Foreign Market Selection Process

Kelly E. Fish, Ph.D. International Business Workshop

Overview

Market Entry Strategies

Exporting

Foreign Market Selection How IBRC can help with the process

High risk/reward

Foreign Market Entry Strategies

Wholly owned subsidiary

Local production
Joint venture

Local assembly

Contract manufacturing

Franchising/Licensing

Low risk/reward

Sales subsidiary

Direct exporting
Indirect exporting

Strategy Trade-offs
Entry Strategy Control Asset Variable Fixed Market Overall Level Costs Costs Share Cost

Indirect Exporting Direct Exporting Sales Subsidiary Franchising/Licensing Contract Manufacturing Local Assembly Joint Venture Local Production Wholly owned subsidiary

Indirect Export Trading Companies (TCs) Advantages

Open new markets without expertise or investment TCs cover market well and service products they sell

Indirect Export Trading Companies (TCs) Disadvantages

TCs control market selection and marketing More of a foreign concept (Japan, South Korea, Brazil, Western Europe) Product may not get attention it deserves

Indirect Export Export Management Companies Advantages

Instant foreign market knowledge and contacts Sales are on commission basis (variable cost) Potentially better feedback than TC

Indirect Export Export Management Companies Disadvantages

EMCs may spread themselves too thin with too many customers Product may not get attention it deserves Market expertise/contacts can be limited to one or two countries

Indirect Export Piggyback Exporting Advantages

Rider benefits from carriers established export and distribution facilities Shared expenses Rider benefits from carriers reputation

Indirect Export Piggyback Exporting Disadvantages

Carrier seldom assumes any risk on riders product Rider subject to carriers strategy/reputation

Direct Exporting Advantages

Usually yields higher sales than indirect exporting Company has greater control, better market information Company develops in-house expertise Company has greater freedom to choose entering markets

Direct Exporting Disadvantages

Costs are higher than with indirect exporting It may take longer to establish market entry, distribution network, etc.

Foreign Market Selection

The two most widespread mistakes of market selection are: 1) ignoring or missing markets that offer good potential for a firms products and

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

Foreign Market Screening

Target

Foreign Market Screening

1. Macro-level research
2. General market factors relating to the product 3. Micro-level factors specific to the product 4. Final screening

Target

Foreign Market Screening

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

Example A Targeting Countries for Kidney Dialysis Equipment

1. Macro-level research

GDP over $15 billion GDP per capita over $1,500 Political stability

Example A Targeting Countries for Kidney Dialysis Equipment

2. General market factors relating to the product

Less than 200 people/hospital bed Less than 1,000 people/doctor Govt. expenditures over $100 million for healthcare Govt. expenditures over $20 per capita for healthcare

Example A Targeting Countries for Kidney Dialysis Equipment

3. General market factors relating to the product

Kidney-related deaths over 1,000 Patient use of dialysis equipment over 40% annual growth

Example A Targeting Countries for Kidney Dialysis Equipment

4. Final screening

Number of competitors Distributor reputation

Example B Targeting Countries for Kidney Dialysis Equipment

Self-Organizing Map

GDP GDP per capita Total health expenditure per capita Total Health expenditure as a % of GDP Political Risk Index Cultural score

Example B Targeting Countries for Kidney Dialysis Equipment

India Malaysia Philippines Hong Kong Jamaica Singapore Australia Austria Canada Ireland New Zealand Switzerland United Kingdom France Italy United States Japan

Ecuador Guatemala Indonesia Pakistan Turkey Venezuela Yugoslavia Chile Panama Peru South Korea Thailand

Iran Mexico South Africa

Denmark Finland Netherlands Norway Sweden

Brazil Colombia

Argentina Costa Rica Greece Portugal El Salvador Spain Uruguay

Israel

How the IBRC can help your business

Provide export assistance to NEA businesses

1. NEA Business Contacts the IBRC 2. IBRC matches ASU Intern with NEA Business 3. Intern Researches International Markets and Develops Export Strategy for the NEA firm under direction of IBRC 4. Intern makes Final report and end of semester

Provide 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 Business Resource Center on the Web at: ibrc.astate.edu