International Market

UNIT 13 INTERNATIONAL MARKET Selection

SELECTION
Objectives

After going through this unit you should be able to:

• explain the factors influencing market selection decision

• describe the process for undertaking market selection and segmentation
• discuss the strategies adopted by the firm which is undertaking the market
selection decision.
Structure
13.1 Introduction
13.2 Factors Influencing International Market Selection
13.3 The Process of Market Selection
13.4 Some Strategies
13.5 Summary
13.6 Self-assessment Questions
13.7 Further Readings

13.1 INTRODUCTION
In the preceding units we have talked about economic policies of India,
methodologies for undertaking political, cultural and economic analysis. All these
analysis were essential for answering the question of which market to enter. In this
unit the topic is carried further. Here an attempt has been made to answer questions-
what should the company's corporate market portfolio look like in terms of number
and types of markets held and what is the process for coming to such an answer? Put
more simply, the company must answer how many markets will it capture and what
would their characteristics be like, and for a particular market it must answer whether
it will build, abandon or divest that market.

Activity-1

How does economic, political and cultural analysis help in the process of market
selection?

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13.2 FACTORS INFLUENCING INTERNATIONAL

MARKET SELF 2TION
Every company while selecting a particular country as a market, attempts at
achieving the best fit between the market requirements and the company's abilities in
meeting these requirements. As a result, the factors that come into consideration,
while planning the international market selection, are country market factors and
company factors. These factors may be studied in greater detail as under.
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International 1) Country Market Factors
Marketing Planning
The country market factors may again be subdivided under three heads viz:

a) Product factors

b) Market factors

c) Marketing factors

a) Product Factors: The product characteristics and the transaction characteristics

play a vital role in market selection and segmentation process. The degree of product
specialisation, the value, the level of standardisation and the position in IPLC
(International Product Life Cycle) all influence the market selection process.

The degree of product specialisation will by itself eliminate several country markets.
Thus IBM wishing to market super computers would find small market because of
the product specialisation and value factors. On the other hand, Nestle may choose
virtually any country as its market.

Similarly, the degree of standardisation may also influence the market selection
process. Here standardisation refers to standardisation of both pre transaction and
post transaction measures like after sales service. Thus, a company maybe forced to
eliminate certain country markets either because the product does not meet with the
country specific market requirements or because it does not have an established after
sales service.

The position of the product on the PLC (Product Life Cycle Curve) of any given
market and on the IPLC also influences the market selection and segmentation
process. Most companies infact enter international markets not by choice but by the
fact that they find their domestic markets drying up. The desire to survive and grow
forces them to go into international markets. Even then, they must establish the
position of the product on the PLC. Thus, product position on PLC influences the
market selection process.

b) Market Factors: The cultural, political and economic analysis helps in

determining the nature of market for undertaking the market selection and
segmentation process. Questions regarding the size, stability, growth potential,
uncertainty and competition get answered. These questions help in deciding which
markets to eliminate and which markets to concentrate upon. Consideration to such
factors is necessary for aligning the market requirement with company abilities
through a marketing strategy. Very often a company may have to choose between
size and growth potential. The emphasis it lays on a particular variable through its
strategy may entirely be an outcome of the company's abilities and goals.

c) Marketing Factors: The company being an economic entity is influenced by

economic gains while selecting and segmenting a particular market. It considers the
costs and the nature of the costs against profitability of the market or the sales while
assessing the choice of the market. The cost is the outgrowth of product
characteristics and market characteristics. How much a company spends on each of
its four P's of the marketing mix depends upon these factors and the entry strategy
adopted. The profitability is judged on the basis of sales made. Two most frequently
viewed responses while undertaking cost benefit analysis are the concave sales
response function and the S-shaped sales function. In the concave sales response
function the highest returns are noticed at the lower levels of marketing expenditure
because of the shape of the sales function. This is essentially an outgrowth of the fact
that the market is ripe for accepting the product. Here segmentation issues become
predominant if maximum gains are to be cropped (reaped).

