
Globalization of services
3. Societal Consequences of Market Globalization
▪ Contagion: Rapid spread of financial or monetary crises from one country to another
Loss of national sovereignty
▪ Offshoring and the flight of jobs
▪ Effect on the poor
▪ Effect on the natural environment
▪ Effect on national culture
Copyright © 2017 Pearson Education, Ltd.
2-9
Drivers of
Market Globalization
Copyright © 2017 Pearson Education, Ltd.
10
Drivers of Market Globalization
• Worldwide reduction of barriers to trade and
investment. Over time, national governments
have greatly reduced trade and investment barriers.
The trend is partly facilitated by the World Trade
Organization (WTO), an organization of some
150 member nations.
• Market liberalization and adoption of free
markets. The launch of free market reforms in
China and the former Soviet Union marked the
opening of roughly 1/3 of the world to freer trade.
Copyright © 2017 Pearson Education, Ltd.
2-11
Drivers of Market Globalization (cont’d)
• Industrialization, economic development, and
modernization. These trends transformed many
developing economies from producers of low-value
to higher-value goods, such as electronics and
computers.
Simultaneously, rising
living standards have
made such countries
more attractive as
target markets for
sales and investment.
Copyright © 2017 Pearson Education, Ltd.
2-12
• Integration of world financial markets. Enables
firms to raise capital, borrow funds, and engage in
foreign currency transactions wherever they
go. Banks now provide a
range of services that
facilitate global transactions.
Source: Arto/Fotolia
Drivers of Market Globalization (cont’d)
• Advances in technology & Transportation. Reduces
the cost of doing business internationally, by allowing
firms to interact cheaply with suppliers, distributors, and
customers worldwide. Facilitates the
internationalization of companies, including countless
Copyright © 2017 Pearson Education, Ltd.
small firms.
2-13
Dimensions of Market Globalization
Copyright © 2017 Pearson Education, Ltd.
14
Dimensions of Market Globalization
• Integration and interdependence of national
economies. Results from firms’ collective
international activities. Governments contribute by
lowering trade and investment barriers.
• Rise of regional economic integration blocs.
Free trade areas are formed by two or more
countries to reduce or eliminate
barriers to trade and investment,
such as the EU, NAFTA, and
MERCOSUR.
Copyright © 2017 Pearson Education, Ltd.
2-15
Dimensions of Market Globalization (cont’d)
• Growth of global investment
and financial flows.
Associated with rapid growth
in foreign direct investment
(FDI), currency trading, and
global capital markets.
• Convergence of buyer
lifestyles and preferences. Facilitated by global
media, which emphasize lifestyles found in the U.S.,
Europe, or elsewhere. Firms market standardized
products.
Copyright © 2017 Pearson Education, Ltd.
2-16
Dimensions of Market Globalization (cont’d)
• Globalization of production. To cut costs, firms
manufacture in low labor-cost locations such as
Mexico and Eastern Europe. Firms also source
services from abroad.
• Globalization of services. Banking, hospitality,
retailing, and other service industries are rapidly
internationalizing. Firms outsource business
processes and other services in the value chain to
vendors overseas. And, in a new trend, many people
go abroad to take advantage of low-cost services.
Copyright © 2017 Pearson Education, Ltd.
2-17
Societal Consequences
of Market Globalization
Copyright © 2017 Pearson Education, Ltd.
18
Societal Consequences of Market Globalization
• Contagion: Rapid Spread of Monetary or
Financial Crises. Beginning in late 2008, the world
economy experienced a severe financial crisis and
global recession, the worst in decades. The crisis
emerged when pricing bubbles occurred in housing
and commodities markets worldwide. As bubbles in
real estate markets burst, home values crashed, and
many homeowners could not repay their debts.
Meanwhile, thousands of mortgages had been
securitized, and their values plunged or became
uncertain.
Copyright © 2017 Pearson Education, Ltd.
2-19
Societal Consequences (cont’d)
• Loss of National
Sovereignty. MNE
activities can interfere
with governments’ ability
to control of their own
economies and socialpolitical systems. Some
firms are bigger than the
economies of many
nations (e.g., Shell,
Walmart).
2-20
Societal Consequences (cont’d)
• Offshoring and the Flight of Jobs. Jobs are lost as
firms shift production of goods and services abroad, in
order to cut costs and obtain other advantages. Firms
benefit, communities and industries are disrupted.
• Effect on the Poor. In poor countries, while
globalization usually creates jobs and raises wages,
it also tends to disrupt local job markets. MNEs may
Example
pay low wages, and many
Many people in India
exploit workers or employ child
are losing jobs as the
labor. Globalization’s benefits
hand-woven textiles
industry is being
are not evenly distributed.
gradually automated.
Copyright © 2017 Pearson Education, Ltd.
2-21
Societal Consequences of Globalization (cont’d)
• Effect on the Natural
Environment. Globalization
harms the environment by
promoting industrialization
and other activities that
generate pollution, habitat
destruction, and other
environmental harm.
e.g., As China and India
industrialize, air and
water pollution have
become major hazards.
• Environmental Laws!!
2-22
Societal Consequences of Globalization (cont’d)
• Effect on National Culture. Globalization opens the
door to foreign firms, global brands, unfamiliar
products, and new values. Increasingly, consumers
buy similar products, modeled according to Western
countries, especially the US. In this way, traditional
norms, values, and behaviors may homogenize over
time. National identity may be lost to ‘global’ culture.
