Unlock document.
This document is partially blurred.
Unlock all pages and 1 million more documents.
Get Access
CHAPTER 12
ANALYZING INTERNATIONAL OPPORTUNITIES
LEARNING OBJECTIVES:
12.1 Explain the importance of examining basic appeal and national factors.
12.2 Describe how companies measure and select a market or site.
12.3 Identify the main sources of secondary market research data.
12.4 Describe common methods used to conduct primary market research.
CHAPTER OUTLINE:
Introduction
Basic Appeal and National Factors
Step 1: Identify Basic Appeal
Determining Basic Demand
Determining Availability of Resources
Step 2: Assess the National Business Environment
Cultural Forces
Political and Legal Forces
Government Regulation
Government Bureaucracy
Political Stability
Economic and Financial Forces
Other Forces
Cost of Transporting Materials and Goods
Country Image
Manager’s Briefcase: Conducting Global Business
Market Access
Legal Issues
Financial Matters
Measure and Select the Market or Site
Step 3: Measure Market or Site Potential
Measuring Market Potential
Industrialized Markets
Emerging Markets
Measuring Site Potential
Step 4: Select the Market or Site
Field Trips
Competitor Analysis
Secondary Market Research
International Organizations
Government Agencies
Industry and Trade Associations
Service Organizations
Ch 12: Analyzing International Opportunities
2
Internet
Problems with Secondary Research
Availability of Data
Comparability of Data
Primary Market Research
Trade Shows and Trade Missions
Interviews and Focus Groups
Surveys
Environmental Scanning
Problems with Primary Research
A Final Word
A comprehensive set of specially designed PowerPoint slides is available for use
with Chapter 12. These slides and the lecture outline below form a completely integrated
package that simplifies the teaching of this chapter’s material.
Lecture Outline
I. INTRODUCTION
Technological advances in communication and transportation open national
markets around the globe. Managers screen and analyze locations as potential
markets and as potential sites for operations. The attraction to distant markets and
the integrated nature of location decisions demand that location decisions be made
in a systematic manner.
II. BASIC APPEAL AND NATIONAL FACTORS
Managers try to keep search costs low yet examine every potential market or
location when screening potential markets and sites. The screening process has
four steps (See Figure 12.1).
A. Step 1: Identify Basic Appeal
For a potential market, this entails determining basic product demand. For
a potential site, this involves determining the availability of resources
required.
1. Determining basic demand
Must explore the suitability of a nation’s climate, and whether
there are bans on a product (e.g., alcohol in Islamic nations).
2. Determining availability of Resources
a. Raw materials for manufacturing must be local or
imported. Imports may face tariffs, quotas, or other trade
barriers.
b. Companies making labor-intensive products often relocate
Ch 12: Analyzing International Opportunities
3
B. Step 2: Assess the National Business Environment
Managers must understand differences in cultures, politics, laws, and
economies and incorporate that understanding into market and site
selection decisions.
1. Cultural forces (See Chapter 2)
a. Countries differ in language, attitudes toward business,
religious beliefs, traditions, and customs. Cultural elements
2. Political and legal forces (See Chapter 3 and 4)
a. Government regulation
i. Nations differ in their attitudes toward trade and
investment based on culture, history, and current
events. A nation’s attitude is reflected in the
iv. Impose strict environmental regulations such as
pollution-control devices or close monitoring of
nearby air, water, and soil quality.
v. Extend investment rules to bar international
companies from competing in certain sectors of the
economy.
b. Government bureaucracy
i. Lean and smoothly operating bureaucracy can
encourage investment whereas an inefficient,
cumbersome, or corrupt one can discourage it.
ii. Companies will endure an inefficient bureaucracy if
the benefits outweigh the cost of inefficiencies.
c. Political stability
i. Companies must monitor political events that
threaten operations and future earnings. Political
risk can threaten activities of any international
business activity.
Ch 12: Analyzing International Opportunities
4
ii. Key to political risk is unforeseen political change:
if a company cannot estimate the future political
3. Economic and financial forces (See Chapter 4 and 9)
a. Poor fiscal and monetary policies can increase inflation and
budget deficits, weaken a currency, lower productivity
4. Other forces
A country’s image and the cost of transporting materials and goods
are important in assessing a nation’s business environment.
a. Cost of transporting materials and goods
i. Can affect where manufacturing facilities are
located.
ii. Logistics is managing the physical flow of products
from point of origin as raw materials to end users as
finished products. Logistics wed production to
delivery.
b. Country image
i. Embodies all facets of a nation’s business
environment and affects the selection of sites for
unfavorable for others.
iv. Country image can also change over time.
