Foreign Marketing Selection
Foreign Marketing Selection
and Entr-
4.8
TERMINAL QUESTlOm
I.
What is the relationship between market segmenthtion, market targeting and product
positioning?
2.
3.
What are the elements that influence in deciding the principles of segmentation and
what will be the suitable base for marketing of Television in various countries? Also
suggest the marketing strategies to be followed.
4.
what are the different market targeting strategies? Explain them with appropriate
examples.
5.
"Global positioning is most effective for product qategories that approAch either end
of 'high-touchhigh-tech' continuum". Elaborate.
UNIT 5
FOREIGN MA
T SELECTION
Structure
Objectives
Introduction
Screening International Marketing Opportunities
Criteria for Selecting Target Countries
5.3.1
Market Size and Growth
5.3.2 Political Environment
5.3.3 Legal' Conditions
5.3.4 Social and Cultural Conditions
The ~ r o & s sof Market Selection
Let Us Sum Up
Answers to Cheek Your-Progress
Terminal Questions
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5.0
OBJECTIVES
As you know, the first step in the international market selection process is segmentation,
targeting and positioning. This you have already studied in Unit 4. The second step is
collection of relevant data on each country (for the selected segment), analyze it, fyter out. ;
less promising countries and select the most promising countries. All these aspects are
discussed in this unit.
This unit ha; bee.devcloped to highlight the need for a firm to choos&its export markets
judiciously. The different criteria that may be used in the location process as well as illustrations of the relevance of the criteria in the relation of markets are provided in the unit.
5.2
Global trade in merchandise has grown significantly during the last five decades and during
1999, it was estimated to be more than US$4.5 trillion at current value. As on February
2001, there were 140 countries who were members of the World Trade Organization O;rirlY))
besides countries like People's Republic of China and the Russian Federation which were not
members of WTO. Initially millions of products are trided across national boundaries of
countries every year and the number of companies engaged in foreign trade operations is also
growing. This does not, however, mean that all products can be sbld to all countries at all
times by a scompany. Apart from the fact that 'it will be practically impossible given the
resource constraints a company or country will face in trying to sell more than a limited
number of products to a limited number of countries. Reliable and up dated data and infor' mation may not be available in respect of a number of countries to enable a firm to arrive at
the right conclusion. It may not also be advisable to fritter away the scgce resources of a
firm on attempts to export an unmanageable number of products andfor.to unmanageable
number of countries. Taking into account the stfengths and weakness of a firm and the
opportunities and threats in the trading environment, it would be advisable for the firm to
~nternatfonalMarket Selection
and Entry
available in most libraries of international and regional organizations, export service institutions, etc.
The first stage of the selection process uses macro variables to discriminate between
countries that represent basic opportunities and countries with little or no opportunity or with
excessive risk. Macro variables describe the total market in tenna of economic, social,
geographic, and political information. For instance Inacro econi.,,:!ic statistics can indicate
that the country is too small, as evidenced by the gross national ;,rmoduct(GDP) or populrition
size, or if the gross national product is large the personal disposable income per household
may be too low. Political stability or political rel:ltions between the exporter's country and
the consumer's country can also be used to rcmovl: or select a country from the set of
possible opportunities. Similarly the geographic distance between the exporter's country and
the target country, the topographical and climate conditions can also influence selection1
rejection of a country.
Preliminary Oppoltunlties
In the second stage of the selection process, variables that indicate the potential market size
and acceptance of tha product or similar products are used. Often proxy variables are used in
this screening process. A proxy variable is a similar or related product that indicates a
demand for your product. For example, if you are attempting to measure the potential market
size and receptivity for satellite television reception equipment, possible proxy variables may
be the number of television sets for household, total sales of VCRs or total sales of microwave ovens. The number of television sets and VCRs indicates the potential for home
entertainment and the sales of microwave ovens indicates the propensity to use advanced
technologies in place of traditional appliance technology. The year-to-year growth rates and
the total sales of similar or proxy products are good indicators of market size and growth.
Other factors in the second stage of the selection process can also be used to screen out
countries, such as the stage of economic development, taxes, and duty requirements. If you
do not plan to manufacture locally, a high import duty or quota restriction may eliminate a
country from consideration in the second stage of the screening process.