Copyright © 2017 Pearson Education, Ltd.
2-23
Internationalization of the Firm’s Value Chain
• The truly international firm configures its
sourcing, manufacturing, marketing, and
other value-adding activities on a global scale.
• Rationale:
o cost savings
o increase efficiency, productivity, and flexibility of
value chain activities
o access customers, inputs, labor, or technology
o benefit from foreign partner capabilities
Copyright © 2017 Pearson Education, Ltd.
2-24
Implications for Managers
Managing an international business differs from managing
a domestic business because
• Countries are different.
• The range of problems confronted in an international
business is wider and the problems are more complex.
• Firms must find ways to work within the limits imposed
by governments in the international trade.
• International transactions involve converting money into
different currencies (firms must deal with exchange rate
changes)
Copyright © 2017 Pearson Education, Ltd.
2-25
The End
1-26
Chapter 3:
The Cultural Environment
of International Business
International Business: The New Realities, 3rd Edition, Global Edition
by
Cavusgil, Knight, and Riesenberger
Copyright © 2017 Pearson Education, Ltd.
1
Learning Objectives
LO 4-1 Explain what is meant by the culture of a
society.
LO 4-2 Identify the forces that lead to differences
in social culture.
LO 4-3 Identify the business and economic
implications of differences in culture.
LO 4-4 Recognize how differences in social
culture influence values in business.
LO 4-5 Demonstrate an appreciation for the
economic and business implications of
cultural change.
©McGraw-Hill Education.
What is Culture ?
©McGraw-Hill Education.
Culture
as an
Iceberg
Copyright © 2017 Pearson Education, Ltd.
3-4
What is Culture?
 Culture is a system of values and norms
that are shared among a group of people
and that when taken together constitute a
design for living
 A society is a group of people who share a
common set of values and norms
 Values provide the context within which a
society’s norms are established and justified
 Norms are the social rules that govern the
actions of people toward one another and can be
further subdivided into
5
Culture, Society, and the Nation-State
 A society can be defined as a group of
people that share a common set of values
and norms
 There is not a strict one-to-one
correspondence between a society and a
nation-state
◦ Nation- states are political creations that
can contain a single culture or several
cultures
◦ Some cultures embrace several nations
6
Culture and the Workplace
Question: How does a society’s culture
impact on the values found in the
workplace?
The most famous study undertaken to answer this
question was done by Geert Hofstede who isolated
six dimensions that he believed summarized different
cultures
1. Power distance
2. Individualism versus collectivism
3. Uncertainty avoidance
4. Masculinity versus femininity
5. Long term orientation
6. Indulgence
7
Culture and the Workplace
1. Power distance is focused on how a society deals with
the fact that people are unequal in physical and intellectual
capabilities
2. Individualism versus collectivism is focused on the
relationship between the individual and his or her fellows
3. Uncertainty avoidance measures the extent to which
different cultures socialize their members into accepting
ambiguous situations and tolerating ambiguity
4. Masculinity versus femininity looks at the relationship
between gender and work roles
5. Long term orientation how every society maintains
some links with its own past while dealing with the
challenges of the present and future, and societies prioritise
these two existential goals differently.
6. Indulgence: the extent to which people try to control
their desires and impulses, based on the way they were
raised. Relatively weak control is called “Indulgence” and
relatively strong control is called “Restraint”.
8
Culture and the Workplace
Hofstede’s Cultural Dimensions
9
Class Activity
Let’s Explore Saudi Cultural Dimensions
1. Various cultural activities
2. Power distance
3. Individualism versus collectivism
4. Uncertainty avoidance
5. Masculinity versus femininity
6. Long term orientation
7. Indulgence
Each student choose one dimension, search
about it (5 minutes) and share the findings with
classmates.
Web Help: http://geert-hofstede.com/saudiarabia.html
10
Hofstede’s Dimensions for
Saudi Arabia and USA
Source: http://geert-hofstede.com/saudi-arabia.html
11
Cultural Dimensions in China
 Greetings are done in order of age–
always greet the eldest member of a
group first
 As status is recognized by age, university
degree and profession, use of a person’s
title is important. Address someone as
Dr. or Professor whenever possible. Do
not call someone by their first name
until they ask you to.
12
Cultural Dimensions in China
 Deploy senior staff members to communicate
and make announcements to general staff
 Be prepared for answers like “we will see,” or
“let us think about it” which in the nonconfrontational Chinese society actually mean
“no”
 Expect frequent rescheduling of meetings. It is a
good idea to set up appointments a few weeks
in advance and
 reconfirm 1-2 days before the scheduled
meeting
13
Cultural Dimensions in America
 Time and Its Control:
For Americans, time is a critical factor that is battled
on a daily basis. We’re in an adversarial relationship
to time. We talk about saving or wasting time,
managing time and beating the clock. Americans
added the term multi-tasking to the English
language.
 Comfort with Change
Americans are fundamentally optimistic and place faith
in the future. As a young culture with few traditions
tying us to ways of the past, our identity and
inspiration are projected forward in time. Americans
link change to progress,
14
development, and growth. We like things that are
“New and Improved!”
 Self-Sufficiency
Closely related to the American emphasis on
individual control over destiny is the value of being
self-sufficient. To succeed without depending on
others shows supreme self-determination, selfreliance, and self-confidence.
