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Chapter- 6Foreign Market Selection –

Managerial Issues

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Entry to Foreign Markets- Managerial

Decisions1. Company’s Resources2. Managerial Mindset3. Nature of Opportunities and Threats

Global Marketing does not mean entering every country in the world.

Global Marketing refers to widening business horizons to encompass the world in scanning for opportunities and threats.

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International Market Selection Process- Steps

1. Segmentation, targeting & positioning

2.Collection of relevant data on each country

3. Analysis of relevant data

4. Filtering less promising countries

5. Selecting most promising countries

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Global Market Segmentation

Process of identifying specific segments- whether country or consumer groups of potential customers with homogeneous attributes likely to exhibit similar buying behavior.

Global companies use market segmentation to identify, define, understand and respond to customer wants on a worldwide basis.

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Basis of Global Market Segmentation

1. Demographics (national income and size of population).

2. Psychographics (values, attitudes and lifestyles).

3. Behavioral characteristics.4. Environment of the country

(presence or absence of government regulation in a particular industry).

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Demographic Segmentation

Income and Population:1. Population is a more valuable

segmentation variable than income for very low unit cost consumer products and services.

2. Income is single most important indicator of market potential for vast range of industrial and consumer products.

By segmenting in terms of income marketers can reach most affluent markets.

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Country GNI PC (PPP)

($)

LuxembourgKuwaitMacao SAR, ChinaNorwayBruneiSingaporeSwitzerlandUSHong Kong China Netherlands

59,59053,890a

57,39055,42051,200a

49,78047,10045,64044,54039,740

Note: Ranking is approximate as some countries do not have 2009 data. a: 2009 data not available.

Source: World Development Indicators Database, World Bank, 14 April 2011.

GNI Per Capita PPP (2009)Top Ten Countries of the World

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TOP TEN COUNTRIES WITH THE HIGHEST POPULATION (July, 2009) United Nations Department of Economic and Social Affairs

No.

CountriesPopulation % of World

PopulationGrowth

Rate (2007)GNI PC $ (2008)

1 China 1,336,170,000 19.6% 1.1% 2,770

2 India 1,177,803,000 17.3% 1.7% 1.070

3United States

308,798,000 4.5% 0.8% 47,580

4 Indonesia 231,369,500 3.4% 1.8% 2,010

5 Brazil 192,564,000 2.8% 1.4% 7,350

6 Pakistan 168,883,000 2.5% 2.6% 980

7 Bangladesh 162,221,000 2.4% 2.6% 520

8 Nigeria 154,729,000 2.3% 0.5% 9,620

9 Russia 141,927,297 2.1% 1.1% 1,160

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Japan 127,430,000 1.9% 0.1% 38,210

Top Ten Countries

4,001,894,797 59.0% -

Rest of the World

2,804,405,203 41.0% -

Total World Pop. 6,806,300,000 100.0% 1.1%

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Ten most populous countries in the world account for 59% of World’s population.

A company can be global by targeting buyers in 10 or fewer countries as income is concentrated in the high-income and large-populated countries.

China and India with more than 1 billion population each represent attractive target markets.

An estimated around more than 400 million Indians can be classified as upper middle class (GNI per capita > $ 2000) - an attractive segment.

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Global segment based on demographics is global teenagers- young people between ages 12 to 19.

Teens shows consistent consumption behavior across borders- have not conformed to cultural norms.

Companies make it possible to reach global teen segment with unified marketing program.

An attractive segment in terms of its size and its multibillion dollar purchasing power.

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Global elite: more older, more affluent consumers have money to spend on prestigious products with an image of exclusivity.

Psychographic Segmentation

Groups people in terms of attitudes, values and lifestyles.

Five global psychographics segments are: Strivers, Achievers, Pressured, Adapters, and Traditional.

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Strivers: Consists of young people with an median age of 31 who live hectic, on-the-go lives. Materialistic pleasure seekers. Time and money are in short supply (26 per cent).

Achievers: Older than strivers. Have attained a good measure of success. Are status-conscious consumers- quality is important (22 per cent).

Pressured: Largely comprised of women, cut across age groups characterized by constant financial and family pressures (13 per cent).

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Adapters: Comprised of older people. Managed to maintain their values while keeping open minds when faced with change (18 per cent).

Traditional: Segment is rooted to the past and clings to country’s heritage and cultural values (21 per cent).

Behavior SegmentationFocuses on whether people buy and

use a product- how often and how much.

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Usage rates: Heavy, medium, light and nonuser.

