IDENTIFYING AN ATTRACTIVE EXPORT MARKET
IDENTIFYING AN ATTRACTIVE EXPORT MARKET Exporters seek the best foreign markets for their products and services. Managers conduct market research to determine the viability of potential export markets. They examine such factors as market size, growth rate, economic status, competition, and the d egree of political stability. Without this market research, firms can fail in their export ventures. Managerial Challenge The task of choosing the best export markets is complex. What makes an ideal market?
What market potential indicators should manage rs consider? The managerial challenge is to choose the best export markets by following a systematic process of international market research. In this exercise as a prospective manager, you will: 1. Learn the important indicators used to assess the viabil ity of potential export markets 2. Access information needed to develop international business plans 3. Research country -level barriers that firms face in exporting IDENTIFYING AN ATTRACTIVE EXPORT MARKET Expanded Background In this exercise, assume you work for a firm that makes and markets portable DVD players. Assume that the average selling price of your firm’s DVD players is US$100. Your firm is new to international business and would like to beg in exporting DVD players soon. Exporting is the m ost widely used entry mode and primary means through which most firms engage in international business. This is especially true for firms that are new to international business and for firms with substantial production facilities at home. Research is parti cularly important to small and medium -sized enterprises, which usually lack the resources to sustain significant losses from failed exporting efforts. For most companies, the great majority of potential customers live outside the firm’s home country. Focus ing only on the domestic market means the firm is reaching just a small share of potential customers. The foundation of successful exporting efforts is planning . In turn, planning requires the development of knowledge about the most appropriate target ma rkets. Successful exporting involves taking time to identify market opportunities and understand the characteristics and conditions of target markets. Research helps management gain insights on customer requirements, competitor activity, and different ways of doing business. Managers show their commitment to exporting by conducting research to reveal the most promising markets and to uncover any potential challenges that can be addressed proactively. Exporters need to learn about the technology level of p otential target markets. In countries with low technological knowledge, distributors or customers may need to be trained in the product’s features and usage. If distributors and customers require extensive training, the attractiveness of the country as an export target may decrease. Small and medium -sized enterprises account for the vast majority of all exporters. Such businesses usually lack the resources to sustain significant losses from failed exporting efforts. Consequently, it is especially importan t for smaller firms to conduct research to uncover the most viable export markets and to understand the specific characteristics of those markets. Your Task and Methodology Until now, suppose your firm has marketed its line of DVD players only in the ho me country. Management has made the decision to begin marketing DVD players abroad and has given you the task of researching a collection of foreign countries, to evaluate their viability as potential export markets. As part of the exercise, you will visit several online portals and gather relevant data. You will examine such factors as market size, market growth rate, and nature of potential foreign markets. Your task is to conduct research and write a brief report in which you formulate and explain a rank ing of the best export markets that management should target with exports of portable DVD players. In developing your report, you are to focus your research on the following six countries: Spain, Russia, Japan, South Korea, Turkey and China. For each of t hese countries, you are to gather data on the following variables: Population Per -capita GDP Projected per -capita GDP Growth Status and stability of the national economy (for example, inflation rate, level of government debt) Degree of political stability Extent of government intervention Level of technology In general, for exporters it is best to target countries with high per -capita incomes, substantial population levels, and relatively rapid GDP growth. Exporters a lso favor countries with a relatively stable economy and government, minimal government intervention, and a level of technology suitable for the exported product or service. To complete this exercise, it is best to perform a spreadsheet analysis. You sho uld perform the following tasks: 1. Visit the websites listed below and collect data on each of the variables listed above, for each of the six countries. 2. Convert the data for each of the indicators into a standardized point score (say, on a scale f rom 1 to 10, with 1 being lowest and 10 being highest) so that the performance of each country can be numerically compared to that of each of the other countries. One approach for making comparisons is to use the country with which you are most familiar as a benchmark, and then set the ratings for all the other countries by comparing them to the benchmark. 3. Assign relative weights for each indicator based on the importance of each. Assigning weights is a somewhat subjective process. You must decide whic h variables are most important and then assign the appropriate weights. Not all indicators are equally important as predictors of export market potential. Some indicators are more important than others. In the real -world setting, you would ordinarily assig n the weights before beginning research in order to make cost/benefit decisions in the process of collecting data. Note that in the real – world setting, the resultant country rankings would be one of only several factors used in deciding which markets to en ter. Management would also consider the characteristics, strengths, and weaknesses of the firm and its products, as well as prior international experience and budgetary constraints. Management would consider qualitative factors that may be hard to quantify , such as existing personal relationships in a specific country or information that a major domestic customer is setting up a factory in a country. Template As shown in the examples below, you should develop two spreadsheets: 1) One that contains the data for each of the variables for each country, and 2) one that contains the weighted scores that you have established for each variable, for each country. In your final report, you should provide your ranking of the potential export countries and write a memo in which you advise top management on which countries appear most appropriate for entry.