 Status
In American culture we value the idea of equality. The
quotation “All men are created equal…” is arguably
the best-known phrase in any of America’s political
documents.
15
 Language
Americans are low context communicators, so the
words we speak are expected to deliver everything
that’s important during verbal interaction. We pay
far less attention to factors such as body language
and the context of what is being said. Americans
appreciate communication that gets straight to the
point and tend to interrupt when conversation isn’t
moving along.
 Individualism:
. Individualism is the belief that each individual’s
interests should take precedence over those of the
social group. Collectivist cultures, by comparison,
assign value based on the role a person plays within
a group.
16
Cultural Dimensions in India
❑Respect is based on seniority and not
necessarily on proficiency, skills or knowledge
❑ Lay out clear instructions and procedures
to employees
❑Expect low job turnover
❑Expect frequent rescheduling of meetings
❑It is a good idea to confirm a day before the
scheduled meeting
17
Cultural Dimensions in India
 Do not expect decisions to be made at
meetings, as meetings are merely forums
for exchange of information
 Aim to build lasting relationships.
 Put your university degree or any
accreditations on your business card
18
Cultural Dimensions in England
 ‘Please’ and ‘thank you’ are words that should be
used a lot. In the UK we consider it rude if you do
not use them. If you ask for something, say
“please”. If somebody gives you something or
helps you, say “thank you”
 Smoking is prohibited by law in many public
places…restaurants, cafes, bars, cinemas etc. If you
smoke in these places you will have to pay a fine
 Many people in Britain do not smoke or are trying
to give up smoking. Even if they smoke, it is
unusual for people to smoke inside their own
house.
19
Cultural Dimensions in England
 Most of our families do not smoke but they are
happy for students to smoke outside – in their
garden, for example.
 British people love pets! If you go to a park, it is
likely that you will see many people walking
their dogs. Dogs are generally domesticated and
well behaved so there is no need to be afraid.
 Queuing…..The British are well known for their
love of queues! It is considered very rude to
jump a queue. If there is a queue for something,
please wait your turn.
20
Hofstede’s Cultural Dimensions in
Dubai
 High power distance – UAE has social statuses that
differs on each level e.g. certain ruling families have
greater power
 High Collectivism – UAE has a strong focus on
family e.g. during Ramadan, it is very important for them
to gather with family relatives.
 Moderate uncertainty Avoidance – UAE strives a
lot in many aspects, yet they do plan ahead.
 Arab Emirates scores 50 on this dimension and can be
considered to be neither Masculine or Feminine.
21
The Determinants of Culture
The Determinants of Culture
22
Social Structure
 A society’s social structure is its basic social
organization
Two dimensions to consider:
 the degree to which the basic unit of social
organization is the individual, as opposed to the
group
 the degree to which a society is stratified into
classes or castes
23
Individuals and Groups
 Groups are common in many Asian societies
 Many Western countries emphasize the individual
 In societies where the individual is emphasized
◦ individual achievement and entrepreneurship are
promoted
◦ but this can encourage job switching,
competition between individuals in a company
rather than team building, and a lack of loyalty
to the firm
 In societies with a strong identification with the
group
◦ cooperation and teamwork are encouraged,
and lifetime employment is common
◦ but individual initiative and creativity may be
suppressed
24
Social Stratification
 All societies are stratified on a
hierarchical basis into social categories,
or social strata (usually defined by
characteristics such as family,
background, occupation, and income)
 Societies differ in terms of
◦ the degree of mobility between social
strata
25
Religious and Ethical Systems
 Religion is a system of shared beliefs and rituals
that are concerned with the realm of the sacred
 Religions with the greatest following are
◦ Christianity (1.7 billion adherents)
◦ Islam (1 billion adherents)
◦ Hinduism (750 million adherents)
◦ Buddhism (350 million adherents)
◦ Confucianism also influences behavior and
shapes culture in many parts of Asia
26
Dominant Religions
World Religions
27
Religious and Ethical Systems
 Ethical systems are a set of moral principles, or values,
that are used to guide and shape behavior
 The ethical practices of individuals within a culture are
often closely intertwined with their religion
 Christianity is the most widely practiced religion
and is common throughout Europe, the Americas, and
other countries settled by Europeans
Question:What are the economic implications of
Christianity?
 In 1904, Max Weber suggested that it was the
Protestant work ethic (focus on hard work, wealth
creation, and frugality) that was the driving force of
capitalism
28
Role of Religion in Islamic Societies
• Islam is the basis for government, legal and
social systems. As Muslims view God’s will as
the source of all outcomes.
• Islam’s holy book, the Qur’an, prohibits drinking
alcohol, gambling, usury, and “immodest”
exposure. The prohibitions affect firms dealing
in various goods.
Examples
•Nokia launched a mobile phone that
shows Muslims the direction towards
Mecca, Islam’s holiest site.
•Heineken rolled out the non-alcoholic
malt drink Fayrouz.
Copyright © 2017 Pearson Education, Ltd.
329
Hinduism
 Hinduism, practiced primarily on the Indian sub-
continent, focuses on the importance of achieving
spiritual growth and development, which may
require material and physical self-denial.
Question:What are the economic implications of
Hinduism?
 Hindus are valued by their spiritual rather than
material achievements.
 Promotion and adding new responsibilities may
not be the goal of an employee, or may be
infeasible due to the employee’s caste
30
Buddhism
 Buddhists, found mainly in Central and
Southeast Asia, China, Korea, and Japan, stress
spiritual growth and the afterlife, rather than
achievement while in this world
Question:What are the economic implications
of Buddhism?
