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Market Evaluation and Selection
In small companies IMS is often a reaction to a stimulus.
IMS of a small company is based on:◦ Low uncertainty about foreign markets◦ Low perceived difficulty of acquiring information
about foreign markets◦ Low cultural distance◦ Low geographic distance
Without scanning a company may◦ Overlook opportunities and risks◦ Examine too many or too few possibilities http://globaledge.msu.edu
◦ Source for globalbusiness knowledge◦ a wealth of information on all countries◦ in-depth analysis of selected industries
Segmentation allows managers to focus on common aspects of countries and avoid information overload.
Segmentation Criteria◦ Geographic location: The location fo the market. (e.g.
Scandinavian countries, Middle East)◦ Political factors: Broad political characteristics (e.g. Iron
Curtain) ◦ Demography: Population characteristics◦ Economy: Economic development level ◦ Industrial Structure: Characteristics of business population◦ Technology: The degree of technological advancement◦ Cultural characteristics / Lifestyles / Attitudes ◦ .....
PEST ANALYSIS CAGE FRAMEWORK
* Benefits• Size of the market• Purchasing power of customers • Future prospects of a country
* Costs • Bribes• Relatively primitive or undeveloped
economy• Local laws and regulations setting
standards* Risks
• Political/Economic/Legal Risks Rate attractiveness of different
countries relative to each other.
Some companies are more compatible with the firm itself.
1. Cultural distance2. Administrative and
political distance3. Geographical distance4. Economic distance
Journey to “Sharahad”Journey to “Sharahad” Exploring cross-cultural differences
Role-playing Exercise
Voyage BeijingVoyage Beijing http://gel.msu.edu/voyagebeijing.htmlhttp://gel.msu.edu/voyagebeijing.html
Interactive Practice
Individualized reports prepared by market research and business consulting companies
Studies prepared by research organizations that are much cheaper than individualized reports
Government Agencies International Organizations (WTO, IMF, OECD) Trade Associations Information-service Companies (e.g. IGEME Library) Internet (e.g. www.intracen.org/marketanalysis/)
Opportunities Risks
Market Size Ease and Compatibility
of Operations◦ Geographic proximity◦ Share similar language,
culture and legal system◦ Similar market/economic
conditions Costs and Resource
Availability Bureaucracy
Competitive Risk◦ Find countries where
there is no significant competition
◦ Avoid overcrowded markets
◦ Clusters are an exception Political Risk BERI, BMI
(www.businessmonitor.com), Euromoney
Simulimpresa Exercise Your company that has to choose between
making a $100 million investment in Russia or the Czech Republic.
Both investments promise the same long-term return, so your choice is driven by risk considerations. Assess the various risks of doing business in each of these nations.
Which investment would you favor and why? http://globaledge.msu.edu/countries/czech-
republic/ http://globaledge.msu.edu/countries/russia/
Business Environment Risk Index - BERI
Criteria Weights Score (1-4)
Overall BERI Index
Political stabilityEconomic growthCurrency convertibilityLabor cost/productivityShort-term creditLong-term loans/venture capitalAttitude towards foreign investors 1.5Nationalization 1.5Monetary inflation 1.5Balance of payments 1.5Enforceability of contracts 1.5Bureaucratic delays 1Communications (phone, fax, internet access) 1Local management and partner 1Professional services 0.5TOTAL
Step 6: Compare Attractive Step 6: Compare Attractive Countries – Opportunity-Risk Countries – Opportunity-Risk MatrixMatrix
III II
IVV
Step 6: Compare Attractive Step 6: Compare Attractive Countries – Country Selection Countries – Country Selection GridGrid
Step 6: Compare Attractive Step 6: Compare Attractive Countries –Attractiveness – Countries –Attractiveness – Strength Matrix Strength Matrix
Invest / Grow Try HarderDivestment
orJoint Venture
Try Harder Proceed with care
“Harvest” / Generate Cash
Withdraw
HIGH MEDIUM LOW
LOW
MED
IUM
HIG
H
COMPANY STRENGTH
COU
NTR
Y AT
TRAC
TIVE
NES
SStep 6: Compare Attractive Step 6: Compare Attractive Countries –Attractiveness – Countries –Attractiveness – Strength Matrix Strength Matrix
Simulimpresa Exercise Your company wants considers
internationalizing. The options that you consider include: Egypt, Russia, Poland, Ukraine, Iran
Read the Euromonitor reports for these countries and conduct:◦ An environmental risk analysis◦ Market drivers analysis◦ Cost-Benefit analysis◦ Etc.
Finally decide which countries are more attractive.
Source: EuroMonitor reports
Simulimpresa Exercise – Country Comparison
1
2
3
4
5
High level scan of markets has identified some interesting similarities and differences:
◦ The forecasted market growth rate is highest in in ______ followed by _____ and _____.
◦ Consumers are considered to be most sophisticated in ______ followed by _____ and _____.
◦ ___ and ___ have the highest sensitivity to price, prioritizing functional benefits.
◦ Consumers are interested in modern, novel and advanced products in ___ and ___
◦ Western lifestyles are affecting customer trends in ___ and ___.◦ Economic factors affect purchasing decision negatively in ___ and
positively in ___. ◦ Legal factors became a major force in ___.◦ The effect of cultural factors and traditions on cosmetics and toiletries
spending is highest in ___.◦ Contraband products are threatening the cosmetics and toiletries
industry in ___.
Simulimpresa Exercise – Final Assessment
A high level scan of priority markets has identified some interesting similarities and differences:
Consumers are considered to be most sophisticated in Russia followed by Ukraine and Poland
Iran and Egypt have the highest sensitivity to price, prioritising functional benefits over emotional
Iran has high government control over retail development
Implications: Companies need to invest in obtaining specific
market and consumer insights to inform its business strategies
Each priority market needs to be handled discreetly The gathering of insights by market should consist of
desk based and primary research (qualitative and quantitative).
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Priority markets (high level insight) What the data tells us …
Simulimpresa Exercise