IB Session 10

Foreign Market Analysis
Foreign Market Analysis

To successfully increase market share,
revenue, and profits, firms must normally
follow three steps:
1. Assess alternative markets

2. Evaluate the respective costs, benefits,
and risks of entering each
3. Select those that hold the most potential
for entry or expansion
Selection of Foreign Markets
 Initial Screening
Basic needs potential/foreign trade investment
 Second Screening
Economic and financial forces
 Third Screening
Political and legal forces
 Fourth Screening
Sociocultural forces
 Fifth Screening
Competitive forces
Final Selection and The Personal Visit
Initial Screening
 Basic Need Potential
 Identify locales where product or service is needed
 Foreign Trade and Investment
 Assess similar products already in market
 International Trade Statistics Yearbook (U.N.)
 Limitations of Import Data
• Foreign Exchange indexing
• Changing restrictions of liberties
• Import situation may change
• Political change
Assessing Alternative Foreign Markets
 Market potential
The first step in foreign market selection is assessing
market potential. Many publications provide data about
population, GDP, per capita GDP, public infrastructure,
and ownership of such goods as cars and televisions.
Such data permit firms to conduct a preliminary
screening of foreign markets.
 Levels of competition
To assess the competitive environment, a firm should
identify the number and sizes of firms already competing
in the target market, their relative market shares, their
pricing and distribution strategies, and their relative
strengths and weaknesses, both individually and
collectively.
Second Screening:
financial and economic forces
Inflation Rate
Exchange Rate
Interest Rates (Nominal and Real)
Credit Availability
Volatility of all
Second Screening:
Market indicators
measures of relative market strength
Market factors
estimates demand for specific products
Second Screening:
Trend Analysis
Cluster Analysis
All analysis should be updated regularly

Third Screening:
political and legal forces
Market entry barriers
Profit repatriation barriers
Political instability
Taxes
Standards
Price controls
Assessing Alternative Foreign Markets
(cont.)
 Legal and political environment
A firm may choose to forego exporting its goods to a country that
has high tariffs and other trade restrictions in favour of exporting to
one that has fewer or less significant barriers. Conversely, trade
policies and/or trade barriers may induce a firm to enter a market via
FDI.
 Sociocultural influences
Managers assessing foreign markets must also consider
sociocultural influences, which, because of their subjective nature,
are often difficult to quantify. To reduce the uncertainty associated
with these factors, firms often focus their initial internationalisation
efforts in countries culturally similar to their home markets.
Fourth Screening:
Sociocultural Factors
Language
 Regional Dialects
Education
Religious Attitudes
 Holidays
Social Values
Fifth Screening:
Competitive Forces
Size and strength of competitors
Competitors’ promotion methods
Competitors’ product mixes
Prices
Distribution channels employed
Market share distribution
Market coverage
Evaluating Costs, Benefits, and Risks
 Costs
Two types of costs are relevant at this point: direct and
opportunity. Direct costs are those the firm incurs in
entering a new foreign market and include costs
associated with setting up a business operation.
Opportunity costs are those that result from entering one
market as opposed to another – a firm forfeits or delays
its opportunity to earn profits in one market by dedicating
its resources to another.
 Benefits
Among the most obvious potential benefits are the
expected sales and profits from the market. Others
include lower acquisition and manufacturing costs,
foreclosing of markets to competitors, competitive
advantage, access to new technology, and the
opportunity to achieve synergy with other operations.
Evaluating Costs, Benefits, and Risks
(cont.)
Risks
Generally, a firm entering a new market
incurs the risks of exchange rate
fluctuations, additional operating
complexity, and direct financial losses due
to inaccurate assessment of market
potential.
Final Selection
Field Trip
Research local markets
 Secondary data (UN IMF, WTO, et al)
 Primary data
Cultural problems
Technical problems
Research as a Reality
 Highly developed in Developed Countries
 Less Developed Countries simpler and less of it
Market Analysis Tools
 Micro-segmentation
o Segmentation requirements
• Identifiable, measurable, reachable, able/willing to buy
o Segmenting bases
• economic, demographic, culture – emerging, new growth
• culture, benefits, lifestyle - mature
 Global Product Positioning
o Product space and components
o New brand – space intact, extended, new
features/perceptions
o ‘Mispositioning’ of global brands – price, image, CoO
effects
 Diversification vs Focus strategies
Microsegmentation Exercise
 Why would a firm wish to use segmentation strategies in
individual national markets?
 Select one of the following segmentation bases and
explain how it might be used in emerging and new
growth country markets.
o Economic
o Demographic
o Culture
 Select one of the following segmentation bases and
explain how it might be used in mature countries.
o Culture
o Benefits
o Lifestyle
Product Space Positioning Exercise
 Why would a firm wish to use positioning
strategies in individual national markets?
 Which evaluative criteria should be used in a two
dimensional product space?
 How are product perceptions represented in a
two dimensional product space?
 How can positioning analysis using a product
space model help a firm compete more
successfully in national markets?
Building a Product Space
The Chinese Beer Market
Marketing research Results
Factor Importance Heineken San Miguel

Tsingtao
Imported 7 7 7 2
Price 3 3 6 7
Taste 5 5 2 7
Popularity 4 3 4 7

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Foreign Market Analysis

Foreign Market Analysis

1. Assess alternative markets

All analysis should be updated regularly

Factor Importance Heineken San Miguel

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