Market selection and portfolio 1. Market selection – Proactive or Reactive? 2. Primary markets, secondary markets, etc. 3. Dynamics 4. Segments, niches and single customers © 2018 Taylor & Francis

? Market selection – Proactive or Reactive? Proactive Reactive Market research Decision criteria Planned Reactive Networks Here and now Unplanned ? © 2018 Taylor & Francis

So go “softly”! Challenges entering new markets! Everything is new Preferences, buyer behaviour, laws and regulations, business practices, market mechanisms, distribution channels etc. Challenges entering new markets! Everything is new They don’t know you Inertia and loyalties “Things are working alright here – so why change??” Incumbents will fight back They know the market (much better than you) They play the national card Politicians fish for votes Difficult to convince customers You don’t know how competitors react So go “softly”! BI/C.A.Solberg 2012 © 2018 Taylor & Francis

But which ones matter? Where to go? There are so many decision criteria Access to distribution channels Market size Commu- nication Political considerations Existing market position Tariffs and quotas Consumption patterns Exchange rate risk Network relations Economic stability Political stability Competition Logistics Market growth Access to key customers Financial risk Cultural distance But which ones matter? © 2018 Taylor & Francis

Needs of the decision maker Reduce uncertainties Seize opportunities Limit ex ante costs Limit ex post costs Screening/market research Leads from the network Institutional “norms” © 2018 Taylor & Francis

Three approaches – three explanations The “textbook” approach  Rational, optimal - Rules based, economic analysis  “full” information? The network explanation  Boundedly rational, satisficing Coincidental  risk of failure? Institutions explanation  Boundedly rational, satisficing “Rules” based  encourage/discourage? © 2018 Taylor & Francis

A systematic approach may help you! How important? Score Importance x score Market size Market growth Political stability Economic stability Access to distribution channels Financial risk Logistics Cultural distance Consumption patterns Tariffs and quotas Exchange rate risk Communication Competition Access to key customers Political considerations Existing market position ,10 ,20 ,05 ,00 ,01 ,04 ,15 10 7 8 4 6 3 (3) 2 (7) 1,00 2,00 ,35 ,40 ,15 ,00 ,80 ,08 ,30 ,60 ,20 ,06 S=6,84 © 2018 Taylor & Francis

The scores differ from country to country Market size Market growth Political stability Economic stability Access to distribution channels Financial risk Logistics Cultural distance Consumption patterns Tariffs and quotas Exchange rate risk Communication Competition Access to key customers Political considerations Existing market position How important? Score Importance x score ,10 ,20 ,05 ,00 ,01 ,04 ,15 7 4 10 8 (3) 9 3 6 5 (7) ,70 ,80 ,50 ,40 ,35 ,00 ,90 ,32 ,15 ,25 ,20 ,08 S=6,65 © 2018 Taylor & Francis

The weights differ from firm to firm Market size Market growth Political stability Economic stability Access to distribution channels Financial risk Logistics Cultural distance Consumption patterns Tariffs and quotas Exchange rate risk Communication Competition Access to key customers Political considerations Existing market position How important? Score Importance x score ,10 ,15 ,05 ,01 ,04 ,00 7 4 10 8 3 9 (3) 6 (5) ,70 ,40 1,50 ,35 ,15 ,45 ,32 ,00 ,60 ,20 ,08 S=6,25 © 2018 Taylor & Francis

Is the systematic approach the solution? Advantages “All” relevant factors are considered Internal process – difficult to complain later Awareness of critical factors among managers So – it depends Disadvantages A lot of information is required Figures are translated into doubtful scores Too systematic => loss of opportunities Lack of flexibility © 2018 Taylor & Francis

Market selection approach in different strategic positions Where are strategic customers located? Customer oriented market selection Multilocal Global Adult Child internationalisation Preparedness for The globe is our home Market portfolio con-figuration depends on competition Global systematic Industry globality Gradual and one by one – coincidental; neighbouring or culturally similar markets Unmethodical or random Assertive one by one / region by region Opportunity seeking Acquisitions Multinational systematic Market selection approach in different strategic positions © 2018 Taylor & Francis

