Chapter 7&8 – International Market selection and Entry
Approaches to market selection
← incremental entry vs simultaneous entries
◦ incremental → usually for small companies with fewer resources that wants to lower their risk preclude economies of scale. ◦ simultaneous → extensive resource thus, resulting in higher operating risk, may decide to leverage across asia pacific area, facilitate economies of scale. ← Concentrated approach vs diversified approach
◦ concentrated → resources limited/concentrated in limited number of markets which will reduce cost and operating risks. Economies of scale. Only concentrating on a number of market ◦ Diversified → spread risks exposure, broadens market knowledge, strategic flexibility, resources spread thinly. Will try few market in eg Asia, US, europe.
Screening the market selection
Analysing the attractiveness of individual markets. 2 elements: ← relate to overseas market, involves
◦ market characteristics, eg. Degree of the market segmentation, customer concentration, availability of close substitute, growth+sensitivity to imports. ◦ competitive condition, eg. Threat of new entrants (domestic+foreign), other exporters, concentration of domestic industry. ◦ Financial&economic conditions, eg, pricing practices, payment terms, currency parity, import tariffs and charges. ◦ Legislative and sociopolitical conditions, eg. Political stability, trade legislation, laws regarding customer+envi, employment norms, labour laws, intellectual property protection. ← Relates to firm, involves;
◦ management characteristics, eg, degree of institutional support, management resources capability, involvement in int contracts and alliances ◦ marketing, eg. Distribution network effectiveness, advertising+promotion capabilities, pricing approaches ◦ tech attributes, eg. Product design+development, cust service+support expectation, investment in technology ◦ production related competencies, eg. Cost competitiveness, logistic capabilities, inputs control, packaging+label requirement. Thus, overall assessment is very important.
5 stages of screening process, developed by Tonye&Walters (1993). (1st 3 stages=preliminary screening, last 2=fine-grained screening) – 1. domestic regulation and management preferences
← Which OS market are of no interest to the firm regardless of their apparent potential? (foreign ownership) - due to preferences of senior executives eg bad experience in a certain country may result in refusal by CEO to export to the country. ← Which remaining overseas regulation markets should be excluded bcos of regulations initiated by involving support of the country's government? 2. Initial entry assessment
← which remaining overseas market have the least attractive political&social envi? - eliminate market that have higher risk, eg, exchange rates. ← Which remaining OS market have the least attractive nature and potential size? - not only current demand, also future demand. Techniques to analyze demand: ◦ demand pattern analysis → analysing local production, inventory and patterns of international trade for a particular product in OS country can lead to estimation of consumption trends and market opportunities. ◦ international PLC → comparing the PLC in home country to OS market can be used to predict what may happen in OS market as the product move along the PLC ◦ income elasticity measurements → relationship between change in demand over price for a product. Can be used to predict change in quantity demanded for a product. ◦ proxy and multiple factor indices → when info about the product in OS market is unavailable, firm can use other product that are similar with firms own to analyse the demand pattern. 3. Competitive environment → more time consuming elements of evaluation ← which remaining overseas markets have...
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