1. International Opportunities12
Analyzing
International Opportunities
Welcome to Chapter 12, Analyzing International Opportunities.

2. Chapter Objectives
Explain each of the four steps in the market- and site-screening process
Describe the three primary difficulties of conducting international market research
Identify the main sources of secondary international data and explain their usefulness
Describe the main methods used to conduct primary international research
In this chapter, you will explore how companies screen international business opportunities.
You will also:
Examine the difficulties of conducting international market research.
Learn about sources of secondary market research data.
And understand methods of conducting primary international research.

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4. Screening Markets and Sites
Companies should use a systematic approach to screening markets and sites as they explore international opportunities. The following four-step screening process helps contain costs while embracing high-quality research methods:
Step 1: Identify basic appeal
Step 2: Assess the national business environment
Step 3: Measure market or site potential
Step 4: Select the market or site

5. Identify Basic Appeal Basic demand Available resources
In step 1, “identify basic appeal,” managers determine basic product demand in markets and availability of resources in sites for operations.
Determining basic product demand means exploring the general suitability of a nation’s climate and whether the product is locally banned from sale.
Determining the availability of resources means exploring the quality and quantity of production factors including raw materials, labor, and financing.
A company will drop from further consideration any market or site that does not satisfy these basic criteria.
Available resources

6. Discussion Question
What are the four main steps in the process of screening potential new markets and sites for operations?
What are the four main steps in the process of screening potential new markets and sites for operations?

7. Answer to Discussion Question
The first step is to identify a location’s basic appeal in terms of product demand or resource availability. The second step is to analyze all forces in the national business environment. The third step is to measure market or site potential by collecting data on each one being considered. The fourth step is to select the best market or site by taking field trips and performing competitive analyses.
Answer:
The first step is to identify a location’s basic appeal in terms of product demand or resource availability. The second step is to analyze all forces in the national business environment. The third step is to measure market or site potential by collecting data on each one being considered. The fourth step is to select the best market or site by taking field trips and performing competitive analyses.

8. Screening Markets and Sites
Companies should use a systematic approach to screening markets and sites as they explore international opportunities. The following four-step screening process helps contain costs while embracing high-quality research methods:
Step 1: Identify basic appeal
Step 2: Assess the national business environment
Step 3: Measure market or site potential
Step 4: Select the market or site

9. Cultural Forces Market selection Site selection Global product
Tailored product
Site selection
Education level
Technical skills
Work ethic
In step 2, “assess the national business environment,” managers explore differences in cultures, politics, laws, and economies and incorporate their findings into market and site selection decisions.
Cultural differences such as language, attitudes toward business, religious beliefs, traditions, and customs can influence product demand and how products are sold.
Companies sometimes locate production in a local market when a product’s physical features must be adapted for cultural reasons.
The local work ethic, education, and level of managerial skills also affect site-selection decisions.

10. Political and Legal Forces
Government regulation
Investment barriers
Profit repatriation
Government bureaucracy
Administrative delays
A nation’s attitude toward trade and investment is reflected in its regulatory policies.
A government may impose investment rules on business ownership to ensure domestic control of a company or industry.
It may also restrict international firms from freely removing profits or force them to hold cash or reinvest it in the country.
The amount of government bureaucracy that a company encounters in a market or site affects its appeal.
A lean and efficient bureaucracy can encourage investment, while a cumbersome or corrupt one can be discouraging.
Companies monitor local political events so that they are not surprised by unforeseen political change that can threaten operations and future earnings.
Political stability
Unforeseen changes

11. Social unrest can drive out international companies
Political Risk
Social unrest can drive out international companies
Social unrest can severely disrupt operations and drive out international companies. Riots erupted in Paranaque, a city in the Philippines, when demolition teams began to destroy the residences of people whom were said to have no legal claim to the land.
Source: imago stock&people/Newscom

12. Economic Forces Country finances Currency and liquidity
A country’s finances influence investor confidence and the proposed investments of businesses.
Poor fiscal and monetary policies can increase inflation and budget deficits, weaken a currency, lower productivity, and slow innovation.
Volatile currency values increase exchange rate risk and complicate the prediction of future foreign earnings.

13. Other Forces Logistics Country image
The costs of transporting materials and goods affect the location of manufacturing facilities.
Logistics involves managing the physical flow of products from point of origin as raw materials to end users as finished products. It weds production to delivery and plays a growing role in an age of global supply chains.
Country image embodies all facets of a nation’s business environment.
It can positively or negatively influence a product’s image.