Rejected
Counjrles
Possible Opportunities
.8,
Reliability Information
le Product Acceptance
Probable ~pportunlties
Corporate Factors
Influencing Implementation
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select a limited number of products for export and a manageable number of countries as
export markets and concentrate its efforts on achieving the best returns.
The foreign market selection process usually begins with a screening process that involves
gathering relevant information on each country and filtering out less promising countries. A
model for selecting foreign markets is shown in Figure 5.1.
The model includes a series of four filters to screen out countries. It is necessary to break the
process down into a series of steps due to the large number of markets since it is not possible
to coilduct extensive market research studies in each of the more than 150 countries of the
world (The World Bank Atlas includes 185 countries and territories). The screening process
is used to identify prospective countries. Two common errors of country selection are
likely to be (1) ignoring countries with significant potential for the company's products, and
(2) spending resources investigating tountries that may turn out to be poor prospects. The
screening process thus allows an international company to quickly focus efforts on a
the most promising markets by using published secondary sources .of da%and
The third stage of the screening process focuses on micro-level considerations such as
competitors, ease of entry, cost of eutry, and profit potential. Micro-level factors influence
the success or failure of specific product in market. At this stage of the screening process,
you may only be considering a limited number of countries; hence, is feasible to get more
detailed, reliable and updated information from the various gover~~mental
agencies, banks
and other such institutions and from other co~npaniescurrently in operation in that country.
In India, many export service institutions such as Export Promotion Councils have branch
offices overseas, who can provide information and contacts in many markets. Customs
brokers and freightjforwarders can also help at this stage of the process. Besides, a major
source of information at this stage is the Indian Embassys and High Commissions in overseas
countries. They not only provide Indian firm with relevant data and information but also
render other types of assistance including fixing up appointments for the representative of
Indian firm during a visit to the country of accreditation, advice on the do's and don'ts of
doing business within the country, advice on the standing of a local party, etc.
The focus of the screening prbcess switches from market size to profitability. For example,
based on the current and potential competitors, how much would you need to invest to gain a
particular market share? Given the prices currently charged in the market, what rffargin can
your company expect? Given the cost of entry and the expected sales, what is the likely
profit'? This stage of the analysis focuses on the quantitative profit expected. Many subjective judgements have to be made to arrive at many decisions. For example, an Israeli manufacture of pipe insulation found that the market price in the United Kingdom was $10 per
kilogram while its actual cost was less than $5 per kilogram. This indicated a good profit
potential if the company could gain access to the UK market,
The fourth stage of the scrkening process is an evaluation and ranking of the potential target
countries based on oorporatq resoqrces, objectives and strategies, For example, although
South Africa may have the.same expected potential is Venezuela, the later may have been
given a higher priority by one firmsince successful entry into Venezuela can later pave the
way for e n t j into neighbouring countries like Colombia and Bolivia. Alternatively, another
firm may opt for South Africa on account of the country's historical and cultural links with
India, familiarity with English language and presence of a large population of people of
Indian origin.
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Foreign k r k e t Seleetlon
of over $10,000. These one million households wilI be potential buyers of microwaves.
Similarly, a com@my that desires to sell footwear or testiles might like to have desired area
wise, a g h s e , income wise data. Another firm which wants to tap the market for items like
rain coats, umbrellas, woolen blankets, refriget~ators,sir conditioners, carpets, etc. must
necessarily collect information on the climatic conditions in the main regions of the country.
'hbb 5.1:
Geographic Indicators
Size of the country in terms of geographic area
Climatic conditions
Topographical characteristics
Demographic Characteristics
Total population
Population growth rate
Distribution of the population age-wise,gender-wise, income-wise,
rural-urban wise, etc.
Population density
Economlc Characteristics
Total gross national product
5.3
hep process of selecting target countries through the screening process requires that the
companies identify the criteria to be used to differentiate one country from another. Research
on international business has shown that the following four critical factors influence market
selection:
Market size
Political environment
Legal environment
Social and Cubural environment
In the following section pf the chapter we will explain each of these factors and their uses in
the market selection process.