III. MANAGER’S BRIEFCASE: CONDUCTING GLOBAL BUSINESS
A. Market Access – Companies need to investigate whether potential
customers in the market have accessibility to the internet, and that they be
aware of individual countries policies and standards.
B. Legal Issues – Companies need to be aware of privacy, security and
intellectual property laws, which could differ between countries.
Ch 12: Analyzing International Opportunities
5
C. Financial Matters – Companies need to be concerned about payments and
taxation responsibilities that can also differ between countries.
IV. MEASURE AND SELECT THE MARKET OR SITE
A. Step 3: Measure Market or Site Potential
Despite local demand for a product or availability of resources, consumers
might not be ready or able to buy a product or certain sites may be unable
to supply the resources needed.
1. Measuring market potential
Level of economic development affects the products sold, how
they are sold, and their features. Different levels of economic
development require varying approaches to researching market
potential.
trends, and marketing approaches used
Total expenditure on product (and similar
products)
Retail sales volume and market prices of
product
v. Income-elastic product: demand increases in a
greater proportion to increase in income. These are
discretionary purchases such as video games,
jewelry, and so on.
vi. Income-inelastic product: demand increases less
relative to increase in income. These are considered
essential and include food, utilities, beverages, and
so on.
Ch 12: Analyzing International Opportunities
6
b. Emerging markets
i. Companies often face a lack of information. Data
on market size or potential may be unavailable.
ii. Can rank locations using a market-potential
indicator if company is considering exporting:
Market size: snapshot of market size at the
moment.
Market growth rate: Identify large (but
shrinking) markets and small (but expanding)
markets.
Market intensity: Estimate a market’s wealth or
Country risk: Estimate risk of doing business,
including political, economic, social and
financial risks (See Map 4.2).
iii. After analyzing each factor, the importance of each
to demand for a product is determined; then
potential locations are ranked according to their
market appeal.
2. Measuring site potential
a. Managers must assess the quality of resources they will
employ locally. For many companies, the most important
resource will be labor and management.
b. Wages are lower if labor is abundant, relatively less skilled
(though perhaps well-educated), or both. Yet, training local
managers requires a substantial investment of time and
money.
c. Companies must assess the productivity of local labor and
managers; low wages may reflect low productivity levels.
d. Managers should examine local infrastructure, including
roads, bridges, airports, seaports, and telecommunications
systems; each can impact efficiency.
B. Step 4: Select the Market or Site
This involves intensive efforts of assessing remaining potential markets
and sites. Managers visit each location to confirm earlier expectations and
perform a competitor analysis. Managers evaluate each potential
location’s contribution to cash flows by undertaking a financial evaluation.
Copyright © 2019 Pearson Education, Inc.
2. Comparability of data
a. Data obtained from other countries must be interpreted with
great caution. Terms such as poverty, consumption, and
literacy can differ greatly from one country to another.
b. Different ways governments measure data affects
comparability among nations. Misinterpreting data can
sabotage the best marketing plans and production
strategies.
VI. PRIMARY MARKET RESEARCH
Primary market research is the process of collecting and analyzing original data
and applying the results to current research needs. Primary research helps
complete the broad picture supplied by secondary data.
A. Trade Shows and Trade Missions
1. Trade show is an exhibition at which members of an industry or
2. Trade mission is an international trip by government officials and
3. Trade missions appealing for small- and medium-size firms: (1)
visible support of home-country government officials gives them
clout in the host country, and (2) cost-effective because they often
include several national markets across a region.
B. Interviews and Focus Groups
1. These techniques can uncover potential or current buyers’
2. Focus group: unstructured but in-depth interview of a small group
3. Because subtle differences in verbal and body language could go
unnoticed, focus group interviews work best when moderators are
natives of the countries in which the interview is held.
4. A consumer panel is research in which people record, in personal
diaries, information on their attitudes, behaviors, or purchasing
habits. This can be useful when people in a focus group might
agree with others in the group—as in group-oriented cultures.
C. Surveys
1. Research in which an interviewer has current or potential buyers
Ch 12: Analyzing International Opportunities
10
2. Survey methods must be adapted to local markets. Written surveys
are impractical in countries with high illiteracy rates although
verbal responses can be obtained.
D. Environmental Scanning
a. Ongoing process of gathering, analyzing, and dispensing
information for tactical or strategic purposes. Entails obtaining
helping develop contingency plans in a volatile environment.