Market selection approach in different strategic positions Decision process Systematic, opportunity seeking and rational. Market selection depends (to a certain extent) on objective criteria. Frequent use of market research and sometimes advanced techniques. Stakes are too high not to! Still: institutions guide selection Where are strategic customers located? The bold newcomer Multilocal Global Adult Child internationalisation Preparedness for The globe is our home Need to be present in every major market / region The global market leader Industry globality One by one – coincidental neighbouring or culturally similar markets The careful newcomer One by one – or region by region Opportunity seeking Acquisitions The multinational player Market selection approach in different strategic positions Decision process Market selection is “irrelevant” because the firm is operating in virtually “all major markets”. Important to be strong in competitors’ own strongholds! Market research and advanced techniques are used to decide how rather than where. Decision process Intuitive, based on hearsay, random contacts and networks. Often neighbouring markets, but piggybacking often leads the exporter to “uncharted waters”. Scant use of advanced techniques. Information capture through market research is too costly - and limited competence reduces its worth. Follow-the-crowd  institutions. Decision process Based on networks and industry contacts. Location of key potential customers is more relevant than country characteristics. Scant use of advanced techniques. Information through networks; extensive market research is too costly and takes too long. © 2018 Taylor & Francis

Market selection is one thing – market configuration is another matter! Market growth Market position in local market © 2018 Taylor & Francis

Market position in local market Market growth High Low Strong Weak Peripheral markets Established Investment Pull-out “Accordion” markets Exploration International market portfolio Based on BCG BI/C.A.Solberg 2012 © 2018 Taylor & Francis

Different strategic approaches in different markets Exploration markets Sell through independent reps Adapt to local market Evaluate competitors Investment markets Establish your own sales subsidiary Build market shares by accessing key marketing channels and adapting marketing programmes Mexico Taiwan Ukra- ine High US Nether lands Peripheral markets -Exploit production capacity Respond to un-solicited orders Ice land France Use the price mechanism (marginal pricing) to exploit market opportunities Use trading houses or distributors Sell standard commodity “Accordion” markets Established markets Assess future growth prospects Reassert your operation mode Strengthen your relations with your distribution channels Innovate your marketing strategy (positioning, new channels etc) Thai land Malay sia Medium-term market growth Colom bia Norway Pull-out markets Is it for some reason important to stay in this market? Sweden Low Nigeria Strong Weak Market position in local market Different strategic approaches in different markets Cases plotted in the BCG matrix © 2018 Taylor & Francis

Two opposing strategies for small firms in international markets The aim should be to achieve broad coverage in selected (neighbouring?) markets in order to reap the fruits of market share. Concentration on few markets The aim should be to identify a small segment of “inter-national” customers, with the same characteristics across countries, so as to achieve scale and position in the niche Niches in inter- national markets Consequences for the marketing mix and for the organisation? © 2018 Taylor & Francis

What is a niche? Small segment of the market Barriers to entry Too small for competitors Too costly for competitors Technological solution Ability to adapt Specialisation Relationships “Strategic fit” Service level and more Those who try will have to try really hard! What is a niche? BI/C.A.Solberg 2012 © 2018 Taylor & Francis

Niches in international markets A niche is a small segment of the market where your offering is preferred by the buyers. 1. What is a niche? It helps you to rationalise your efforts, cut costs, increase your service level and knowledge about customers, distinguish your-selves from competitors and -thereby - get a higher margin than in the ”mass market”. 2. What does it do to you? Customer orientation, learning, learning, learning and then: consistency, consistency, consistency -and doing the job right – every time, so as to be preferred! 3. How can you develop niches in international markets? BI/C.A.Solberg 20012 © 2018 Taylor & Francis

Growth strategies for niche marketers Low Born Global Marketing expansion Networking Supply chain member Market concentration Market share World wide competition with market leaders High Low High Number of countries Growth strategies for niche marketers (based on Doole and Lowe 2008) © 2018 Taylor & Francis