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It is obvious that the potentid market size h d growth would be an important factor in
selecting markets. The larger the potential demand for a product in a country, the more
attractive it will be to a company.
Measures of market size and growth can be on both macro ahd micro basis. On a macro
basis, it may be determined that the country needs a minimum set of potential resources to
be worth further consideration. Table 5.1 shows a summary of potential macro indicators of
market size. There are a variety of readily available statitkical data that are macro indicators
of market size. If you are screening countries for a firm that sells microwave ovens, you may
decide not to consider any country with a personal disposable income per household income
is less than $10,000 per year, The logic of this criterion is that if the average household of
less than $10,000 the potential for a luxury item like a microwave oven will qot be great,
However, a single statistic can 'sometimes be deceptive. For example, a country may have an
average household income of $8,000, but thee may be one million households w
h income
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International ~ n r k i Selection
l
and Entry
consumption statistics may not be available for a certain product categdry, often the consumption of similar or substitute products are used as proxy variabl'es. f i r example, in
terming the market size for surgical sutures, marketers may use the number of hospital beds
as a proxy variable. The number of farms may indicate the potential demand for items like
tractors, fertilizers, seeds, pump sets, etc.
scope for exploring the market further. The commodity mix of imports will indicate which
commodities/commoditygroups offer the maximum potential as evidenced by their size and
growth rates. This information has to be counterchecked with the earlier yardstick that was
proposed, i.e. the industrial, agricultural, mineral, physical infrastructure and the future
plans in regard to these. For instance, in the case of a country, past trend may indicate
reasonable growth in the imports of jute bags, but the c o u h y may have plans ibprow jute or
a substitute crop in the near future or produce synthetic bags. ID such an eventuality, complete dependence on past import trends may mislead a firm into exporting jute bags to that
country. In fact, such a development had occurred in India's export history.
The macro and micro indicators of market size allow the marketer to estimate or infer the
potential market size. The marketer should now evaluate the risk associated with each market
opportunity.
'--.
After it has become fairly clear that the growth in ilnports of a particular commodity is likely
to continue in the immediate future, a close look at the import policy of the country including
any special type of trade relationship that the country may have with another country or some
other countries will indicate the extent of market access that the company can hope for. It is
quite likely that imports of a particular item may be growing, but the item may face high
import duty andfor low tariff~barrierslike quota restrictions in the country. In some cases,
imports from India may be subjected to duty higher than those from some other countries
with which the importing country has special trade relations or imports from India may be
subjected to quota restrictions while those from some other countries may not be. This is
specially true in respect of items like textiles today. There are quota and non quota countries
for textiles exports and there are some countries like Nepal whose exports of textiles are not
subject to any quota restrictions even in quota countries. On the one hand, this type of
analysis may help an export firm to zero in on non quota, low import duty countries, while
on the other this is also useful to firm to formulate alternate strategies, other than exporting,
to enter a quota or high import duty market. For example, there are instances where Indian
textile export firms have set up textile units in Nepal to beat the quota restrictions. Similarly, a high import duty on Indian textiles can be countermanded by setting up a textile
manufacturing unit in the importing country itself or in another country which imposes less
restrictions on exports of textiles from its borders.
Illustrate with appropriate examples, the different indicators that may be used by a firm to
reach at a reasonably valid estimate of the size of an overseas inarket.
-The macro indicators of market potential and growth are usually analyzed in the first stage
of the screening process, because the data are normally readily available and can be used to
quickly eliminate countries with little or no potential. The macro indicators focus on the total
potential demand (population) and ability to afford a product (per capita income). However,
because the macro indicators of market size are too general, they do not necessarily indicate
a perceived need for the product. In the third stage of the screening process it is hence,
recommended that micro indicators of market potential be analyzed. Micro indicators usuall)
indicate actual consumption of the product that a firm wants to sell or a similar product
which is a measure of the perceived need.
5.3.2
Political Environment
The impact of a host country's political environment on market selection is obvious. Though
political risk tends to be more subjective than the quantitative indicators of market size, it
must be realized that it is a major factor influencing inarket selection. For example, the
invasion of Kuwait in 1990 resulted in the exposure of millions of dollars of U.S.assets in
the Middle East.
