Transcript Session 1

International Product Candidate
and Target Country Selection
Session 2
Choosing candidate product

Features of ideal product candidate from management
perspective:
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Ready market acceptance
High profit potential
Availability from existing product facilities
Sustainability for marketing abroad [in much the same way as in
the domestic market]
Distinctive advantages that would allow to obtain a competitive
niche in foreign markets (low price or distinctive features
leading to differentiation (quality, design, technical superiority,
etc.)
Choosing candidate product: appraisal
of each potential product
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Is this product competitive in the home market? What are
its competitive strengths and weaknesses?
What need (or needs) does this product serve in the
domestic market? Do the same needs exist in foreign markets?
If they do, which products currently meet those needs in the
foreign markets? If they do not, can this product serve other
needs that do exist in foreign markets?
How new is this product to foreign markets? How much
competition is it likely to encounter? What competitive
advantages and disadvantages does this product have in foreign
markets?
Choosing candidate product: appraisal
of each potential product (Contd.)
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Does this product have same use conditions in the foreign
markets and in home market?
Does this product require after-sales services or
complementary products for its use? Are they available in
foreign markets?
Does this product have to be adapted to foreign markets
in one of more of its physical, package, and service
attributes?
Can this product be marketed abroad the same way as at
home?
Adapting Products for International
Markets
The Macroenvironment
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?
• Geography
• Climate
• Economic
•Sociocultural
• Political / legal
Competition
• Price
Product
attributes
Government / regulations
• Tariffs
• Labelling
• Patents/trademarks
• Taxes
• Performance
• Design
• Patent protection
• Brand name
• Package
• Services
Adapting Products for International
Markets
Package attributes
• Protection
• Colour
• Design
• Brand name
• Labeling
Physical
attributes
• Size
• Design
• Materials
• Weight
• Colour
Service
attributes
Expected
profit
contribution
• Use instructions
• Installation
• Warranties
• Repair/maintenance
• Spare parts
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
company’s 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
MARKET
RESOURSES
- Is the country a critical
resource of:
• Skilled personnel?
• Raw materials?
• Components?
• Labour?
• Technological
innovation?
• Learning?
-Quality of infrastructure
supporting services
- Location
• Growth?
• Size?
•Customer quality?
COMPETITION
Country Market
and Industry
Opportunities
INCENTIVES
• Taxes
• Subsidies
• Infrastructures
• Government contracts
- Does a presence in this country
increase competitiveness?
• Intensity rivalry
• Entry barriers
• Bargaining power of
suppliers–customers
Is the business
• Profitable short-term?
• Profitable long-term?
Model for selecting a target country (1)
All countries
Preliminary screening:
(1) Consumer / User Profile
(2) Direct estimates of Market Size
(3) Indirect market size indicators
Accept / Reject
decision
Rejected
countries
Prospective target countries
Estimating Industry Market
Potentials:
(1) Top-Down Estimates
(2) Bottom-Up Estimates
Accept / Reject
decision
Rejected
countries
Model for selecting a target country (2)
High-Market potential
countries
Estimating Company Sales
Potentials:
(1) Entry Conditions
(2) Competition Audit
(3) Distribution Channels
(4) Consumer / User
Secondary
Target
Markets
Accept / Reject
decision
Target
Country
Rejected
countries
Target country selection:
Preliminary screening
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Preliminary screening tries to minimize 2 errors:
(1)
Ignoring countries • Preliminary screening should be
applied to all countries
that offer good
prospects for a
company product
(2)
Spending too much • Preliminary screening should be
quick and economical, using
time investigating
quantitative data that are readily
countries that are
available from public source
poor prospects.
Target country selection:
Customer/User Profile
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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
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The quality of demand describes the nature and diversity of
market segmentation prevailing in a country, and the profile of
the customer’s 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
Lower end
Developing World Segmentation
• Huge low-end commodity market
• Rising middle class but still relatively small
• Tiny highly wealthy segment
Higher low end
Lower end
Industrialized World Segmentation
• Diverse segmentation
• Middle-class markets dominate
Country life cycle
Emerging
countries
Developing
countries
Newly
Industrialized
Economies
Industrialized
countries
Characteristics of demand according to
country life cycle clusters
Demand
characteristics
Developing
countries
Emerging
countries
Newly
industrialized
economies
Industrialized
countries
Growth
Low
High
High
Low
Size
Small
Small to high
Small to high
High
Segmentation
• Dominant
subsistence sector
• Large low-end
segment
• Fast growingmiddle class
• Large low-end
segment
• Established
middle class
• Increased
diversity of
segments
• Diverse and
sophisticated
segmentation
Customer
value curve
• Price
• Availability
• Price
• Distribution
• Emerging
advertising
• Product
functionality
• Performance
• Services
• Product
functionality
• Performance
• Services
Distribution
• Push logistics
• Push logistics
• Beginning of
pull
• Pull
• Beginning of
mass retailing
• Diversity
• Mass retail
important
Competition
• Regulated
• Beginning of de- • De-regulated
regulation
• Active
• New entrants
• Diverse
• De-regulated
• Active
• Diverse
Target country selection:
Direct Estimates of Market size
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Market potential for a product:
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Si = f (X1, X2, ……….. Xn)
Si - potential sales of a product i in a given country
Xi, … Xn – economic and social factors that collectively
determine Si
Si may be estimated directly by projecting actual sales data
(time series analysis) or by projecting the apparent
consumption or imports of the product
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Country consumption of the product:
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Consumption = Local production + imports – exports
Target country selection:
Indirect estimates of market size (1)
National Account
Statistics
1. National income, gross domestic product, net material product
2. Expenditure on gross domestic product, net material product by
use
3. National income and national disposable income
4. Gross domestic product and net material product by kind of
economic activity
Population and manpower
1.