 Buddhism does not support the caste system,
so individuals do have some mobility and can
work with individuals from different classes
 Entrepreneurial activity is acceptable in
Buddhist societies
31
Confucianism
 Confucianism, practiced mainly in China, teaches
the importance of attaining personal salvation
through right action.
 The need for high moral and ethical conduct and
loyalty to others is central in Confucianism
Question:What are the economic implications of
Confucianism?
 Three key teachings of Confucianism – loyalty,
reciprocal obligations, and honesty – may all lead
to a lowering of the cost of doing business in
Confucian societies
32
Language
 Countries differ in terms of language.

There are two forms of language (spoken & unspoken)
 Language is one of the defining characteristics of
culture
 Countries with more than one spoken language
often have more than one culture
◦ Chinese is the mother tongue of the largest
number of people in the world
◦ English is the most widely spoken language in the
world, and is becoming the language of
international business
 However, knowledge of the local language is
beneficial, and in some cases, critical for business
success
33
Unspoken Language
 Unspoken language refers to nonverbal cues
 Unspoken language such as facial expressions
and hand gestures can be important for
communication
 Many nonverbal cues are culturally bound and
because they may be interpreted differently, can
result in misunderstandings
34
Nonverbal Communications
Copyright © 2017 Pearson Education, Ltd.
3-35
Blunders in International Advertising
Firm and Location
Intended Slogan
Literal Translation
Parker Pen in Latin
America
“Use Parker Pen,
avoid
embarrassment”
“Use Parker Pen,
avoid pregnancy!”
Pepsi in Germany
“Come Alive with
Pepsi”
“Come out of the grave
with Pepsi”
Pepsi in Taiwan
“Come Alive with
Pepsi”
“Pepsi brings your
ancestors back from
the dead”
Fisher Body in
Belgium (car
exteriors)
“Body by Fisher”
“Corpse by Fisher”
Salem cigarettes in
Japan
“Salem-feeling Free” “Smoking Salem
makes your mind feel
free and empty”
Copyright © 2017 Pearson Education, Ltd.
3-36
Meaning Differences
between U.S. and British English
Word
Meaning in U.S. English
Meaning in British
English
Redundant
repetitive
fired or laid off
Scheme
a somewhat devious plan
a plan
Sharp
smart, clever
conniving, unethical
Windscreen
a screen that protects
against the wind
automobile windshield
To table
to put an issue on hold
to take up an issue
To bomb
to fail miserably
to succeed grandly
Copyright © 2017 Pearson Education, Ltd.
3-37
Education
 Formal education is the medium through which
individuals learn many of the language,
conceptual, and mathematical skills that are
indispensable in a modern society
 The knowledge base, training, and educational
opportunities available to a country’s citizens
can also give it a competitive advantage in the
market and make it a more or less attractive
place for expanding business
 The general education level of a country is a
good indicator of the types of products that
might sell in that location or the type of
promotional materials that might be successful 38
Literacy Rates in Selected Countries
(% of those who can read)
Source: Central Intelligence Agency, The World Factbook 2015 (Washington DC Central Intelligence Agency, 2015)
Copyright © 2017 Pearson Education, Ltd.
3-39
Cultural Change
 Culture evolves over time, although changes in
value systems can be slow and painful for a
society
 Social turmoil (great disturbance) is an
inevitable (unavoidable) outcome of cultural
change
 As countries become economically stronger,
cultural change is particularly common
40
Cross-cultural literacy
Cross-cultural literacy: An understanding of how
cultural differences across and within nations
can affect the way in which business is practiced
Cross-cultural literacy is important to success in
international business
 Individuals and firms must develop cross-cultural
literacy
 There may be a relationship between culture and the
costs of doing business in a country or region
 Culture is not static, and the actions of MNEs can
contribute to cultural change
 International businesses that are ill informed about
the practices of another culture are unlikely to
succeed in that culture.
41
Chapter 4:
Political Economic and
Legal Systems in National
Environments
International Business: The New Realities, 4th Edition, Global Edition
by
Cavusgil, Knight, and Riesenberger
Copyright © 2017 Pearson Education, Ltd.
1
Learning Objectives
6.1 Understand political systems.
6.2Understand economic systems
6.3 Understand legal systems.
6.4. Explain the implications for management
practice of national differences in political
economy.
Copyright © 2017 Pearson Education, Ltd.
6-2
What Is A Political Economy?
• The political economy of a nation refers to
how the political, economic, and legal systems
of a country are interdependent
– they interact and influence each other
– they affect the level of economic well-being in the
nation
2-3
What Is A Political System?
• Political system refers to the system of
government in a nation
• Assessed according to
– the degree to which the country emphasizes
collectivism as opposed to individualism
– the degree to which the country is democratic or
totalitarian
2-4
Collectivism VS Individualism
• Collectivism stresses the primacy of collective
goals over individual goals
• Individualism refers to philosophy that an
individual should have freedom in his own
economic and political pursuits
2-5
What Is Collectivism?
• Collectivism stresses the primacy of collective
goals over individual goals
– can be traced to the Greek philosopher, Plato
(427-347 BC)
• Today, collectivism is equated with socialists
(Karl Marx 1818-1883)
– advocate state ownership of the basic means of
production, distribution, and exchange
– manage to benefit society as a whole, rather than
individual capitalists
2-6
What Is A Political System?