User status: Potential users, nonusers, ex-users, regulars, first-timers and competitors’ products users.

Chinese have highest per capita consumption of soup in the world- Campbell Soup company has targeted China.

Chinese are heavy smokers and tobacco companies look China as a big market.

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Global Targeting

Act of evaluating and comparing the identified groups and then selecting one or more with highest potential.

Necessary to create a product-market profile- 9 w’s are:

1. Who buys our product?2. Who does not buy our product?3. What need does our product serve?4. What problem does our product solve?

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5. What are customers currently buying to satisfy the need for which our product is targeted?

6. What price are they paying for the product they are currently buying?

7. When is our product purchased?8. Where is our product purchased?9. Why is our product purchased? If a company wants to penetrate an

existing market, it must offer more value than competitors- better benefits, lower prices or both.

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3 basic criteria for assessing opportunity in global target markets:

1. Current size of the segment and anticipated growth potential.

2. Competition.3. Compatibility with company’s over

all objectives and feasibility of successfully reaching target.

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Positioning

Act of locating a brand in customers’ minds over and against other products.

Strategies for positioning products are:1. Attribute or benefit2. Quality and price3. Use or application4. Competitor5. High-tech and high-touch (Global

products)

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Model for Selecting Foreign

Markets

Preliminary Opportunities

Macro Level Research ( General Market Potential)

Economic Statistics, Political Environment, Social Structure, Geographic Features

General Marketing Relating to the Products

Growth Trends for Similar Products, Cultural Acceptance of Such Products, Market Size, Taxes and Duties

Rejected Country

Filter 1

Filter 2

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Possible Opportunity

Micro Level Research

( Specific Factors Affecting the Product)

Existing and Potential Competition, Ease of Entry,

Reliability of Information, Sales Projections, Cost of Entry, Probable Product Acceptance,

Profit Potential

Target Markets

Corporate Factors

Influencing Implementation

Probable Opportunity

Filter 3

Filter 4

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Filtering Process- First Stage

Using macro variables discriminating countries- Opportunities, little opportunity, no opportunity, excessive risk.

Macroeconomic statistics- GNP, Per Capita GNP, Personal Disposable Income….

Political conditions.Relation between the home and host

country.Geographical distance

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Filtering Process- Second Stage

Variables indicating potential market size and acceptance of the product or similar products are used.

Year to year growth rates and total sales of similar products are indicators of market size and growth.

Also consider taxes and duty requirements.

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Filtering Process- Third Stage

Consider a limited number of countries.

Get more detailed, reliable and updated information.

Focus of screening process switches from market size to profitability.

Issues- Looking to the competitors, how much should be invested to gain a particular market share?

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Third Stage

Issues- Given the prices currently charged in the market, what margin can your company expect?

Given the cost of entry and the expected sales, what is the likely profit?

Micro-level factors influence the success or failure of specific product in market.

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Filtering Process- Fourth Stage

Evaluates and ranks the potential target countries based on corporate resources, objectives and strategies.

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Criteria For Selecting Target Countries

Critical factors influence market selection are:

Market sizeEconomic Environment Political environment Legal environment Social and cultural environment

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Market Size and Growth

Macro Indicators of Market Size Geographic Indicators Size of the country in terms geographic area Climatic condition Demographic Characteristics Total Population Population growth rate Distribution of the population age-wise,

gender-wise, income-wise, rural-urban wise, etc.

Population density

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Economic CharacteristicsGross National Income (GNI) Per Capita Income (PCI)Personal or household disposable income Income distribution Growth Rate of Economy (GDP Growth Rate) Industrial, mineral, agriculture infrastructure

Import size and growth Nature and extent of restrictions and

incentives Trade agreements with the other countries

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Micro Indicators of Market Size Radios Television sets Cinema seats Scientists and Engineers Hospitals and Beds Physicians Alcoholic Liquor Consumption Coffee Consumption Petrol/Diesel Consumption Telephones Tourist Arrivals

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Micro Indicators of Market Size

Passenger cars Civil airline passengers Steel production Land under cultivation Electricity consumption Number of farms

Micro indicators indicate actual consumption of the product that a firm wants to sell or a similar product.

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Political Environment

Indicators of Political Risk Probability of nationalization Bureaucratic delays Number of riots and assassinations Political executions Percent of members of the

communist party Restrictions on capital movement Government intervention

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Social and Cultural Conditions

Main elements are: Material Culture Language Esthetics Education Religion

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Errors in Selection

1. Ignoring countries with significant potential for the company’s products.

2. Spending resources investigating countries that may turn out to be poor prospects.