International Product Candidate and Target Country
Selection
Session 2 Choosing candidate product
Features of ideal product candidate from managementperspective:
Ready market acceptance High profit potential Availability from
existing product facilities Sustainability for marketing abroad [in
much the same way as inthe domestic market] Distinctive advantages
that would allow to obtain a competitive niche in foreign markets
(low price or distinctive featuresleading to differentiation
(quality, design, technical superiority,etc.) Choosing candidate
product: appraisal of each potential product
Is this product competitive in the home market? What areits
competitive strengths and weaknesses? What need (or needs) does
this product serve in thedomestic market? Do the same needs exist
in foreign markets?If they do, which products currently meet those
needs in theforeign markets? If they do not,can this product serve
otherneeds that do exist in foreign markets? How new is this
product to foreign markets? How muchcompetition is it likely to
encounter? What competitiveadvantages and disadvantages does this
product have in foreignmarkets? Choosing candidate product:
appraisal of each potential product (Contd
Does this product have same use conditions in the foreignmarkets
and in home market? Does this product require after-sales services
orcomplementary products for its use? Are they available inforeign
markets? Does this product have to be adapted to foreign marketsin
one of more of its physical, package,and serviceattributes? Can
this product be marketed abroad the same way as athome? Adapting
Products for International Markets
The Macroenvironment Geography Climate Economic Sociocultural
Political / legal The target market Who buys the product? Who uses
the product? How is the product used? Where is the product bought?
How is the product bought? Why is the product bought? When is the
product bought? Competition Price Performance Design Patent
protection Brand name Package Services Product attributes
Government / regulations Tariffs Labelling Patents/trademarks Taxes
Adapting Products for International Markets
Package attributes Protection Colour Design Brand name Labeling
Physical attributes Size Design Materials Weight Colour Service
attributes Use instructions Installation Warranties
Repair/maintenance Spare parts Expected profit contribution Product
adaptation strategies
Standardization Adaptation Conceived market Global Multiple
national markets Approach to national differences Recognized but
assumed to be overcome with promotional effort Account is taken of
differences that distinguish markets from one another and from the
home market Product attributes Same across all national markets
Adapted to the preferences of each national market or national
submarkets Impact on cost structure Keeps down the costs of
adaptation, but incurs higher costs of promotion intended to adapt
consumers and users to the companys product rather than the other
way around Higher costs of adaptation but lower costs of promotion
that is intended to inform buyers how well the product matches
their preferences rather than to change those preferences Framework
for country market and industry attractiveness assessment
Growth? Size? Customer quality? RESOURSES - Is the country a
critical resource of: Skilled personnel? Raw materials? Components?
Labour? Technological innovation? Learning? Quality of
infrastructure supporting services Location COMPETITION Intensity
rivalry Entry barriers Bargaining power of supplierscustomers Is
the business Profitable short-term? Profitable long-term? Country
Market and Industry Opportunities INCENTIVES Taxes Subsidies
Infrastructures Government contracts - Does a presence in this
country increase competitiveness? Model for selecting a target
country (1)
All countries Preliminary screening: Consumer / User Profile Direct
estimates of Market Size Indirect market size indicators Rejected
countries Accept / Reject decision Prospective target countries
Estimating Industry Market Potentials: Top-Down Estimates Bottom-Up
Estimates Accept / Reject decision Rejected countries Model for
selecting a target country (2)
High-Market potential countries EstimatingCompany Sales Potentials:
Entry Conditions Competition Audit Distribution Channels Consumer /
User Secondary Target Markets Rejected countries Accept / Reject
decision Target Country Target country selection: Preliminary
screening
Preliminary screening tries to minimize 2 errors: Ignoring
countries that offer good prospects for a company product
Preliminary screening should be applied to all countries Spending
too much time investigating countries that are poor prospects.