. Television sets
Hotel beds
Telephones
Every company will be hurt by political risk, from limitations on the number of foreign
company officials, limits on the amount of profits or dividends repatriation to the parent
company, or ban on imports from a particular company or country, threat of outright takeovers. There are a number of indicators that can be used to assess political risk. Table 5.3
-shows some indicators of political risk that may be used in country selection.
Cinema seats
e Tourist arrivals
o Passenger cars
Hospitals
Hospital beds
e Steel production
Probability of nationalization
Physicians
o Rice production
Bureaucratic delays
e Number of farms
Number of expropriations
Government intervention
Coffee consumption
PetroYdiesel consumption
Electricity consumption
Political executions
Soldierlcivilan ratio
Micro indicators can be used to estimate market size, Table 5.2 presents the list of micro
indicators. The number of households with television sets indicates the potential mrii7ket size
for television sets, if eveiry household purchased a television set. Based on the life of the
average television set in dse, pne can estimate the annual demand. Although the 'actual
While selecting the foreign market, the firm must properly analyze the prevailing political ,
conditions in the host country. The following checklist can guide this process.
1.
2.
3.
4.
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5.
What role does the current government see for foreign business ?
6.
Is foreign business treated differently from local firms in public policy ? If so how ?
7.
8.
9.
businesses?
International firms are often viewed differently from local brisinesses in a countly. A government that encourages private investment in general may discourage imports or foreign
ownership of local business'es. For example, in the 1960s and 1970s. Canadians became
concerned about the significant share of overseas firms in their oil, forestry, and rnanufacturing industries. Both the Labour and Conservative parties developed platforms that called for
strict rules for foreign firms wishink to operate in their country. In some countries the
prevailing philosophy rnby be that imports are to be discouraged but foreign investment finds
government support. The international marketer must discover what the perceived role is for
foreign business in a country.
10. What general role does government see for private business in that country's
economic life?
11.
14. What are the trigger points for increased nationalistic and foreign investors ?
The surest long term strategy for minimizing political risk is to acknowledge the imporlance
of positive interfaces with host governments. Some firms inlplement this by reminding
personnel that they are guests in the foreign markets and continued permission to operate is
contingent on showing the benefits of resource transfer, balance of payments, employment,
income distribution and social/cultural benefits.
15.
16.
17. What are the chances of political harassment and what forms is it likely to take ?
18. What tools can be used to build a mutually beneficial relationship with that
country's government?
21.
22.
Will your firm's activities violate any of the home or host country's extra-territorial
laws?
23.
What aspects of your marketing strategy will be affected by the host country's legal
environment?
An important aspect of a country's political environment is its political structure and decision-making processes. The basic political structure is determined by the roles of citizens,
political parties, and special interest groups in the power structure and political decisions. In
democracies, all these groups have comparatively high participation in decision making. In
- rnonwchies and dictatorships,these groups play minimal roles. Except for the military, which
as a special interesi group may be important in selecting a dictator otherwise, the ruling
royal family or the dictators family decide everything.In communist political structures, the
political party is central to decision making, while citizens and other interest groups are less important. Yet some communist gover'nrnents have evolved greater decentralization of policy'
and decisions on business activities, Ubgoslavia has for the past two decades encouraged
decentralized decision making by employee groups and small capital at the small business
level. In recent years, under Den Xiaoping, China has been evolving and even encouraging
capitalism alongside government owned enterprise to encourage h d hasten economic
development. In todays China, it is okay to get rich. It is helpful then t?, know who partici.
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pates in decisions'about political structure and policy,
5.3.3
Legal Conditions
Law is the ordering of activity, it spells out the rules of the garne. In different countries not
only are the "rules" for business different, but the ways they are applied also vary. Newton
Minnow, former ECC Chairman, commented that "in Germany, under law everything is
prohibited except that which is permitted. In France, unber the law everything is permitted .
except that which is prohibited. In the Soviet Union, everything is pehitted, including that
which is permitted. And in Italy under the law everything is permitted, especially that which
is prohibited." This variation presents an exceedingly difficult cnvironment for international
marketers because they must understand complex legalities in each and eveiy national
environment before determining an appropriate marketing strategy.