E. Problems with Primary Research
VII. A FINAL WORD
In competitive global business, companies should follow a systematic screening
process that incorporates high-quality research methods. This chapter provides a
systematic way to screen potential locations as new markets or sites for business
operations. Yet this is only the first step in “going international.” The next step
involves actually accomplishing the task of entering selected markets and
Quick Study Questions
Quick Study 1
1. Q: What is the first step in the screening process for potential markets and sites?
2. Q: What forces should a company research when assessing a nation’s business
environment?
A: Cultural differences in language, attitudes toward business, religious beliefs,
traditions, and customs can influence what products are sold and how they are
Ch 12: Analyzing International Opportunities
11
They can restrict companies from freely removing capital from the host nation.
This can force companies to hold cash in the country or invest in new investment
projects there. Governments can impose strict environmental regulations that can
significantly increase production costs. They can require that companies divulge
certain information—such as India’s demand for Coca-Cola’s secret recipe. A
clean and smoothly operating bureaucracy can encourage investment whereas an
inefficient, cumbersome, or corrupt one can discourage it. Political risk can
threaten the activities of any type of international business activity.
Companies must analyze a nation’s economic policies before selecting a
new market or site. Poor fiscal and monetary policies can cause high rates of
inflation, increasing budget deficits, a depreciating currency, falling productivity
levels, and flagging innovation. Such conditions can lessen investor confidence
and cause companies to scale back or cancel proposed investment projects.
Volatile currency exchange rates can make it difficult to calculate the amount of
funds needed for an investment, and increase the uncertainty of how much money
can be obtained in liquidation situations.
3. Q: Evaluating a product from a certain country as superior to similar products
from other countries is an example of what force at work?
A: Country image embodies every facet of a nation’s business environment, it is
Quick Study 2
1. Q: The sensitivity of demand for a product relative to changes in income is called
what? A: Income elasticity is the sensitivity of demand for a product relative to changes
2. Q: What variable is commonly included in a market potential indicator?
Ch 12: Analyzing International Opportunities
12
A: The main variables commonly included in market-potential analysis are:
market size, market growth rate, market intensity, market consumption capacity,
3. Q: How important is it for top managers to pay a visit to a market or site before
making a final decision?
A: The final step in the screening process represents the most intensive efforts of
assessing remaining potential markets and sites—typically less than a dozen,
Quick Study 3
1. Q: Obtaining information that already exists within or outside the company is
called what?
2. Q: What are possible sources of secondary research data?
3. Q: What are potential problems that can arise with the use of secondary research
data?
A: Availability of data: In the most industrialized markets, much secondary data
Ch 12: Analyzing International Opportunities
13
stated in the most favorable light—and therefore somewhat suspect. However,
large international research agencies are entering these markets, thereby providing
a source of higher-quality information.
emphasis on a certain point they are translating by the words they choose or their
voice inflections. High illiteracy rates can force researchers to conduct time-
consuming verbal surveys with potential customers. Hiring local research
agencies (or international ones with local affiliations) is a good avenue when a
company runs into cultural obstacles to research.
Quick Study 4
1. Q: Collecting and analyzing original data and applying the results to current
research needs is called what?
2. Q: A trade show is the same thing as what?
3. Q: A firm researching a very unfamiliar but potentially very profitable market
might be best to do what?
Ethical Challenge
You are executive director of Qualitative Research Consultants Association (QRCA), an
organization designed to assist market research practitioners. As part of their
membership agreement, QRCA members agree to abide by a nine-point code of ethics
that forbids practices such as discriminating in respondent recruitment and offering
Ch 12: Analyzing International Opportunities
14
kickbacks or other favors in exchange for business. The code also calls for research to be
conducted for legitimate research purposes, and not as a front for product promotion.
12-5 Why do you think the QRCA and other market research organizations create such
codes?
12-6 Do you believe they are helpful in reducing unethical research practices?
12-7 As QRCA director, what other areas of marketing research do you believe should
be covered by ethical codes of conduct?
A: Clearly, such codes are designed to provide researchers with ethical guidelines
Teaming Up
As a team, select an emerging market that interests you. Start by compiling fundamental
country data and then do additional research following the steps in this chapter. Flesh
out the nature of the market opportunity offered by this country or its suitability as a
manufacturing site. Next, select a company that is pursuing opportunities in the country.
Determine whether the company’s activities are consistent with the market or site
potential as your team researched it.
Ch 12: Analyzing International Opportunities
15
Practicing International Management Case
Vietnam’s Emerging Market Potential
12-10 Q: What do you think western countries can do to help improve the political
climate in Vietnam?
12-11 Q: What problems might a company encounter while conducting market research
in Vietnam?
12-12 Q: Reflecting on your perception of products labeled, “Made in Vietnam.” Does
the type of product affect your perception? Explain.