14. e-Business Forces Market access Legal issues Financial matters
Infrastructure
Content and standards
Legal issues
Privacy and security
Intellectual property
Here are several issues that managers should consider when attempting to generate sales through e-business.
Learn whether potential customers have adequate Internet access.
Follow guidelines regarding sensitive topics such as truthful advertising.
Respect local law on the gathering of consumer data and how it is used.
Know that nations safeguard copyrights, patents, and trademarks to different degrees.
Online payment systems and tax collection for international sales vary around the world.
Financial matters
Electronic payments
Tariffs and taxation

15. Discussion Question The key element of political risk that concerns
companies in markets
abroad is __________.
a. Slowing innovation
b. Spiking logistics costs
c. Unforeseen political change
The key element of political risk that concerns companies in markets abroad is __________.
a. Slowing innovation
b. Spiking logistics costs
c. Unforeseen political change

16. Answer to Discussion Question
The key element of
political risk that concerns
companies in markets
abroad is __________.
a. Slowing innovation
b. Spiking logistics costs
c. Unforeseen political change
The correct answer is c. Unforeseen political change

17. Screening Markets and Sites
Companies should use a systematic approach to screening markets and sites as they explore international opportunities. The following four-step screening process helps contain costs while embracing high-quality research methods:
Step 1: Identify basic appeal
Step 2: Assess the national business environment
Step 3: Measure market or site potential
Step 4: Select the market or site

18. Industrialized Markets Potential
Demographics
Competitor market shares
Import/Export volumes
Distribution network
Marketing approaches
Retail sales levels
Income elasticity
In step 3, “measure market or site potential,” a market’s level of economic development affects the selection of products sold, how they are sold, and their features. The following information provides an overview of the market’s size and structure in industrialized nations:
Demographics of the local target market.
Competitors’ production volumes and market shares.
Import and export volumes for the product.
Structure of distribution networks.
Market background including social trends and marketing approaches.
Retail sales levels, market price, and total expenditure on the product.
One way to forecast market demand is to determine a product’s income elasticity, which is the sensitivity of demand for a product relative to a change in income. Income-elastic products are discretionary purchases such as video games and jewelry. Income-inelastic products are essential items and include food, utilities, beverages, and so forth.

19. Emerging Markets Potential
Market size
Market growth rate
Market intensity
Market consumption capacity
Commercial infrastructure
Economic freedom
Market receptivity
Country risk
In step 3, the following information can be used to create a market-potential indicator when considering exporting to emerging markets:
Market size is a static estimate of market size at the moment.
Market growth rate identifies whether a market is shrinking or expanding.
Market intensity estimates the buying power of individuals and businesses.
Market consumption capacity estimates a market’s spending capacity.
Commercial infrastructure analyzes channels of distribution and communication.
Economic freedom estimates the prevalence of free-market principles.
Market receptivity estimates market “openness.”
Country risk estimates the political, economic, and financial risks of doing business in a market.

20. Measuring Site Potential
Labor and management
Productivity
Wage levels
Training needs
Local infrastructure
Measuring site potential in step 3 involves determining whether a site has adequate resources to carry out the proposed business activity. The most important issues include:
The availability, productivity, and wage levels of labor and management.
The cost of training local managers, which can mean substantial investments of time and money.
And the efficiency of local infrastructures, including roads, bridges, airports, seaports, and telecommunications systems.

21. Screening Markets and Sites
Companies should use a systematic approach to screening markets and sites as they explore international opportunities. The following four-step screening process helps contain costs while embracing high-quality research methods:
Step 1: Identify basic appeal
Step 2: Assess the national business environment
Step 3: Measure market or site potential
Step 4: Select the market or site

22. Select the Market or Site
Field trips
Engage in negotiations
Meet customers/others
Gain firsthand exposure
Competitor analysis
Competitor numbers/shares
Competitor strategies
Channel access
Customer loyalty
Access to inputs
In step 4, “select the market or site,” managers perform their final analyses on all remaining locations.
Field trips to each potential site let senior managers engage in any final negotiations, meet potential customers and distributors, and experience the culture firsthand.
Competitor analyses typically address the following types of issues:
The number of domestic and international competitors and their market shares.
And each competitor’s market strategy, control over distribution channels, customer loyalty, and access to production inputs.