International business is seriously hampered by the absence of an international court of legal
systems. Just as political institutions remain national in scope, courts and laws regulating
business activity have only national jurisdiction. While in the case of s o y countries bilateral
treaties seek tq overcome this problem, there is no international agency which can enforce
decisidns across countries, and hence exporters and importers must abide by the local laws
regulatihg their operations in each national harket,
OTHER CONTRIBUTIONS
I . Original capitdi, ioans from parent, 1. New idcas represent inputs of technology,
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new products, marketing organization,
and reinyested profit added to local
business experience detract from balance of
capital accumulation, speed
payments.
development, Streiigthen the local
balance of payments.
2. People trained locally. Both local managers
and technicians, as well as skilled workers,
2. Trademarks, patents, and know-how
are developed creating stable middle class,
bring in years of research and
speeding economic development.
development.
3. Output. A new venture supplies goods,
3. Local loans channel savings into
otherwise unavailable or available at greater
wealth-producingprojects,
expense and/or in small quantities, developed
stimulate savings.
local resources. .
. Local equity capital channels
Import
savings displace foreign exchange
4.
savings into wealth-producing
losses otherwise incurred to bring in finished
operations, strengthens the stock
goods.
market.
5. Exports contribute to country's foreign
exchange earnings, provide worldhdc
marketing network.
Taxes paid finance government and
development.
7. Wages and salaries raise employment and
living sta~idards,create purchasing power, add
tax revenue.
8. Purchases from ancillary industries spur local
industry development diversified local
suppliers in turn raising incomes, tax revenues
and development.
9. Other local expenditures stimulate all types of
service industries from insurance and banking
to shipping and advertising, raising incomes,
tax revenues, and development.
10. Local dividends paid strengthen purchasing
power savings.
11. Stimulus to other foreign investors, Capital
inflow shows confidence in country and
encourages further inflow or shows capital
flight,
12. Sti~ilulusto local investor. A foreign venture
enlarges the local market provides skilled
managers technicians and workers through
transfers among companies oflen sets
efficiency model, creates confidence in the
economy.
13. Contributions to charities, education boost
social infrastructure.
14. Working conditions. Foreign-owned plants
usually set standards for worker facilities,
plant improvement.
15. Standard of Living. Foreign ventures make
more and better products at lowest cost.
CAPITAL CONTRIBUTIONS
NEGATIVE FACTORS
1.
2.
3.
4.
One of the key issues in international disputes is determining jurisdiction in the absence of
international commercial law. The following three bases are used in deciding which country's
laws have jurisdiction over the dispute.
a
If a foreign owned firm has a conflict with private or public parties in a foreign market, it
must solve it in the court system of that country Z i t wants to ensure enforcement. ~ n d - y e t ,
the foreign firm is often at a disadvantage in suing another country's legal system, if it wants
' t o ensure enforcement. It may find public opinion hostile or even experience discrimination
Unfortunately, these bases do not always lead to o clear decision about jurisdiction because
the contract could have been negotiated in one country, but exonerated in another. In fact,
the clearest rule is when the original contract itself spells out jurisdiction.
While laws and legal systems are national in scope, there arc some situations in which
nations supply these laws to activities outside their borders. This concept is called the
extraterritorial applications of law. It holds, for example, that even if an American business is operating outside the territorial jprisdiction of the US courts, those courts still have
jurisdiction if the operations produce eifects within the United States.
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One area where the concept of extraterritoriality applies is trade with enemies of the home
country. For example, wholly owned subsidiaries of the US firms were building natural gas
pipelines in Russia during 1982, The US government threatened sanctions against the parent
companies because it believed that this technology could be used for military purposes and
thus the sale was a violation of the Trading With the Enemy Act. The United States is not the
only country with laws that forbid aiding and abetting an enemy countly. An international
firm may find itself in violation of these laws as world alliances and hostilities constantly
change.