Political System
Collectivism/
Socialism
Individualism
Social
democrats
Totalitarianism
Communism
Democracy
Communist
Theocratic
Tribal
Right-wing
2-7
How Does Modern-Day Socialism
Look?
In the early 20th century, socialism split into
1. Communism – socialism can only be achieved
through violent revolution and totalitarian
dictatorship
– in retreat worldwide by mid-1990s
2. Social democrats – socialism is achieved through
democratic means
– retreating as many countries move toward free market
economies
– state-owned enterprises have been privatized
2-8
What Is Individualism?
• Individualism refers to philosophy that an individual
should have freedom in his own economic and
political pursuits
– can be traced to Greek philosopher, Aristotle (384-322 BC),
who argued that individual diversity and private ownership
are desirable
– individual economic and political freedoms are the ground
rules on which a society should be based
– implies democratic political systems and free market
economies
2-9
What Is Democracy?
• Democracy refers to a political system in
which government is by the people, exercised
either directly or through elected
representatives
– usually associated with individualism
– pure democracy is based on the belief that
citizens should be directly involved in decision
making
– most modern democratic states practice
representative democracy where citizens
periodically elect individuals to represent them
2-10
What Is Totalitarianism?
Totalitarianism is a form of government in which one person or
political party exercises absolute control over all spheres of
human life and prohibits opposing political parties
1. Communist totalitarianism – found in states where the
communist party monopolizes power
2. Theocratic totalitarianism – found in states where political
power is monopolized by a party, group, or individual that
governs according to religious principles
3. Tribal totalitarianism – found in states where a political party
that represents the interests of a particular tribe monopolizes
power
4. Right-wing totalitarianism – permits some individual
economic freedom, but restricts individual political freedom
5. Military dictatorship: in which the military exerts complete or
substantial control over political authority, and the dictator is
often a high-ranked military officer.
What is an Economic System?
•
1.
There are three types of economic systems
Market economies – all productive activities are privately owned,
and production is determined by the interaction of supply and
demand
– government encourages free and fair competition between
private producers
2. Command economies – government plans the goods and services
that a country produces, the quantity that is produced, and the
prices as which they are sold
– all businesses are state-owned, and governments allocate
resources for “the good of society”
– because there is little incentive to control costs and be
efficient, command economies tend to stagnate
3. Mixed economies – certain sectors of the economy are left to
private ownership and free market mechanisms while other
sectors have significant state ownership and government
planning
– governments tend to own firms that are considered important
2-12
to national security
What is a Legal System?
•
The legal system of a country refers to the rules that
regulate behavior along with the processes by which
the laws are enforced and through which redress for
grievances is obtained
• There are three types of legal systems
1. Common law – based on tradition, precedent, and
custom
2. Civic law – based on detailed set of laws organized
into codes
3. Theocratic law – law is based on religious
teachings
4. Mixed Law: combine elements of common and
civil and theoretic laws.
2-13
Legal Systems: Religious Law
• Strongly influenced by religious beliefs, ethical codes, and
moral values, viewed as mandated by a supreme being.
• Most important religious legal systems are based on Hindu,
Jewish, and Islamic law.
• Islamic law spells out
norms of behavior
regarding politics,
economics, banking,
contracts, marriage,
and many other social
and business issues.
Copyright © 2017 Pearson Education, Ltd.
6-14
Examples of Legal Systems
• Common Law A legal system that originated in
England and spread to Australia, Canada, USA, and
other former members of the British Commonwealth
(also known as case law).
• Civic Law: Found in France, Germany, Italy, Japan,
Turkey, and much of Latin America.
• Mixed Law: Legal systems in Lebanon, Morocco, and
Tunisia share elements of civil law and Islamic law.
• Theoretic Law: Saudi Arabia, Vatican City,
Afghanistan (under the Taliban), Iran
Copyright © 2017 Pearson Education, Ltd.
6-15
Dominant Legal Systems in Selected Countries
Source: Based on World Legal Systems at www.juriglobe.ca.
Copyright © 2017 Pearson Education, Ltd.
6- 16
How are Contracts Enforced in Different
Legal Systems?
• Contract law is the body of law that governs contract
enforcement.
• Under a common law system, contracts tend to be
very detailed and more specific with all contingencies
spelled out.
• Under a civil law system, contracts tend to be much
shorter and less specific because many issues are
already covered in the civil code.
• Many countries have ratified the United Nations
Convention on Contracts for the International Sale of
Goods (CIGS) which establishes a uniform set of rules
governing certain aspects of the making and
performance of everyday commercial contracts
between buyers and sellers who have their places of
business in different nations
2-17
How are Property Rights
and Corruption are Related?
•
•
Property rights refer to the legal rights over a
resource and over the use made of any income that
may be derived from that resource.
Can be violated through
1.
2.
Private action – theft, piracy, blackmail
Public action – legally – ex. excessive taxation or illegally – ex. bribes or
blackmailing
•
•
high levels of corruption reduce foreign direct investment, the level of
international trade, and the economic growth rate in a country
The Foreign Corrupt Practices Act makes it illegal for
U.S. companies to bribe foreign government officials
to obtain or maintain business over which that foreign
official has authority
2-18
Which Countries Are Most Corrupt?
Rankings of Corruption by Country 2008
2-19
Check Corruption Index of a Country
https://www.transparency.org/cpi2018
2-20
How Can Intellectual Property Be
Protected?