In case of the S-shaped sales function, it is assumed that a market has to be created
6 therefore the highest returns are yielded just before the diminishing returns set in and
after the marketing blocks are overcome.
 International Market
Selection

In the exhibit above curve B represents the concave sales function where as curve A
represents the S-shaped sales response. With every increase in marketing efforts (E)
the sales response (S) can be gauged. The impact of the predicted sales response
function on the choice of market is clear, however, it must be pointed out here that
marketing efforts by themselves can be of different types, therefore, the response
would be dependent upon the type of marketing effort planned. Thus, a company
indulging in Mail Order business may observe lower communication costs as against
a company wishing to set up its own facilities in the specified market. The analysis
must, therefore, revolve around similar marketing efforts.
Activity-2
a) How can a new company with a technologically new product undertake a
similar analysis for the purpose of market selection?
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b) Determine whether the sales response function in the above case will be S-
shaped or concave.
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2) Company Factors
As, the process of market selection involves a match between market factors and
company factors, it becomes necessary to understand the company factors. The
company factors may be divided under three heads-the management's risk
consciousness, the company goals, and the company's resources. The management's
risk consciousness determines how the company will perceive various risks while
undertaking country market analysis. In fact, subjects like assessment of political risk
depend directly on how the company perceives the risk The company goals can also
influence the market selection and segmentation process, for, they provide the
foothold for direction. The company's resources both financial and managerial
influence the market selection process. In fact the financial strength of a company
may force it to choose a mode of entry in spite of its not wanting to do so. Similarly,
the management's export market experience may determine the choice of market even
when the macro analysis may be against the choice. 7
International The fit between the company factors and the country market factors broadly answer
Marketing Planning the question as to which country will be selected. But, although they represent the
factors, every company must determine a process for market selection. This is the
issue, which is addressed in the next section.

13.3 THE PROCESS OF MARKET SELECTION

Every company is forced to address the question of which market to enter and how.
Even after entering the markets a company must answer questions like, should it
build, divest or abandon the market it has entered; how many such markets should it
hold so as to maximize its economic benefits; how best to export to the chosen
market?
To answer such questions every company must formulate procedures, policies and
adopt strategies which allow it to keep the focus on both; country market factors and
company factors. All these require marketing intelligence as indicated in the
following exhibit :
Marketing decision Marketing intelligence

