Step 3: Identify / Select Foreign Markets

3 Largest markets for U.S. Products are Canada, Japan & Mexico
May or may not be best market for your product Then how do you choose?

Market Selection Strategies

Reactive choose markets with demonstrated success
Use past sales Past leads Competitive sales Participation in Trade shows Discussions with Industry Experts

Proactive choose market based on independent

analysis
Global Indicators Trade Barriers Tariff Barriers Non tariff Barriers

Advantages/Disadvantages Reactive Strategy

Reactive Strategy
Pros
Low cost, fast, low-risk, product need established

Cons
May lose first mover advantage Competitors may mislead you Market may not match your products life cycle

Market Selection Model (Proactive)

1. 2. 3. 4. Develop indicators to assess market (s) Rate indicators Weight each indicator Compare countries Analyze results

Market Selection Model

Country Indicator 1 Weight Points Indicator 2 Weight Points Indicator 3 Weight Points Total

Country 1

Country 2

Key Identify Best Indicators

Global Environment Indicators
Demographic Macroeconomic Government Policies Environmental Industry Specific

Indicators Suitable for Global Assessment

(Figure 4.2 Foley,2004)

Demographic Indicators
Population including growth and density Gender makeup Literacy rate Education levels Age distribution Per capita income and distribution Receptivity to U.S./foreign products Social considrations such as religion, taboos, Language

Indicators Suitable for Global Assessment

(Figure 4.2 Foley,2004)

Macroeconomic Indicators GDP GDP growth Inflation rate

Indicators Suitable for Global Assessment

(Figure 4.2 Foley,2004)

Government Policies
Import tariffs Currency exchange controls Non tariff trade barriers (technical standadrs, labeling requirements, documentation) Intellectual property rights protection (patents, copyrights, trademarks, trade secrets) Political risk (stability) Investment policies and protections Labor practices and restrictions Taxation

Indicators Suitable for Global Assessment

(Figure 4.2 Foley,2004)

Environmental Indicators
Climate Geography Infrastructure (transportation, telecommunications)

Indicators Suitable for Global Assessment Industry Indicators

(Figure 4.2 Foley,2004)

Entry barriers (obstacles such as local branding, access to distribution, expected retaliation) Rivalry (number of competitors, intensity of the competition, market shares) Supplier power (concentration of suppliers, switching costs) Buyer power (maturity of distirbution channel, access to consumer) Substitute products (use of products not directly competing but used as a substitute) Growth of the industry Stability of the industry Risks of the industry

Narrow List of Indicators

Market Size Market Growth Market Accessibility Economic Stability Political Climate Cultural Climate Environmental Factors Geographical Factors

Market Size
When examining market size, look at the overall population. Then, estimate the percent of potential buyers within that population. Look at the numbers that suggest how much the population spends on this type of import. While doing so, identify if there are domestic or international competitors already providing a similar product. If there are, what is the production rate of each? If possible, determine the price your competitors are charging, and compare your product's price and quality against theirs. Entering smaller markets where few competitors have set up shop may give you the opportunity to start at the "ground" floor and grow with the market. However, if you enter smaller markets beware of the barriers you may encounter as a result (e.g., transportation and political infrastructure problems). In researching demographics, look at the unemployment trends and educational levels of consumers in the target market. The more sophisticated the target market, the more difficult it may be to compete. Also identify the language and dialects spoken within a particular

Market Growth
Examining the growth of the market over the last few years will tell you if it is consistently growing or shrinking. Look at the last three to five years of import history for your product (if available) within a given market. Also look at trends and growth forecasts. What do they tell you about the market and its potential for growth? Has it reached its peak? Is the market saturated with like products? Are the number of imports increasing or decreasing? If the numbers are increasing consistently, this indicates that the market is expanding. Seriously consider markets that are larger with strong growth potential to increase profit margins and reduce production costs. Also consider the industrial development stage of your market. Those that are just beginning to industrialize may not have need for the latest technology. However, some markets developing industrially may take advantage of the progress made in more developed markets and leap ahead bypassing earlier innovations and adopting later technology to help build their infrastructure (e.g. the Middle East is considering fiber optics for telecommunications instead of copper wire due to its quality and price structure).