Intellectual property – property that is the product of
intellectual activity
Can be protected using
1. Patents – exclusive rights for a defined period to the
manufacture, use, or sale of that invention
‫ مكتب براءات االختراع بمجلس التعاون الخليجي‬-
2. Copyrights – the exclusive legal rights of authors,
composers, playwrights, artists, and publishers to publish
and disperse their work as they see fit
3. Trademarks – design and names by which merchants or
manufacturers designate and differentiate their products
2-21
How Can Intellectual Property Be
Protected?
• Protection of intellectual property rights
differs from country to country
– World Intellectual Property Organization
– Paris Convention for the Protection of Industrial
Property
• To avoid piracy, firms can
– stay away from countries where intellectual
property laws are lax
– file lawsuits
– lobby governments for international property
rights agreements and enforcement
2-22
What is Product Safety and Liability?
• Product safety laws set certain standards to
which a product must adhere.
• Product liability involves holding a firm and its
officers responsible when a product causes
injury, death, or damage .
• When product safety laws are stricter in a
firm’s home country than in a foreign country,
or when liability laws are weaker, the firm
must decide whether to adhere to home
country or host country standards
2-23
What Determines Level of Economic
Development in a Country?
Three ways to measure levels of economic development
are
1. Gross national income (GNI) per person.
2. Purchasing power parity (PPP) involves adjusting GNI
by purchasing power.
3. Human Development Index (HDI)
• Nobel-prize winner Amartya Sen argues economic
development should be seen as a process of
expanding the real freedoms that people experience.
–
–
the removal of major obstacles to freedom like poverty,
tyranny, and neglect of public facilities.
the presence of basic health care and basic education.
2-24
What Determines A Country’s Level of Economic
Development?
The United Nations used Sen’s ideas to
develop the Human Development Index
(HDI) which is based on
– life expectancy at birth
– educational attainment
– whether average incomes are sufficient to
meet the basic needs of life in a country.
2-25
How Does Political Economy Influence
Economic Progress?
• Innovation and entrepreneurship are the engines of
long-run economic growth
• Innovation and entrepreneurship require a market
economy and strong property rights
• Democratic regimes are probably more favorable to
long-term economic growth than dictatorships, even
the benevolent kind
• Subsequent economic growth leads to the
establishment of democratic regimes
2-26
How Do Geography and Education Influence
Economic Development?
• Countries with favorable geography are more
likely to engage in trade, and so, be more
open to market-based economic systems, and
the economic growth they promote
• Countries that invest in education have higher
growth rates because the workforce is more
productive
2-27
An Example of Geographic Location
CPEC Project : China Pakistan Economic Corridor
2-28
How Free Are Countries Politically?
Political Freedom in 2008
2-29
How Free Are Countries Economically?
Distribution of Economic Freedom in 2008
2-30
What Does The Changing Economy Mean
For Managers?
• Markets that were formerly off-limits to Western
business are now open
• By identifying and investing early in a potential
future economic stars, firms may be able to gain first
mover advantages (advantages that accrue to early
entrants into a market) and establish loyalty and
experience in a country
– ex. China -1.2 billion people and India – 1.1 billion people
• However, the potential risks are large.
• It can be more costly to do business in countries
with dramatically different product, workplace, and
pollution standards, or where there is poor legal
protection for property rights
2-31
What Does The Changing Economy Mean
For Managers?
• Managers must consider
1. Political risk – the likelihood that political forces will
cause drastic changes in a country’s business
environment that adversely affects the profit and
other goals of a business enterprise
2. Economic risk – the likelihood that economic
mismanagement will cause drastic changes in a
country’s business environment that adversely
affects the profit and other goals of a business
enterprise
3. Legal risk – the likelihood that a trading partner will
opportunistically break a contract or expropriate
property rights
2-32
How Can Managers Determine A Market’s
Overall Attractiveness?
• The overall attractiveness of a country as a potential
market and/or investment site for an international
business depends on balancing the benefits, costs,
and risks associated with doing business in that
country.
• Other things being equal, the benefit-cost-risk tradeoff is likely to be most favorable in politically stable
developed and developing nations that have free
market systems and no dramatic upsurge in either
inflation rates or private sector debt
2-33
Copyright © 2017 Pearson Education, Ltd.
34
Chapter 8:
Global Market Opportunity
Assessment
International Business: The New Realities, 4th Edition, Global Edition
by
Cavusgil, Knight, and Riesenberger
Copyright © 2017 Pearson Education, Ltd.
12-1
Learning Objectives
12.1 Understand analyzing organizational readiness to
internationalize.
12.2 Determine the suitability of products and services
for foreign markets.
12.3 Describe screening countries to identify target
markets.
12.4 Understand assessing industry market potential.
12.5 Explain about choosing foreign business
partners.
12.6 Know about estimating company sales potential.
Copyright © 2017 Pearson Education, Ltd.
12-2
Global Market Opportunity
A favorable combination of circumstances, locations,
or timing that offer prospects for exporting, investing,
sourcing, or partnering in foreign markets.
Typical opportunities include the option to:
▪ market products and services;
▪ establish factories or other production facilities to
make offerings more competently or cost-effectively;
▪ procure raw materials or components, services of
lower cost or superior quality; and
▪ Enter collaborative arrangements with foreign
partners.
Copyright © 2017 Pearson Education, Ltd.