Host governments find it difficult to treat a foreign firm like a local one, especially when that
firm must adhere to its home country's foreign policies, and thus appears to be an arm of its
home country's government and a threat to the host country's economic sovereignty. A
French subsidiary of the American Fruehauf Corporation faced this situation prior to 1971.
The French subsidiary signed a contract to sell equipment to the People's Republic of China.
The US parent forbade the subsidiary to fulfill the contract since it was a violation of the US
Trading With the Enemy Act. In response, the French government seized the subsidiary,
forced compliance with the contract, and then returned to its French owners.
Another dilemma faced by international firms is the extent of home government protection '
they want. Under the Hickenlooper Amendment, the US law requires cutting off foreign aid
to a country where the US-owned assets of personnel are seized without restitutioil, While it
may protect American firms from political risks, it presents its own problems. For example,
American tuna boats were seized by Ecuador and Peru for violating their 200 mile international boundaries. The United States recognized only a 12 mile international boundary, so the
Hickenlooper Amendment was invoked against the two countries. And yet, the American
fisherman had clearly violated Peruvian and Ecuadorian laws.
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Antitrust laws are also applied extraterritorial. When subsidiaries of the US firms engage in
mergers in other countries, they may find US Justice Department ruling them illegal. Gillette
was disallowed purchase of a German firm that held Robson patents in the United States.
IBM had been prosecuted for violating antitrust laws of the European Union, The major
problem with extraterritorial application of antitrust laws is that they judge the effects on
competition. Such activities may increase world-level competition, but have a negative effect
in-one market. Again it seems that international firms are unduly hampered by the national
scope of laws regarding their activities.
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Major world legal systems: Two major structures have guided the development of legal
systems in most countries of the world. Common Law is the basis of law in countries that
have been at some time, under British influence. Common law countries do not attempt to
anticipate all contingencies in the application of a law and have provisions within it to cover
every foreseeable situation. Instead, cases in Common Law countries are decided on the
basis of tradition, common practice, and interpretation of statutes. Civil or Code Law
countries have as their promise the writing of codes of law that are inclusive of all foreseeable applications of law. Codes of law are then developed for commercial, civil, andpimipa]
applications of law. Precedents are important in understanding common law as it is or has
been interpreted. The laws themselves are the important factors in understanding the legal
environment in Civil or Code Law countries.
Even in Common Law countries there are often codes of law. The Uniform Commercial
Code in the United States is a good example of code of law governing business activity.
However, Common Law does not differentiate among civil, criminal, and commercial .
activities,and thus a business may be liable under any of these laws. In common law countries, ownership of industrial property rights comes from use; in Code of Civil Law countries,
ownership comes from registration. The implications of this difference are obvious: a
company may find itself in litigation in a Code Law country to gain the rights to use its own
name, transfer logos, and it may not win!
Language
a Esthetics
a Education
e Religion
Material culture will be considered as the tools, artifacts, and technology of a society. It is
concerned with techniques and with physical things, but only those made or fashioned by
man, as opposed to thos: found in nature. For example, a tree per se is not a part of the
culture but the Christmas tree is, and so is an orchard. Materialqulture includes economic
considerations,that is, the way the society organizes its economib,activities. When we speak
of a "technology gap" between India and USA, for instance, we ar~rbferringto differences in
the material culture of the two areas.
Legal perspectives of marketing activities: The legal environment that influences marketing activities is so bmad that we cannot hope to cover all areas for all countries in the space.
However, we can point out some instances of the way marketing strategy in some countries
is affected because of the difference in legal environment. For example, we have'already
discussed antitrust laws as they affect joining ventures, mergers, and licensing as market
entry strategies, AntitrusLlaws can also stand in the way of growing dealers exclusive
territories. Exclusive territory provisions in the US contracts are not enforceable, but they are
allowable under most conditions in Latin American countries. Other distribution activities
such as tying contracts, resale restrictions on dealers, reciprocity, full-line forcing, functional
discounts, franchising,or other forms of vertical integration are prohibited in some countries
and permissible in others. Similarly the amount of commission to be paid to an overseas
agent may be governed by local laws; the company may not have the freedom to post ik own
power as an agent in lame; countries the laws may require association of a local
the agency.