Market Accessibility
Many factors influence market accessibility. The following is not an exhaustive list, but it may help you assess how accessible the market is to you and how accessible your product is to your targeted customers: Import duties and tariffs costs may make sending your goods (or services) into the foreign marketplace unprofitable. To determine the duty or tariff rate, contact a trade agent to help you identify the Harmonized Tariff section which corresponds to your product. Remember, each country has its own schedule of duty rates. Local and foreign suppliers may influence your marketplace accessibility. Be sure you know who your international competitors are. Compare the price and quality of your product with the competition's. Sales representatives located within the country to which you wish to export can represent your product and act as an intermediary. Representatives may be able to give you ideas of the best ways to access the market and customers through different channels of distribution. Promotional practices, such as how you advertise and promote your product will affect how much of the targeted market will have access to (and know about) your product.

Economic Stability
Many factors affect economic stability of a marketplace (and country). Determine if the economic climate is thriving or diving? Recessing or growing? If possible, identify the GNP growth rate and per capita income. Also, ascertain the unemployment rate of the country. This will affect how much of the market can actually spend money to buy your product. Markets that are stable and growing are obviously more attractive to conduct business with. Additionally, consider the availability of U.S. dollars in the target market. What is the exchange rate between the U.S. dollar and that of the country in which you will sell your product? Besides unequal access to the dollar, another factor that may keep your customers from purchasing your product may be a trade deficit, which could be important if customers are able to obtain import permits. Lastly, note that foreign countries undergoing economic and industrial development may not collect and disseminate trade statistics. If they do, these statistics may be in a form that cannot be easily interpreted. When such important market information is missing or not understandable, consult a trade agent or eliminate the market.

Political Climate
Many questions must be asked regarding the political climate of a potential market. Such questions include: On what type of political system is the country and market based? Is the system stable? Will the governmental system affect your customer's ability to import? Will the political system affect tariff rates and licensing requirements? Is the legal system supportive of international trade? Are there legal tariff and non-tariff barriers? And are there incentives of which you should be aware? If the market is politically unstable, how might that affect economic stability? What is the overriding attitude for doing business with companies in the United States? Has the market or country adopted the International Standards Organization's ISO 9000 proces

Cultural Climate
With over 300 countries in the world, many have their own language, customs and culture. Being educated on the culture and values of your target markets will increase your success in the international marketplace. Although the international business language is English, it may not be that way for long. It is to your advantage to speak the native language of your customer and understand his or her culture in order to communicate more effectively. Make sure you utilize your staff resources to their fullest to accomplish this task. Customs and culture also affect consumption of goods. Factors like colors, numbers, and communication fit this category. For example, when considering product or promotional gift colors, keep in mind that white is the color of death in China and Korea, whereas purple is seen in the same light in Spain. In the U.S. yellow implies cowardice, whereas it takes on religious and mystical undertones in India. Study the cultural differences of the target markets and of your own. You may be surprised how a product that is fully accepted by a U.S. market is negatively rejected by its foreign counterparts.

Environmental Factors
Environmental factors such as climate can influence modifications you must make to your product in order to sell it in a given market. Determine if humidity or other climate issues will affect the product performance or appearance as it is in transit or as it is used or consumed.

Geographic Factors
Geographic factors can also affect your success in a given foreign market. Such factors include, transportation to the country or market and legal restrictions on travel. To enter a foreign market, a transportation system must be in place (i.e., there must be a way for you to get to your foreign customers). Keep in mind the longer and more remote the distance is to the market, the more the transportation and travel costs will be.

Sources for Country/Market Indicator Data

Stat-USA and WWW.Export.gov

Country Commercial Guides

See Assignment 4 for additional market data sources Country Desk officers at U.S. Dept. of Commerce; contact Trade Information Center or U.S. Dept. Of Commerce Export Assistance Center

Sources for Industry Indicator Data

Stat-USA and WWW.Export.gov
Best Market Reports Industry Sector Analysis International Market Insights

Contact Industry Desk Officers for U.\s. Dept. of Commerce Trade Associations Publications, Industry Journals & Periodicals Foreign Phone Books Networking

Source: Center for International Trade Development Exporting Basics http://www.citd.org/startup/eb/page.cfm? chapter=2&sec=9 Best Market Reports are a fast way to pinpoint high potential markets for selected industries. BMRs are compiled only on the industries considered "best-prospects" worldwide, based on recommendations of U.S. commercial officers in each country. BMRs identify the largest/fastest growing markets for selected industries in one convenient matrix and give a brief rationale for each country's selection as a "best prospect."