Be sure to justify your recommendation, based on the scores and ranking that you have devised. EXAMPLE COMPLETED ASSIGNMENT Initial Resea rch Data, Using Example Countries Country Population Per – capita GDP, US $ Projected per -capita GDP Growth, percent Status and stability of the national economy* Degree of Political Stability* Extent of Government Intervention* Technology Level* Chile 17,200,000 8,200 4.1 7 8 7 8 France 63,000,000 22,300 2.8 6 9 6 9 Japan 126,345,000 23,675 3.1 8 9 7 10 Mexico 96,385,000 8,435 2.6 5 6 7 7 Russia 148,030,000 7,300 2.4 6 6 6 8 U.S. 296,240,000 32,455 2.8 8 9 9 10 * Rated on a scale from 1 to 10, where 1 is very bad and 10 is very good EXAMPLE COMPLETED ASSIGNMENT Assigning Weights and Point Scores, Using Example Countries Cou ntry Population Per – capita GDP, US $ Projected per -capita GDP Growth, percent Status and stability of the national economy* Degree of Political Stability* Extent of Govern – ment Intervention Technology Level* Total Chile 1 4 4 2 5 10 10 4 40 7 4 28 8 3 24 7 3 21 8 3 24 151 France 3 4 12 7 5 35 3 4 12 6 4 24 9 3 27 6 3 18 9 3 27 155 S ta nd a rd i ze d V a lue S ta nd a rd i ze d V a lue S ta nd a rd i ze d V a lue S ta nd a rd i ze d V a lue W e ig ht W e ig ht W e ig ht W e ig ht W e ig hte d S c o re W e ig hte d S c o re W e ig hte d S c o re S ta nd a rd i ze d V a lue W e ig hte d S c o re S ta nd a rd i ze d V a lue W e ig ht W e ig hte d S c o re S ta nd a rd i ze d V a lue W e ig ht W e ig hte d S c o re W e ig ht W e ig hte d S c o re Japan 6 4 24 7 5 35 5 4 20 8 4 32 9 3 27 7 3 21 10 3 30 189 Mexico 5 4 20 2 5 10 2 4 8 5 4 20 6 3 18 7 3 21 7 3 21 118 Russia 7 4 28 1 5 5 1 4 4 6 4 24 6 3 18 6 3 18 8 3 24 121 U.S. 10 4 40 10 5 50 3 4 12 8 4 32 9 3 27 9 3 27 10 3 30 218 Standardized values range from 1 to 10. Weights range from 1 to 5, with ‘1’ meaning not ve ry important, to 5 meaning ‘ very important’ EXAMPLE COMPLETED ASSIGNMENT Final Export Market Ranking, Using Example Countries _________________________ Country Total United States 218 Japan 189 France 155 Chile 15 1 Russia 121 Mexico 118 ________________________ These results suggest that the United States is the best overall export market. It is particularly strong rega rding population, per -capita GDP, status and stability of the national economy, degree of political stability, extent of government intervention, level of technology. This helps explain why the United States is a favored export market of many companies aro und the world. Suggested Resources for this Exercise globalEDGE located at http://globaledge.msu.edu/ . See especially “Market Potential Indicators for Emerging Markets” at http://globaledge.msu.edu/mpi World Bank at www.worldbank.org/ provides various types of statistics, particularly related to countries’ level of development United Nations at www.un.org , the world body provides various types of statistics Central Intelligence Agency World Factbook the CIA site at www.cia.gov/cia/publications/factboo k/ is particularly useful for general country information, as well as data on per -capita GDP, economic and political situation, and technology level, for nearly all countries Economist Country Briefings at www.economist.com/countries/ provides economic fo recasts Transparency International at www.transparency.org for information on corruption levels, political stability, and extent of government intervention in the local economy