2.
3.
4.
Production
1. Agriculture / Forestry / Fishing / Mining
2. Index numbers of industrial production
3. Manufacturing production (food, textiles, paper, rubber
products, chemicals, building materials, metals, transportation
equipment)
4. Construction (output and employment, activity)
5. Energy (output and employment in electricity, gas, and water
supply)
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
Target country selection:
Indirect estimates of market size (2)
International trade
1. Imports by end use
2. Exports by industrial origin
3. Source/destination of imports and exports
4. Imports/Exports by commodity
Other economic
statistics
1. Transportation (railways, international seaborne shipping, civil
aviation traffic, motor vehicles in use, international tourist
travel)
2. Wages and prices (earnings in manufacturing, index numbers
of wholesale prices, consumer price index numbers)
3. Consumption (total and per-capita consumption of steel,
fertilizers, newsprint, and other commodities)
4. Finance (balance of payments, exchange rates, money supply,
international reserves)
Social statistics
1. Health (hospital establishments and health personnel)
2. Education (number of teachers and school enrolment, public
expenditures on education)
3. Culture (number of books produced by subject and language,
number of radio and television receivers, total and per-capita)
Accept / Reject decisions
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Si,j ≥ a
accept country as a prospective target
country for further investigation
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1.
2.
3.
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 countries
whose decisive indicators fall below minimum values, regardless
of the values of their other indicators.
Weighted average of the selected indicators
Estimating Industry Market Potentials
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The most probable total sales of a product by all sellers in
a designated country over strategic planning period
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Top-down approach: IMP = f (X1, X2, ……….. Xn)
 Xi, … Xn – set of predictor variables that have an established
relationship to industry sales
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Bottom up approach: IMP = S1Q1+ S2Q2 + …….. +
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SQ
n
n
S – number of final users in each segment comprising the total
industry market
Q – the average quantity of the candidate product type purchased by
users in each segment
Accept / Reject Matrix for Selection of
Countries with High Market Potential
Annual Real
Growth Rate
High
Moderate
Low
1
?
2
?
3
Accept
4
?
5
?
6
?
7
Reject
8
?
9
?
Small
Medium
Large
Current
Market Size
Assessing country attractiveness:
Resource endowment
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Natural resources
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Human resources
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Countries that do not use their natural resources for national
consumption are prone to export raw materials, to promote processing
by domestic companies or to invite foreign firms to invest in processing
and export.
A particular type of natural resource is geographical location which,
combined with good infrastructure and support services and industry, may
give to certain countries or regions within country the role of a ‘hub’ or
a regional centre.
Key aspects: cost and quality
Infrastructure and support industry resources
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Quality of communication and logistics infrastructures, as well as the
availability 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 noneconomic 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)
ECONOMIC RISKS
• Economic growth
• Variability
• Inflation
• Costs of inputs
• Exchange rates
EMPLOYEES’ EXPOSURE
• Kidnapping
• Gangsterism
•Harassment
COUNTRY
RISK
ANALYSIS
OPERATIONAL EXPOSURE
• Market disruption
• Labour unrest
• Racketing
• Supply shortages
COMPETITIVE
RISKS
BUSINESS LOGICS
• Corruption
• Cartels
• Networks
OPERATIONAL RISKS
INFRASTRUCTURE
• Power, telecommunications, transport
• Suppliers
REGULATIONS
• Nationalistic preferences
• Constraints on local capital, local content, local employment
• Taxes
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
• Subsidies of all kinds
• ‘Sweetener loans’
• Guaranteed loans
• Export credits
• Equity participation
• Risks insurance
(exports, exchange
rates)
Competitive
incentives
Operational
incentives
• 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
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Most probable sales of company’s product in a designated
country over a strategic planning period, given
assumptions with respect to entry mode and marketing
effort
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Export entry conditions / non-export entry conditions
Competitive Audit
Availability of Distribution Channels
Consumers/Users
Estimating Company Sales Potentials:
Entry conditions
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Export entry conditions:
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(1) import regulations
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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:
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Establish the feasibility of non-export entry
Estimating Company Sales Potentials:
Competitive Audit (1)
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Basic information:
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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 and
other 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 enjoy
special preferences?
Marketing information:
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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)
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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?
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Market Structure
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What is the degree of monopoly in the market?
Is competition rigorous or loose?
Estimating Company Sales Potentials
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Availability of Distribution Channels:
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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
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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?