23. Discussion Question
What are the key components of a market-potential indicator and why is it useful to firms exporting to emerging markets?
What are the key components of a market-potential indicator and why is it useful to firms exporting to emerging markets?

24. Answer to Discussion Question
The main components of a market-potential indicator are market size, market growth rate, market intensity, market consumption capacity, commercial infrastructure, economic freedom, market receptivity, and country risk. The indicator provides a quantitative measure of market size when data is limited in emerging markets.
Answer:
The main components of a market-potential indicator are market size, market growth rate, market intensity, market consumption capacity, commercial infrastructure, economic freedom, market receptivity, and country risk. The indicator provides a quantitative measure of market size when data is limited in emerging markets.

25. International Market Research
Data analysis
Field research
Marketing strategy
International market research supplies information on local cultural practices, regulations, economy, market potential, buyer behavior, logistics, and other factors.
Market research helps managers to design marketing strategies and to understand buyer preferences and attitudes when selecting a new market.
It informs managers about employment levels, wage rates, and the local infrastructure when exploring a potential new site for operations.
Good research is timely and relevant to decision making and can help a company to anticipate changes in a market.
Source: Alexander Joe/Getty Images/Newscom

26. Market Research Difficulties
Comparability
of data
Availability
of data
Cultural
differences
The unique circumstances of international business present three difficulties of conducting market research in other nations.
First, whereas industrialized nations tend to have a great deal of published data on product markets, emerging markets can lack data availability. And when market data is available, its reliability may be questionable or suspect.
Second, because terms like poverty, consumption, and literacy are often defined and measured differently across nations, the comparability of data can be difficult. Misinterpreting data can sabotage the best marketing and production strategies.
Third, cultural differences can influence marketing research data. Interpreters might unintentionally misrepresent certain comments in another language or incorrectly convey the sentiment of certain statements.

27. Top Research Firms
This table shows the top global market research firms, ranked by total worldwide sales. 27

28. Secondary Data Sources
International organizations
Government agencies
Industry/Trade associations
Service organizations
World Wide Web
International organizations are excellent sources of free and inexpensive information to form first impressions of markets and sites. These include the United Nations, International Trade Center, World Bank, International Monetary Fund, and Asian Development Bank.
Government agencies including commerce and trade departments, trade libraries, and embassies can supply information on import/export regulations, product quality standards, overall market size, and customs procedures.
Industry and trade associations cover industry events and new opportunities. They may also offer specialized studies of their industry.
International service organizations in banking, insurance, management consulting, and accounting offer information on cultural, regulatory, financial conditions, and global trends.
Finally, the World Wide Web can be a source of inexpensive secondary data, news reports, executive profiles, and financial information.

29. Methods of Primary Research
Trade shows and missions
Interviews and focus groups
Consumer panels
Primary market research collects and analyzes original data and applies the results to current research needs.
Trade shows highlight the latest products, recent trends, and new opportunities. Trade missions give firms clout in a host country because they have the visible support of home-country government officials who travel with them on the trip.
Interviews and focus groups help uncover buyers’ emotions, attitudes, and impressions of a company and its product. To not miss subtle cues in verbal and body language, interviews and focus groups are best run by moderators who are native to the country being investigated.
A consumer panel, in which people record their attitudes, behaviors, and purchasing habits in personal diaries, is useful when people in a focus group might agree with others in the group—as in group-oriented cultures.
Surveys gather a vast amount of data in a single sweep and obtain facts, opinions, and attitudes. Survey methods are often adapted to local markets.
Environmental scanning gathers, analyzes, and dispenses information on a business environment. It contributes to well-informed decisions and strategies by helping develop contingency plans in a volatile environment.
Surveys
Environmental scanning

30. Discussion Question
Each of the following is a difficulty of researching international markets except __________.
a. Data comparability
b. Cultural differences
c. Data availability
d. Environment scanning
Each of the following is a difficulty of researching international markets except __________.
a. Data comparability
b. Cultural differences
c. Data availability
d. Environment scanning

31. Answer to Discussion Question
Each of the following is a difficulty of researching international markets except __________.
a. Data comparability
b. Cultural differences
c. Data availability
d. Environment scanning
The correct answer is d. Environment scanning