Preliminary screening should be quick and economical, using
quantitative data that are readily available from public source (1)
(2) Target country selection: Customer/User Profile
Who buys the product? Who uses the product? How is the product
used? Where is the product bought? How is the product bought? Why
is the product bought? When is the product bought? Consumer
products: Income Social class Life style Age Gender Industrial
products: Company size Input-output relationships Organization
Target country selection: Quality of demand
The quality of demand describes the nature and diversity ofmarket
segmentation prevailing in a country, and the profile ofthe
customers value curve in each segment Top end Lower high end Higher
low end Lower End High End: Differentiated products Functionality
and performance Less price-sensitive Low End: Undifferentiated
products Mass production and distribution Price-sensitive Target
country selection: Quality of demand
Top end Lower top and Higher end Top end Lower high end Higher low
and Middle class Higher low end Lower end Lower end Developing
World Segmentation Huge low-end commodity market Rising middle
class but still relatively small Tiny highly wealthy segment
Industrialized World Segmentation Diverse segmentation Middle-class
markets dominate Country life cycle Newly Industrialized Economies
Emerging countries
Industrialized countries Developing countries Characteristics of
demand according to country life cycle clusters
Demand characteristics Developing countries Emerging countries
Newly industrialized economies Industrialized countries Growth Low
High Size Small Small to high Segmentation Dominant subsistence
sector Large low-end segment Fast growing-middle class Established
middle class Increased diversity of segments Diverse and
sophisticated segmentation Customer value curve Price Availability
Distribution Emerging advertising Product functionality Performance
Services Push logistics Beginning ofpull Pull Beginning of mass
retailing Diversity Mass retail important Competition Regulated
Beginning of de-regulation New entrants De-regulated Active Diverse
Target country selection: Direct Estimates of Market size
Market potential for a product: Si = f (X1,X2, .. Xn) Si- potential
sales of a product i in a given country Xi, Xn economic and social
factors that collectivelydetermine Si Simay be estimated directly
by projecting actual sales data(time series analysis) or by
projecting the apparentconsumption or imports of the product
Country consumption of the product: Consumption = Local production
+ imports exports Target country selection: Indirect estimates of
market size (1)
NationalAccount Statistics National income,gross domestic product,
net material product Expenditure on gross domestic product,net
material product by use National income and national disposable
income Gross domestic product and net material product by kind of
economic activity Population and manpower 1.Population by
gender,rate of increase,surface area, density Employment / Hours of
work in manufacturing Unemployment Scientific and technical
manpower and expenditure for research and development Production
Agriculture / Forestry / Fishing / Mining Index numbers of
industrial production Manufacturing
production(food,textiles,paper,rubber products,chemicals,building
materials,metals,transportation equipment) Construction (output and
employment, activity) Energy (output and employment in
electricity,gas,and water supply) Target country selection:
Indirect estimates of market size (2)
International trade Imports by end use Exports by industrial origin
Source/destination of imports and exports Imports/Exports by
commodity Other economic statistics Transportation
(railways,international seaborne shipping,civil aviation
traffic,motor vehicles in use,international tourist travel) Wages
and prices (earnings in manufacturing,index numbers of wholesale
prices, consumer price index numbers) Consumption (total and
per-capita consumption of steel, fertilizers,newsprint,and other
commodities) Finance (balance of payments,exchange rates,money
supply,international reserves) Social statistics Health (hospital
establishments and health personnel) Education (number of teachers
and school enrolment,public expenditures on education) Culture
(number of books produced by subject and language, number of radio
and television receivers, total and per-capita) Accept / Reject
decisions
Si,j a accept country as a prospective targetcountry for further
investigation Si,j the market size for product i in market j a
threshold value in monetary units,sales volume (units), index
Establish minimum values for all the selected market
indicators,rejecting those countries whose indicators fall below
them. Consider one or few indicators as decisive and reject all
countrieswhose decisive indicators fall below minimum
values,regardlessof the values of their other indicators. Weighted
average of the selected indicators Estimating Industry Market
Potentials
The most probable total sales of a product by all sellers ina
designated country over strategic planning period Top-down
approach:IMP = f (X1,X2, .. Xn) Xi, Xn set of predictor variables
that have an establishedrelationship to industry sales Bottom up
approach:IMP = S1Q1+ S2Q2 + .. + SnQn S number of final users in
each segment comprising the totalindustry market Q the average
quantity of the candidate product type purchased byusers in each
segment Annual Real Growth Rate
Accept / Reject Matrix for Selection of Countries with High Market
Potential Annual Real Growth Rate ? 1 2 Accept 3 4 5 6 Reject 7 8 9
High Moderate Low Current Market Size Small Medium Large Assessing
country attractiveness: Resource endowment
Natural resources Countries that do not use their natural resources
for nationalconsumption are prone to export raw materials, to
promote processingby domestic companies or to invite foreign firms
to invest in processingand export. A particular type of natural
resource is geographical location which,combined with good
infrastructure and support services and industry, maygive to
certain countries or regions within country the role of a hub ora
regional centre. Human resources Key aspects: cost and quality
Infrastructure and support industry resources Quality of
communication and logistics infrastructures, as well as
theavailability of supporting industries and services. Country Risk
Analysis POLITICAL RISCS OPERATIONAL RISKS
Shareholder's value, in terms of loss of capital or loss through
the inability to repatriate dividends. Employees exposure linked to
gangsterism, crime and kidnapping as well as operational exposure
linked to labour unrest, racketeering or market disruptions or
supplies shortages linked to criminal activities. Operational risks
are those that directly affect the bottom line, either because
government regulations and bureaucracies add costly taxation or
constraints to foreign investors or because the infrastructure is
not reliable. COMPETITIVE RISCS ECOMOMIC RISKS Competitive risks
are related to non-economic distortion of the competitive context
owing to cartels and networks as well as corrupt practices.