Source: Center for International Trade Development Exporting Basics http://www.citd.org/startup/eb/page.cfm? chapter=2&sec=9
Industry Sector Analyses can provide more detailed assessments of market potentials for your products in particularly promising countries. ISAs are product-and country-specific market surveys written by U.S. commercial staff abroad. They discuss overall demand trends; best sales prospects within the subsector; key end-user segments; major competitors; and relevant business conditions, practices and market barriers. They also identify useful government and industry contacts, including importers and distributors. ISAs offer corroborating information for columns 8-10 in the Export Promotion Matrix (market share, product receptivity, competitive situation, and market access) and are even more telling than BMRs because of their product specificity

The "best" markets to export offer a combination of high comfort for your company and high potential for your products. High-comfort markets are those you're personally close to in some way:
trusted contacts there at ease with the language and culture spent time in the country. Often, however, high comfort countries do not offer the highest potential for your products.

High-potential markets are where you ultimately want to be:

large, emerging or fast-growing markets, high receptivity to products like yours; limited local or foreign competition; no significant market barriers.

Criteria For High Potential Markets

1. Where are comparable products exported? Look for the largest and

fastest growing export destinations for

the product over the past several years. Source: For U.S. exporters, and foreign exporters to the U.S., see USITC DataWeb for official U.S. export/import statistics by commodity and country. http://dataweb.usitc.gov/

Criteria For High Potential Markets

2. Which countries are importing comparable products? Look for countries with the

largest and fastest growing imports of the product over the past several years.

Sources: International Trade Centre Aggregated Trade Sta http://www.intracen.org/menus/products.htm; Best Market Reports and Industry Subsector Analyses.

Criteria For High Potential Markets

3. Which markets do the experts consider most promising? Look for countries recommended as "Best-Prospect" markets for comparable products. Source: Best Market Reports and Industry Subsector Analyses.

Criteria For High Potential Markets

4. Where are comparable products the most welcome and easiest to sell? Look for countries with high receptivity to the product and no significant market barriers. Source: Best Market Reports and Industry Subsector Analyses.

What Potential Market Trade Barriers exist?

Tarrifs or taxes imposed on imported goods that, when high, may make it difficult to sell your product profitably in a foreign market. Non-tariff barriers, such as laws and regulations that countries enact that protect domestic industries against foreign competition. Non-tariff barriers include import quotas or restrictions on quality of imports. International Standards promoted by the International Standards Organization (ISO) involves establishing quality manufacturing and service standards, and certification and monitoring world wide. Originally advocated by the European Union, around 100 nations are now considering adopting ISO processes, as seen in the IS0 9000 (a generic family of standards and quality control systems). Communication may be a problem if you do not speak your potential customer's language. Distribution arrangements may present barriers if the market has not yet been explored by other U.S. businesses. Whether or not patents and trademarks exist on similar products or property in that country

Approaches to identifying foreign market opportunities

Use existing distributors as a source of information about developing market opportunities. There is no better way to learn about viable export chances than through someone who is already participating in exporting. Direct promotion to prospective distributors or other customers. Getting your name and desires out to people you would like to work with is a good way to generate business opportunities. Participate in overseas trade fairs and shows. This exposes you to more potential business partners than you might have thought of, and vise versa.

Market Potential Matrix 1 Country 1 XX Country 2 X Country 3 X XX 2 3 XX X 4 X X XX 5 X X XX 6 XX XX XX

Key: Columns/Criteria 1. Largest export markets, latest year 2. Fastest growing export markets, latest year 3. Largest importing countries, latest year 4. Fastest growing importing countries, latest year 5. Recommended as a best export market 6. No Significant Market Barriers

"X" (minimally met) "XX" (significantly met). "blank" (didn't meet), Source:

Source: Center for International Trade Development Exporting Basics http://www.citd.org/startup/eb/page.cfm? chapter=2&sec=9 Foreign Import Statistics help "size up" markets of interest, identify the major supplier countries, and compare competitor country market shares. Each country compiles and publishes its own import statistics. The United Nations also consolidates and publishes the data, but in broader product categories and on a less current basis. Alternative sources are specific market research reports that extract and analyze the data (e.g., Best Market Reports and Industry Subsector Analyses).

Source: Center for International Trade Development Exporting Basics http://www.citd.org/startup/eb/page.cfm? chapter=2&sec=9
U.S. Export Statistics includes the official U.S. export/import statistics compiled by the U.S. Census Bureau. The Commodity-by-Country series shows all the destination or source countries for a specified product, by value, quantity, unit value, customs district, transport mode and year. The Country-by-Commodity series shows all products exported to or imported from a specified country. With these statistics, you can readily spot the largest and fastest growing export markets for products like yours; or identify the largest and fastest growing U.S. exports to a particular country. Individual tables can be downloaded to a spreadsheet. Once in the spreadsheet, you can do whatever calculations and sorting you wish (e.g., growth rates, rank ordering, projections, etc.)..