Promotion is the area of marketing strategy where the impact of varying legal rules is
particularly obvious. In Germany, for example, advertisements cannot claim that a firm's
products are the "best" since that is interpreted as violating a law that forbids disparaging
competitors. Comparative advertising messages (direct comparisons with competing products) may not be permitted. Promoting products such as alcohol and cigarettes through the
press or electronic media is not allowed in some countries. In some others, medical drugs can
not be promoted 'without clearance from the medical profession. Some advertisements which
afe considered obscene by some couhtries are allowed freely in some other countries. Sales
promotion tools such as push monie;, consumer giveaways, satipling co;lpons, contests,
Material culture
There are many other ways in which Code or Common Law systems can affect the functioning of a firm: some of these afe liability of the firm for product damages, requirements of a
contract, and implications of nonqompliance with a contract. Suffice it to say that good legal
c~unselis an essential component of effective marketing in toreign markets.
Pricing by the international firm is likely to be affected in variety of ways by the legal
environment in different countries. Price maintenance laws may prevent the firm from suing
discount s h e s or from offering quantity discounts or other price concessions. Some countries have minimum price laws and others may require licenses for price increases. Pricing
may have to be pegged to inflation indexes in some situations; in others the firm may be
prevented from raising prices in a highly inflationary environment, and thus will face declining profitability. The anti-dumping laws in most countries limit the freedom of the overseas
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firms to change price beyond a point.
trading stamps, etc. are illegal in many countries; in others, these practices are strictly
regulated. Taxes may be levied on store windows or displays.
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Language is the most obvious difference between cultures. Inextricably linked,With all other
aspects of a culture, language reflects the nature and values of the culture. For example, the
English language has a rich vocabulary for commercial and industrial activities,hflecting the
nature of the English and American societies. Many countries with less industrial and
commercial activities may have richer vocabularies than the English language, but for
matters important to their cultut'e and not necessarily for industrial and commercial activities,
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Esthetics refers to a community's ideas concerning beauty and good faste, as expressed in
the fine arts (music, art, drama, and dancing) and the particular appreciation of color and
form.,There are important international differences in esthetics, but they tend to be regional
rather than national: For example, Kabuki theatre is exclusively Japanese, but the Western
community is its audience. '
Mus
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1 tastes too tend to be regional rather than national. In the West, a great number of
cou ties enjoy the same dlassical and populaimusic, In fact, music may become truly
intetnational. Nevertheless, there are obvious differences between Western music and that of
the Middle East, Africa, or India. Likewise the dance styles of the African tribal groups of
the Balinese are quitely removed from Western dance styles. The beauty of India's Taj Mahal
is different from that of the Notre Dam in Paris or the Level Building on Park Avenue in New
York.
\
Eddcation, in the simple sense, usually means formal training received in school. A welleddcated person, for example,!i@ne who has had mjlny years of such training. In this normal
sense, the abodgines in ~ u ~ t r a or
d athe Pygmies in Africa are not educated; that is, they have
never been to school. Hoyaver, this~formaldefinition of education is too restrictive. Education includes the process of Fansrnitting skills, ideas, and attitudes, as well training in
particular disciplines. Even primitive peoples have been educated in this broader sense. For
31
Internatipnal ~ e r k e Sclectlon
t
and Enhy
example, the Bushmen of South Africa are well educated in the restricted culture in which
they live. One function of education is the transmission of the existing culture and traditions
to the new generation. This is as true among the people of America as among the aborigines
of Australia. However, education can also be used for cultural change. Russia and Mainland
China are notable examples, but this again is an aspect of education in most nations of the
world. For example, in India educational campaigns are carried on to improve agriculture or
to quell the population explosion. In Western Europe, educatiol~alreform is undertaken to
bridge the technology gap.
It must also be mentioned here that in international marketing the process of segmentation
involves two levels viz. (a) country market level and (b) customer market level.
Step 3: Determining tile Markets
The next step in the process is usually to know which market to build, which to divest and
which to abandon in order to optimize their return on investment. In other words they must
define the direction of growth. For this purpose most companies use the country attractiveness/competitive strength matrix as shown in Figure 5.2 below.