12-3
The Six Tasks of Global Market
Opportunity Assessment (GMOA)
1. Analyze organizational readiness to internationalize.
2. Assess the suitability of the firm’s products and
services for foreign markets.
3. Screen countries to identify attractive target markets.
4. Assess the industry market potential, or the market
demand, for the product(s) or service(s) in selected
target markets.
5. Choose qualified business partners,
such as distributors or suppliers.
6. Estimate company sales potential
for each target market.
Copyright © 2017 Pearson Education, Ltd.
12-4
Task 1. Organizational Readiness
• Analyze organizational readiness to internationalize
to provide an objective assessment of the firm’s
preparedness to engage in international business.
• It is achieved by examining company strengths and
weaknesses for international business, by evaluating
availability in the firm of key factors, such as:
– Appropriate financial and tangible resources.
– Relevant skills and competencies.
– Management’s commitment to internationalization.
• Eliminate deficiency that hinder achieving firm goals.
Copyright © 2017 Pearson Education, Ltd.
12-5
Questions to Address in
Organizational Readiness Analysis
• What does the firm hope to gain from international
business? For example, increasing sales or profits,
challenging competitors, pursuing a global strategy?
• Is international business expansion consistent
with other company goals, now or in the future?
• What demands will internationalization place on
company resources, such as finance, personnel, and
manufacturing capacity?
• What is the basis of the firm’s competitive
advantage?
Copyright © 2017 Pearson Education, Ltd.
12-6
Task 2. Product Suitability
• Assess suitability of the firm’s products and services
for foreign markets by conducting a systematic
assessment of company offerings for international
customers. Evaluate the fit between the offerings and
foreign customer needs.
• For each possible target market, identify the factors that
may hinder market potential. Determine how the offering
may need to be adapted for each market. Specifically,
assess the offering regarding such factors as foreign
customer characteristics, laws and regulations, channel
intermediary requirements, and nature of competitors.
Copyright © 2017 Pearson Education, Ltd.
12-7
Products with the best foreign sales prospects:
c
Copyright © 2017 Pearson Education, Ltd.
12-8
Questions to Measure
International Market Potential
• Who initiates purchasing?
• Who uses the product or service?
• Why do people buy the product
or service?
• Where do people purchase the
product or service?
Source: Dmitriy Shironosov/123RF
• What economic, cultural, geographic, and other
factors in the target market may limit sales?
Copyright © 2017 Pearson Education, Ltd.
12-9
Task 3. Country Screening
• Screen countries to identify target markets.
Reduce the number of countries that warrant
in-depth investigation as potential target markets
to a manageable few.
• Identify five or six countries that hold the best
potential by assessing each country regarding such
criteria as: size and growth rate, “market intensity”
(customers’ buying power), “consumption capacity”
(size and growth rate of the middle class), country’s
receptivity to imports, infrastructure for doing
business, economic freedom, and country risk.
Copyright © 2017 Pearson Education, Ltd.
12-10
Example: Brazil and Health Products
• Brazil is one of the top new markets for medications
and other health products.
• Thanks to rising income, Brazil’s 70 million middleclass consumers now spend much on health care.
• Global pharmaceutical firms are targeting
medications to Brazilian consumers, especially
senior citizens, who are prone to diabetes, heart
disease, and respiratory ailments.
• Brazilians increasingly buy health insurance, which
enables them to invest in personal health care.
Source: S. Agarwal, J. d’Almeida, and T. Francis, “Capturing the Brazilian Pharma Opportunity, April 2012,
McKinsey Quarterly, retrieved from www.mckinseyquarterly.com.
Copyright © 2017 Pearson Education, Ltd.
12-11
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
and industry. For farming equipment, consider
countries with much agricultural land and farmers
with higher incomes. For semiconductors, target
countries that manufacture computers.
• Targeting a region may make sense. For example,
the European Union, Latin America.
Copyright © 2017 Pearson Education, Ltd.
12-12
Screening Methodology for
Potential Country Markets: Two Methods
1. With Gradual Elimination, the firm starts with
numerous prospective target countries and narrows
the choices by examining increasingly specific
information. Initially, the researcher obtains macro-level
indicators like population, income, and economic
growth before delving into specific information.
2. With Indexing and Ranking, the firm assigns scores
to countries based on their overall market
attractiveness. For each country, the researcher
identifies a set of market-potential indicators and ranks
each country on each indicator. Weights are assigned
to each variable to establish its relative importance.
Copyright © 2017 Pearson Education, Ltd.
12-13
Market Potential Index for Emerging Markets
Note: Only the top 20 countries are provided here; consult www.globalEDGE.msu.edu for a more complete list
Source: Market Potential Index (MPI) – 2014, globalEDGE™ (www.globalEDGE.msu.edu/resourcedesk/mpi).
Copyright © 2017 Pearson Education, Ltd.
12-14
Country Screening
for Foreign Direct Investment
Researchers who attempt to identify the best locations
for FDI typically consider these variables:
• Long-term prospects for growth and sizeable returns.
• Cost of doing business, based on available
infrastructure, tax rates, wages, and worker skills.
• Country risk, including regulatory, financial, political,
and cultural barriers, intellectual property protections.
• Competitive environment.
• Government incentives such as tax holidays,
subsidized training, grants, or low-interest loans.
Copyright © 2017 Pearson Education, Ltd.
