Foreign Market Foreign Market Selection ProcessSelection Process

Kelly E. Fish, Ph.D.Kelly E. Fish, Ph.D.

International Business International Business WorkshopWorkshop

OverviewOverview

Market Entry StrategiesMarket Entry Strategies• ExportingExporting

Foreign Market SelectionForeign Market Selection How IBRC can help with the processHow IBRC can help with the process

Foreign Market Entry StrategiesForeign Market Entry Strategies

Low risk/reward High risk/reward

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Strategy Trade-offsStrategy Trade-offs

Control Asset Variable Fixed Market OverallEntry Strategy Level Costs Costs Share Cost

Indirect ExportingDirect ExportingSales SubsidiaryFranchising/LicensingContract ManufacturingLocal AssemblyJoint VentureLocal ProductionWholly owned subsidiary

Indirect Export – Trading Companies (TCs)Indirect Export – Trading Companies (TCs)AdvantagesAdvantages

Open new markets without expertise Open new markets without expertise or investmentor investment

TCs cover market well and service TCs cover market well and service products they sellproducts they sell

Indirect Export – Trading Companies (TCs)Indirect Export – Trading Companies (TCs)DisadvantagesDisadvantages

TCs control market selection and TCs control market selection and marketing marketing

More of a foreign concept (Japan, More of a foreign concept (Japan, South Korea, Brazil, Western Europe)South Korea, Brazil, Western Europe)

Product may not get attention it Product may not get attention it deservesdeserves

Indirect Export – Export Management CompaniesIndirect Export – Export Management CompaniesAdvantagesAdvantages

Instant foreign market knowledge Instant foreign market knowledge and contactsand contacts

Sales are on commission basis Sales are on commission basis (variable cost)(variable cost)

Potentially better feedback than TCPotentially better feedback than TC

Indirect Export – Export Management CompaniesIndirect Export – Export Management CompaniesDisadvantagesDisadvantages

EMCs may spread themselves too EMCs may spread themselves too thin with too many customersthin with too many customers

Product may not get attention it Product may not get attention it deservesdeserves

Market expertise/contacts can be Market expertise/contacts can be limited to one or two countrieslimited to one or two countries

Indirect Export – Piggyback ExportingIndirect Export – Piggyback ExportingAdvantagesAdvantages

Rider benefits from carrier’s Rider benefits from carrier’s established export and distribution established export and distribution facilitiesfacilities

Shared expensesShared expenses Rider benefits from carrier’s Rider benefits from carrier’s

reputationreputation

Indirect Export – Piggyback ExportingIndirect Export – Piggyback ExportingDisadvantagesDisadvantages

Carrier seldom assumes any risk on Carrier seldom assumes any risk on rider’s productrider’s product

Rider subject to carrier’s Rider subject to carrier’s strategy/reputationstrategy/reputation

Direct ExportingDirect ExportingAdvantagesAdvantages

Usually yields higher sales than Usually yields higher sales than indirect exportingindirect exporting

Company has greater control, better Company has greater control, better market informationmarket information

Company develops in-house Company develops in-house expertiseexpertise

Company has greater freedom to Company has greater freedom to choose entering marketschoose entering markets

Direct ExportingDirect ExportingDisadvantagesDisadvantages

Costs are higher than with indirect Costs are higher than with indirect exportingexporting

It may take longer to establish It may take longer to establish market entry, distribution network, market entry, distribution network, etc.etc.

Foreign Market SelectionForeign Market Selection

The two most widespread mistakes of market selection are:

1) ignoring or missing markets that offer good potential for a firm’s products

and 2) spending too much time researching markets that are poor prospects for the firm

Foreign Market Screening Foreign Market Screening

Target

Foreign Market Screening Foreign Market Screening

Target

1. Macro-level research

2. General market factors relating to the product

3. Micro-level factors specific to the product

4. Final screening

Foreign Market Screening Foreign Market Screening

Target

Screening techniques range from simple minimum criteria thresholds (Example A) to clustering techniques using artificial intelligence (Example B).

Example A – Targeting Countries Example A – Targeting Countries for Kidney Dialysis Equipmentfor Kidney Dialysis Equipment

1. Macro-level 1. Macro-level researchresearch

GDP over $15 GDP over $15 billionbillion

GDP per capita GDP per capita over $1,500over $1,500

Political stabilityPolitical stability

Example A – Targeting Countries Example A – Targeting Countries for Kidney Dialysis Equipmentfor Kidney Dialysis Equipment

2. General market 2. General market factors relating to the factors relating to the productproduct

Less than 200 Less than 200 people/hospital bedpeople/hospital bed

Less than 1,000 Less than 1,000 people/doctorpeople/doctor

Govt. expenditures Govt. expenditures over $100 million for over $100 million for healthcarehealthcare

Govt. expenditures Govt. expenditures over $20 per capita for over $20 per capita for healthcarehealthcare

Example A – Targeting Countries Example A – Targeting Countries for Kidney Dialysis Equipmentfor Kidney Dialysis Equipment

3. General market 3. General market factors relating to factors relating to the productthe product

Kidney-related Kidney-related deaths over 1,000deaths over 1,000

Patient use of Patient use of dialysis equipment dialysis equipment – over 40% annual– over 40% annual

growth growth

Example A – Targeting Countries Example A – Targeting Countries for Kidney Dialysis Equipmentfor Kidney Dialysis Equipment

4. Final screening4. Final screening Number of Number of competitorscompetitors

Distributor Distributor reputationreputation

Example B – Targeting Countries Example B – Targeting Countries for Kidney Dialysis Equipmentfor Kidney Dialysis Equipment

GDPGDP GDP per capitaGDP per capita Total health Total health

expenditure per expenditure per capitacapita

Total Health Total Health expenditure as a % expenditure as a % of GDPof GDP

Political Risk IndexPolitical Risk Index Cultural score Cultural score

Self-Organizing Self-Organizing MapMap

Example B – Targeting Countries Example B – Targeting Countries for Kidney Dialysis Equipmentfor Kidney Dialysis Equipment

Hong KongJamaicaSingapore

AustraliaAustriaCanadaIrelandNew ZealandSwitzerlandUnited Kingdom

United StatesJapan

EcuadorGuatemalaIndonesiaPakistanTurkeyVenezuelaYugoslavia

IranMexicoSouth Africa

France Italy

DenmarkFinlandNetherlandsNorway Sweden

ChilePanamaPeruSouth KoreaThailand

BrazilColombia

ArgentinaCosta RicaGreecePortugalEl SalvadorSpain Uruguay

Israel

IndiaMalaysiaPhilippines

How the IBRC can help How the IBRC can help your businessyour business

Provide export assistance to NEA businessesProvide export assistance to NEA businesses

1. NEA Business Contacts the IBRC2. IBRC matches ASU Intern with NEA Business 3. Intern Researches International Markets and Develops Export Strategy for the NEA firm under direction of IBRC4. Intern makes Final report and end of semester

Provide export assistance to NEA businessesProvide export assistance to NEA businesses

• We have the expertise for oversight (Drs. Fish & Guha)• We have the manpower (Students are cheap – free!)• We have the country data• We are committed to working with the U.S. Export

Assistance Center

Visit the ASU International Visit the ASU International Business Resource Center on Business Resource Center on

the Web at:the Web at:

ibrc.astate.eduibrc.astate.edu