The material culture, language, and esthetics are, in effect, outward manifestations or
observable physical behaviour of a culture. If w e are to get a full undersunding of a culture,
however, we must gain a familiarity with the internal, psychic, or mental beha.viour that gives
rise to the external manifestations. Generally, it is the religion, beliefs, and attitudes of a
group of people that provide the best insights into their behaviour. Therefore, although an
international company should be primarily interested in knowing how people behave as
.consulners or workers, its task will be aided by an understanding of why people behave as
they do. Even in America, studies of worker and consumer motivation are used extensively.
High
Low
High
'
The process of segmentation is the most crucial step for the survival of the firm, It is here
that the company's resources are matched wlth the identified segment. Wrong choices may
l e d to the decline of ttk company. This step is more or less in line with the stop on market
definition. If the definition is based on product characteristicsthen the segments are identified using product indicators else the segments ace identified using general market indicators.
Competitive Strengths
Low
It must also realize that such an analysis does not take into account
Keeping these facts in mind it becomes simple for a company to identify the market on the
basis of growth, divesture. The various countries that can be identifidd on such a matrix
would fall under any one of the following heads.
InvesUgrow countfies: Such countries call for a high level marketing commitment. They
represent a large market size which can be tapped through investment in people and capital.
Here it becomes necessary to match the products with the marketing requirements.
~ o r e i ~Market
n
Selection
5.6
Hnrtest/divesfflicence/combinecountries: They represent the direct opposite of invest/
grow countries. Because the country attractiveness is low and competitive skength is also
low, such a country must be harvested. A growth of market share in such a market would
demand an equal increase in marketing effort wiping out the gains if any. Therefore, in such
countries it makes more sense to sell out, to maintain a close watch of cash flow and to
which will minimize the in~estmentin such countries till the operafollow a pricing
tions are abandoned.
Dominant/dlvest countries: Such countries rank high on country attractiveness but low on
competitive strengths. Therefore, the choice rest in either of the alternatives, to sell out o r to
develop competitive strength to reap the opportunities offered by such a market. If one wants
to reap such benefits then one must analyze the msrket more closely in t e n s of cash required
to build the strength and the potential profits. In such a decision, time frame and corporate
profitability become important issues.
~ - -
Such an analysis helps a company competing in the global scene to use its limited resources
more effectively. It knows which markets to divest and which to hold. Even within marketslt
answers questions regarding which segments to build. In the absence of such an analysis the
corporate profitability would fall because of inclusion of losers in the market portfolio and
the company's survival itself may come into question.
the politico-legal environment of the country is an important factor in market analysis. The
exporting firm should be firmly familiar with the political structure and philosophy of the
ruling party of the importing country since generally overseas firms are not given the same
treatment as local firms in many countries. Since laws and courts in all countries have only
national jurisdiction. It is highly important that a firm intending to enter export business .
familiarities itself with the legal systems of the countries where it wants to operate because
there are laws in many countries relating to product, pricing, pro~notionand distribution.
Finally, understanding the socio cultural conditions of the country is very important since,
ultimately, it is the consumer who is to be influenced to accept a firm's offer,
The process of international market selection involves*threebasic steps: (1) defining the
market and thepmpany's ability, (2) market segmentation and (3) determining the markets
to be held. These three steps are discussed in detail,
I
A.
Since every country and every firm has its own strengths and weaknesses, in terms
of geographical location, resources, objectives etc. it is not possible nor desirable
for a country or company to try to export every product to every country. Hence the
desirability of selecting the most potential markets. Variables given in Figure 5.1
should be listed here.
'B.
The indicators that are given in Table 5.1 should be listed here and explained with
appropriate exail~ples.
INAL QUESTIONS
Selectivity countries: Such countries fall in the center of the matrix representing the fact
.that thev are neither highly
- - attractive countries nor highly unattractive. They also represent in
company terms, a position that can be built or broken. In such situation the company can
either unite the market or build the market by introducing new product.features, through
technological upgradations.
1.
2.
3.
Identify various indicators which can help the marketer in.estimating the size of the
overseas market. Explain how you estimate the market size by using sq&b.hdicators.
4.
5.