Go international or Assessment of global market and firm's potential share in

remain domestic it, in view of local and international competition,
compared to domestic opportunities.
Which markets to A ranking of world markets according to market potential,
enter local competition and the political situation.
How to enter target Size of markets, international trade barriers, transport
markets costs, local competition, government requirements and
political stability.
How to market in For each market, buyer behaviour, competitive practice,
target markets distribution channels, media, company experience
Since the process of market selection begins with an attempt to match the market
requirement with the company's ability, the first step involves defining the market
and the company's ability. This step is followed by identifying the section of the
market to be captured or market segmentation, and the final step involves
determining the number of markets to he held.
Step 1: Market Definition
When a company is forced with heterogeneous international market, it becomes
imperative for the company to define the market. Market definition is usually one
dimensional i.e. a company can define the market in terms of country characteristics
or in terms of product characteristics. Such a definition must also include a time
frame and a reference to competition. The time frame is essential not only from the
point of performance measurement and control but also for giving direction. Thus, a
short-term market definition would involve a tactical concern. Similarly, defining the
competition would help in knowing precisely how the market is not being served,
thus it would pave way for the company's positioning. Since market definition
precedes segmentation it becomes necessary for it to be specific. Market definition
must encompass both served and unserved markets. All this makes it necessary for a
company to undertake the mechanical exercise of market definition.
Step 2: Market Segmentation
Having defined the market it becomes necessary for the company to identify the
relevant segment. This is done through market segmentation which is the process of
dividing the total market into one or more parts, each of which tends to be
homogeneous in all significant aspects. The basic criteria for segmenting
international markets maybe any one or combination of the following : geographic
segmentation, demographic segmentation, psychographic segmentation, behavioural
segmentation and benefit segmentation. The process of segmentation must clearly lay
down the niche in terms of measurability, accessibility, profitability and actionability.
8 Also, the segments should be conceptually distinguishable from each other, and
should respond differently to different marketing mix elements and programmes.
(i) Measurability International Market
Selection
This involves identifying the market segment in terms of size, purchasing power and
consumer behaviour. Since international markets are heterogeneous, the concept of
measurability has been flouted all too often, all the same some effective criteria must
be developed by the company.
(ii) Accessibility
How effectively can the company reach the identified segment must also be spelled
out. Here again, the existence of heterogeneous markets makes the task more
difficult.
(iii) Profitability
Since the fine is an economic entity, it must make sure that the identified segments
are profitable. Here also the existence of heterogeneous markets compound the task.
Many new costs are added while adapting to the identified segments. Market tariffs
also influence the cost structure. The company must c ire that the size of the
identified segment should be large enough to recover these costs.
(iv) Actionability
The last factor but, by no means the least, is actionability. Every identified segment
should be capable of being captured through effective marketing programmes. If an
identified segment cannot be tapped, it is useless from the point of view of the
company, however profitable it may be.
The process of segmentation is the most crucial step for the survival of the fine. It is
here that the company's resources are matched with the identified segment. Wrong
choices may lead to the decline of the company. This step is more or less in line with
the step on market definition. If the definition is based on product characteristics then
the segments are identified using product indicators else the segments are identified
using general market indicators. 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 the Markets
The next step in the process is usually associated with companies who have been in
the export market for long. They must 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.
Most companies use the country attractiveness/competitive strength matrix for
market selection as shown in the exhibit below.
Export Market Selection: Strategies and Assessment

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International Such a matrix helps in identifying Invest/Grow countries against Harvest/Divest
Marketing Planning countries. However, before using such a matrix the company must ensure that
• contributing factors are identified
• their relationship and direction have been established
• weights have been allotted to such factors.
It must also realise that such an analysis does not take into account
• the risk of international operation
• cost of entry into various countries and markets
• shared costs in international marketing.
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 identified on such
a matrix would fall under any one of the following heads.
Invest/Grow Countries : 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.
Hamst/Divest/Licenee/Combilae Countries : They represent the direct opposite of
invest/ grow countries. Because the country attractiveness is low and competitive
strength 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 follow a pricing policy which will minimize the
investment till the operations are abandoned.
Dominate/Divest Countries : Such countries rank high on country attractiveness but
low on competitive strengths. Therefore, the choice rests in either of the alternatives,
to sell out or to develop competitive strength to reap the opportunities offered by
such a market. If one wants to reap such benefits then he must analyse the market
more closely in terms of cash required to build the strength and the potential profits.
In such decision time frame and corporate profitability become important issues.
Selectivity Countries : Such countries fall in the centre of the matrix representing
the fact that they 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 build the market by introducing new product features,
through technological upgradations.
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 markets it 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.

