MARKETING IN INTERNATIONAL

BUSINESS

EXTERNAL MARKETS’ SELECTION

Course 7
Why is it important the external market
selection activity?
 MARKET SELECTION APPROACHES

• systematic approach
• non-systematic approach
• mixed approach
• relational approach
 A. THE SYSTEMATIC APPROACH
• is using a structured and formalized decision
making process including various statistical
methods to analyze the potential of target
markets
• it has a normative nature
 MARKET SELECTION PROCESS

= an information gathering and screening

process that involves collecting data and
passing the alternative country choices
through a series of filters to eliminate the less-
promising opportunities.

(Cundiff and Hilger)

 MARKET SELECTION PROCESS

A B C D

Filter 1
Preliminary
opportunities
Filter 2
Possible
opportunities
Filter 3
Probable
opportunities

6
X
 MARKET SELECTION PROCESS
• FILTER 1: Evaluation of the general market potential
(macro indicators)
• FILTER 2: Evaluation of the market potential for the
product category
(micro indicators, cultural acceptance, taxes and duties)

• FILTER 3: Evaluation of the market potential for the

company’s product
(competition, ease and cost of entry, profit potential)

• FILTER 4: Evaluation of the compatibility between the

country and the company’s strategies
7
 MACRO INDICATORS (Filter 1)
ECONOMIC POLITICAL
INDICATORS INDICATORS
- total GNP - probability of nationalization
- per capita GNP - number of expropriations
- per capita PPP - political executions
- income distribution - government intervention
- household disposable income - limits of foreign ownership
- restrictions on capital
movement
DEMOGRAPHIC GEOGRAPHIC
CHARACTERISTICS CHARACTERISTICS

- total population - size of the country

- population growth rate - climatic conditions
- age distribution - topographical characteristics
- population density
Income distribution: Gini index
 MICRO INDICATORS (Filter 2)

- consumption
- production
- imports

• radios • gasoline consumption

• televisions
• cinema seats
• scientists and engineers
• hospitals
• hospital beds
• physicians
• alcoholic liquor
consumption
• hotel beds
• tourist arrivals
• passenger cars
• steel production
• rice production
• number of farms
• electricity consumption
• land under cultivation
 TECHNIQUES FOR EXTERNAL MARKET
SELECTION

1. Listing of selection criteria

2. Scoring market selection model

3. Compensatory model: industry analysis

 1. LISTING OF SELECTION CRITERIA

EXAMPLE: SCREENING PROCESS FOR A KIDNEY DIALYSIS

EQUIPMENT
 SCREENING PROCESS FOR A KIDNEY
DIALYSIS EQUIPMENT
FILTER 1: Macro-level research
FILTER 2: General Market Factors Relating
to the Product
FILTER 3: Micro Level Factors Specific to
the Product
FILTER 4: Final Screening of Target
Markets
Gross Domestic Product over $15 billion
Gross Domestic product per capita
over $1500
Less than 200 people per hospital bed
Less than 1000 people per doctor
Government expenditure for the health
care over $100 million
Government expenditures for health care
per capita over $20
Kidney-related deaths over 1000
Patient use of dialysis equipment over
40% growth in treated population
Number of competitors
Political stability
2. A SCORING MARKET SELECTION MODEL

• set criteria
• set weights of selection criteria
• set ranking procedures
• gather data concerning indicators
• calculate scores for each country
• select the country/countries
.

A SCORING MODEL FOR EXTERNAL MARKET

SELECTION (HYPOTHETICAL)

Selection Market Tariffs Non-tariff Product fit Competitive Shipping Final

criteria potential barriers intensity costs score

Rank
Max
Weights W=15 W=5 W=17 W=25 W=22 W=16
400
Countries E WxE E WxE E WxE E WxE E WxE E WxE

Denmark 2 30 2 10 1 17 3 75 1 22 3 48 202 4

Sweden 3 45 4 20 3 51 2 50 2 44 3 48 258 2

Norway 2 30 3 15 2 34 3 75 1 22 2 32 208 3

Finland 4 60 4 20 3 51 3 75 4 88 1 16 310 1

Portugal 0 0 3 15 1 17 0 0 2 44 2 32 108 5

Spain
….

0 – very bad conditions; 1 – bad conditions; 2 – acceptable conditions; 3- good conditions; 4 – very good conditions
 B. NON-SYSTEMATIC APPROACH

• frequently based on non-solicited foreign

orders
• little or no information search
• generally based on perceived psychic distance
or other rules of thumb
• mainly used by small firms
• it has a descriptive nature
 C. THE MIXED APPROACH

• starts with the non-systematic approach and

continues with the systematic approach
 D. RELATIONAL APPROACH

• focuses on the business relationship and the

foreign customer as the level of analysis
• it is based o gathering relevant information
about each partner and filtering out the less
desirable partners
• suitable to industrial, institutional and services
markets
 WHEN,WHAT SELECTION APPROACH?

SYSTEMATIC APPROACH RELATIONSHIP APPROACH

• Suitable for consumer • Suitable for industrial goods

goods and services

• More likely for non- • More likely for contractual

contractual entry modes entry modes
 ALTERNATIVE MARKET ENTRY STRATEGIES

• exporting
• internet
• licensing
• franchising
• joint ventures
• wholly owned subsidiaries (acquisitions, green field)
• strategic alliances
 MARKET ENTRY STRATEGIES

DECISION CRITERIA FOR MODE OF ENTRY:

Environment specific Firm specific

• market size and growth • need of control

• risk • company objectives
• government regulation • internal resources, assets
• competitive environment and capabilities
• local infrastructure