12-15
Country Screening for Global Sourcing
• Global sourcing is the practice of procuring
finished products, intermediate goods, and
services from suppliers located abroad.
• When seeking foreign sources of supply,
managers examine such factors as:
o cost and quality of inputs,
o stability of exchange rates,
o reliability of suppliers, and
o presence of a work force with superior skills.
Copyright © 2017 Pearson Education, Ltd.
12-16
Task 4. Assess Industry Market Potential
• The firm estimates the most likely share of sales that
can be achieved in each target country, including
consideration of market entry barriers. Firm should
develop a 3 to 5-year forecast of industry sales.
• Assess industry market potential in each market by
examining such criteria as:
o Size and growth rate of the market, and industry trends.
o Tariff and nontariff trade barriers to market entry.
o Standards and regulations that affect the industry.
o Availability and sophistication of distribution.
o Unique customer requirements and preferences.
o Industry-specific market potential indicators.
Copyright © 2017 Pearson Education, Ltd.
12-17
Industry Market Potential
An estimate of the likely sales
that can be generated by all firms in a
particular industry during a specific time period.
• It 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.
Copyright © 2017 Pearson Education, Ltd.
12-18
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.
Source: Aleksandra Gigowska/123RF
Copyright © 2017 Pearson Education, Ltd.
12-19
Methods for Estimating Industry Market Potential
• Simple trend analysis examines aggregate
production for the industry as a whole.
• Monitoring key industry-specific indicators
examines unique industry drivers of market demand.
• Monitoring key
competitors to
estimate their sales
levels provides an
estimate of market
potential.
Source: atm2003/Fotolia LLC.
Demand is growing in Europe for environmental
technologies and green products. These workers are
installing solar panels on a house in Italy.
Copyright © 2017 Pearson Education, Ltd.
12-20
Methods (cont’d)
• Following key customers around the world can
provide an estimate of likely sales in an industry that
the firm supplies.
• Tapping into supplier networks can offer valuable
information for assessing sales and competitor
activity.
• Attending international trade fairs facilitates
learning about market characteristics and sales
potential.
Copyright © 2017 Pearson Education, Ltd.
12-21
Task 5. Choose foreign business partners
• The firm decides on the type of foreign business
partner, clarifies ideal partner qualifications, and then
crafts an appropriate market entry strategy.
• Initially the firm determines what value-adding
activities must be performed by foreign business
partners, and then seeks the appropriate partners.
• The firm assesses and selects partners based on
criteria such as industry expertise, commitment to the
venture, access to distribution channels, financial
strength, quality of staff, and appropriate facilities.
Copyright © 2017 Pearson Education, Ltd.
12-22
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 ventures include joint
venture and strategic alliance partners.
• Other partners are include basic suppliers, or are
involved in global sourcing and contract manufacturing.
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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.
• Access to distribution channels and end-users.
• Strong industry knowledge.
• Known in the marketplace and wellconnected with local government.
• Committed and loyal.
Source: Stephen Coburn/Shutterstock
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Task 6. Estimate Company Sales Potential
• The firm estimates the most likely share of industry
sales that the company can achieve, over a specific
period of time, for each target market.
• Firm develops 3 to 5-year forecast of its own sales
in each target market, based on criteria such as
capabilities of partners; access to distribution;
competitive intensity; pricing and financing; market
penetration timetable of the firm; and risk tolerance
of senior managers.
• Determine the factors that will influence company
sales potential.
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Company Sales Potential
An estimate of the share of annual industry sales
that the firm expects to generate in a particular
target market.
• 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.
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Factors That Determine Company Sales Potential
• Intensity of the competitive environment. Existing
competitors may react strongly against entrants.
• Pricing and financing of sales. Attractiveness of
pricing and financing to buyers, channel members.
• Human and financial resources. Major factor in
the proficiency and speed of company success.
• Partner capabilities. Partner skills and resources
determine speed and effectiveness of entry.
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Factors Determining Company Sales Potential (cont’d)
• Access to distribution channels. Ability to set up
and use intermediaries and channel infrastructure.
• Market penetration timetable. Fast or slow? Each
has advantages and disadvantages.
• Risk tolerance of senior managers.
• Special links, contacts, capabilities of the firm.
The firm’s network in the market.
• Reputation. Success may be faster if customers are
already familiar with the firm’s brands and reputation.
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A Framework for Estimating Company
Sales Potential in the Foreign Market
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Methods for
Estimating Company Sales Potential
• Survey end-users and intermediaries.
• Trade audits. Visit retail outlets and question
channel members to assess competitors’ offerings
and strengths. Reveals opportunities for new
products, and for differentiating existing products
and marketing.
• Competitor assessment. The firm can benchmark
itself against main competitors in the market and
estimate the level of sales it can potentially attract
away from them.
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Methods for
Estimating Company Sales Potential (cont’d)
• Obtaining estimates from local partners.
Collaborators such as distributors and franchisees
already familiar with the market can often provide
reliable estimates.
• Limited marketing efforts to “test the waters”.
A limited entry in the market helps gauge long-term
sales potential and provides better understanding
of the market.
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Methods for
Estimating Company Sales Potential (cont’d)
• The analogy method and proxy indicators are
useful for emerging markets and developing
economies, where information is often scarce.
• With analogy, the researcher draws on known
statistics from one country to gain insights into the
same phenomenon in a similar country.
• With proxy indicators, the researcher uses known
information about one product category to infer
potential about another product category, especially
if the two are complementary.
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