13.4 SOME STRATEGIES

While the above procedure broadly outlines the country selection method, various
strategies and approaches are available to the management which fit within this
framework. Some of the approaches have been discussed as under.
(1) Reactive vs Proactive Approach
When an exporter enters into foreign market on the basis of an enquiry received by
him, he has resorted to the reactive approach.
Such an approach for market selection reflects absence of plan nine The enquiries in
such cases result from earlier participation in international markets or through
10 contacts established. This approach is frequently used by small and middle-sized
firms belonging to
countries rated as attractive. The objective underlying such a mode of entry can International Market
normally be classified as `short-term profits'. Thus, many exporters in India who Selection
procured enquiries through participation in international trade fairs reflected a
passive entry mode or a reactive method of market selection.
In direct contrast to the above approach is the proactive approach where a formal
process of market selection is followed. In such an approach the international
marketer has to develop an organisation with strong international marketing
experience. Such an approach reflects marketing orientation.
While the above approach reflects the theoretical difference, in reality any firm
would pursue both the modes of market selection.
(2) Expansive vs Contractible Approach ,
If the firm decides to follow a proactive approach then it has two options for market
selection. It can follow the expansive approach as against the contractible approach.
The expansive approach presupposes a bench mark i.e. it either uses the home market
or an established market as the base market. All other markets are screened on the
basis of the similarities that exist. Thus, it reflects the experience based market
selection approach. The clustering technique or the nearest neighbour technique are
examples of the expansive approach. They resort to either environmental proximity
or trade policy proximity for eliminating unwanted markets. The other technique
which falls under the expansive approach is the temperature gradient approach where
the countries are classified as moderate, hot or cold on the basis of seven variables.
These variables are political stability, market opportunity, economic development
and performance, cultural unity, legal barriers, physiographic barriers and geo-
cultural distance.
As against the expansive approach is the contractible approach. In the contractible
approach the markets are first organised on the basis of (a) general market indicators
and (b) specific product indicators and then screened against knock out factors.
Normally, this approach involves two steps for market screening, they are geographic
segmentation and customer segmentation.
(a) Geographic Segmentation
This step is further sub-divided into two stages (a) information stage (b) decision
stage. In the information stage, information regarding the general market
characteristics and product characteristics is collected. Here it must be pointed out
that the information collected will have to deal with ever changing variables.
Therefore, some criteria for allowing for such change must also be taken into
account.
The data so collected is further sub-divided under the heads of prohibitive market
factors and prohibitive product factors.
A prohibitive product factor may be factor which contrast against general market
factors. Therefore, such a market or product may comfortably be knocked out.
Similarly, a prohibitive market factor may be a barrier imposed by the government.
The markets which remain after such an analysis may he further knocked out on the
basis of established knock out factor. This is known as the decision stage.
(b) Customer Segmentation
The markets which remain after step (a) are further petered out by a qualitative and
quantitative analysis of demand and supply data.
On the demand side, data regarding consumer behaviour for both consumer and
industrial products must be collected. Similarly, on the supply side data pertaining to
quantity produced, number of producers, distribution system must be collected. This
data is again matched with the market characteristics and product characteristics to
arrive at the final choice of markets to be tapped.
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International Activity-3
Marketing Planning
Visit an experience and determine the strategy followed by him for export market
selection. Why does he follow that particular strategy?
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13.5 SUMMARY
The discussion in this unit centres around market selection and segmentation issues.
These issues are faced by a firm every time it wants to enter a new market. Therefore,
they are very often evaluated as expansion or growth strategies.

The factors which influence international market segmentation and selection include
country market factors as well as company factors. Further, the process of market
selection has been discussed. This helps an organisation in answering two pertinent
questions - which markets to enter and which direction to build. Some approaches
commonly followed by international firms have also been discussed.

13.6 SELF-ASSESSMENT QUESTIONS

1) What are the factors influencing the market selection decision?

2) With the held of an example explain how a marketing manager can use
"country attractiveness / competitive strength" matrix to define the direction of
growth for the organisation.

3) Using the contractible method select a market for a company marketing shoes
internationally.

13.7 FURTHER READINGS

A.Coskun Sandi and John S. Hill, Marketing Globally- Planning and Practice, NTC
Business Books, Ill., U.S.A, 1998

Jean-Pierre Jeannet and H.David Hennessey, Global Marketing Strategies, 4th edn.,
Houghton Mifflin, 1998

Masaaki Kotabe and Kristiaan Helsen, Global MarketingMgnagemenl, 2nd edit., John
Wiley & Sons, 2001

Micheal Czinkota and Ulm Ronkainen, International MLlarketing,6th edn.,

Fortworth, Harcourt College Publishers, 2001

Onkvisist and Shaw, International Marketing: Analysis and Strategy, Prentice Hall of
India

Philip Cateora and John Graham, International Marketing, Tata McGraw Hill,2002

Warren J. Keegan, Global Marketing Management, 7th edn., Prentice Hall of India,
2002

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