Economic risks expose business performance to the extent that the
economic business drivers can vary and therefore put profitability
at stake. Framework for country risk analysis
POLITOCAL RISKS SHAREHOLDERS EXPOSURE Assets destruction (war,
riots) Assets spoliation (expropriation) Assets immobility
(transfer, freeze) OPERATIONAL EXPOSURE Market disruption Labour
unrest Racketing Supply shortages EMPLOYEES EXPOSURE Kidnapping
Gangsterism Harassment COUNTRY RISK ANALYSIS ECONOMIC RISKS
COMPETITIVE RISKS Economic growth Variability Inflation Costs of
inputs Exchange rates BUSINESS LOGICS Corruption Cartels Networks
OPERATIONAL RISKS REGULATIONS Nationalistic preferences Constraints
on local capital, local content, local employment Taxes
INFRASTRUCTURE Power, telecommunications, transport Suppliers
Shareholder risk in regions of the world
The score is an average of risks of armed conflict, risk of social
unrest and risk of expropriation, from 0 =No risk to 5 =High risk).
Economist Intelligence Unit (2000) Economic Risks: India vs.
Brazil
Brazil (average growth 4.25%yr, STD 4.52; coefficient of variation:
1.06) India (average growth 4.90%yr, STD 2.69; coefficient of
variation:0.55) Comparison of country risks: China vs. India
BERI Business Risk Services (2000) Economist Intelligence Unit
(2000) Government Incentives
FISCAL INCENTIVES Tax reduction Imports and Exports Tax holiday for
a certain period Ability to write off losses against profits after
the end of the tax holiday period Reduced tax rate Accelerated
depreciation Reduction in social security contributions Special
deductions of taxable incomes based on certain types of activities
(social, R&D, etc.) Exemption from property taxes or others
special taxes Reduction of tax base on local content or employment
levels Income tax exemption/reduction for expatriate personnel
Exemption of import duties and value added taxes for raw material,
capital equipments and parts Exemption from export duties Tax
credits on domestic sales based on export performance Government
Incentives
Financial incentives Competitive incentives Operational incentives
Subsidies of all kinds Sweetener loans Guaranteed loans Export
credits Equity participation Risks insurance (exports, exchange
rates) Protection against imports Capacity regulation Monopolistic
position Preferential purchases Preferential rates rents, land,
power, telecoms, etc. Assistance for market studies Utilisation of
public services or government agencies for company operations
Secondment of personnel Estimating Company Sales Potentials
Most probable sales of companys product in a designatedcountry over
a strategic planning period,givenassumptions with respect to entry
mode and marketingeffort Export entry conditions / non-export entry
conditions Competitive Audit Availability of Distribution Channels
Consumers/Users Estimating Company Sales Potentials: Entry
conditions
Export entry conditions: (1) import regulations Import duties
Nontariff trade barriers (border taxes, health regulations,
quotas,industrial standards, and antidumping laws) (2)
transportation and other logistical costs Non-export entry
conditions: Establish the feasibility of non-export entry
Estimating Company Sales Potentials: Competitive Audit (1)
Basic information: Which competitive products are sold in country
X? What are the market shares of competitive products? How do
competitive products compare with our own reputation,features
andother attributes? Which support facilities
(production,warehousing,sales branches,and so on)do competitors
have in country X? Which problems do competitors face? Which
relationships do competitors have with local government? Do they
enjoyspecial preferences? Marketing information: Which distribution
channels are used by competitors? How do competitors prices compare
with our own? What promotion programs are used by competitors?How
successful are they? How good are competitors post-sales services?
Estimating Company Sales Potentials: Competitive Audit (2)
Market Supply Information: How do competitive products get into the
market? If they are imported: Who are the importers? How do
importers operate? How long has each importer worked with his
foreign suppliers? If they are produced locally: Who are the
producers? Are the producers entirely locally owned,or is there
foreign participation? What advantages do local manufacturers have
over importing competitors? Market Structure What is the degree of
monopoly in the market? Is competition rigorous or loose?
Estimating Company Sales Potentials
Availability of Distribution Channels: Can we obtain adequate
distribution of our products in this country? Can we match the
distribution of market leaders? Are there any bottle-necks that
would require extraordinary marketing effort(and time) to overcome?
Consumer / User Profile Who buys the product? Who uses the product?
How is the product used? Where is the product bought? How is the
product bought? Why is the product bought? When is the product
bought?
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