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Decision Criterion for IB Selection of Foreign Markets

Decision Criterion 1. 2. 3. 4. 5. 6. 7. Political Risks Market Access Factor Costs and Conditions Shipping Considerations Country Infrastructure Foreign Exchange Competitive Advantage

Decision Criterion for IB / Political Risks

Risk of change in govt. policy that would adversely impact a company's ability to operate effectively and profitably, is a deterrent to expanding internationally.

Decision Criterion for IB / Political Risks

There is an inverse relationship between political risk and stage of development of a country.

Decision Criterion for IB / Market Access

1. McDonalds in Serbia 2. McDonalds Others

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Decision Criterion for IB / Market Access

Local content laws (e.g. Japanese carmakers in USA) BoP problems

Decision Criterion for IB / Factor Costs & Conditions

Decision Criterion for IB / Factor Costs & Conditions

Cost, Availability & Relative Abundance of:
Land Labor
manufacturing & production ($ 0.50/hour in LDCs and up to $ 20/hour in Developed Countries) professional & technical, management

Decision Criterion for IB / Factor Costs & Conditions

The application of
advanced computer controls and other new manufacturing technologies

has reduced the proportion of labor relative to capital for many businesses.

Capital

Decision Criterion for IB / Factor Costs & Conditions

E.g. Arrow Shirt Company 1950s: Sourcing from Japan
Wages and real estate costs increased Shifted to HK and then to Taiwan, and Korea!

Decision Criterion for IB / Factor Costs & Conditions

E.g. Arrow Shirt Company 1980s: Shifted to China, Thailand, Indonesia, Malaysia, Bangladesh & Singapore 15% of shirts sourced from Far East at a cost savings of $ 15 per doz.
Lead time of 12 months!

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Decision Criterion for IB / Factor Costs & Conditions

E.g. Arrow Shirt Company Later decision to phase out imports and automate US Plants @ $ 15m.
Productivity increased 25% and lead time reduced to 3 months.

Decision Criterion for IB / Factor Costs & Conditions

E.g. Arrow Shirt Company Later decision to phase out imports and automate US Plants @ $ 15m.
Productivity increased 25% and lead time reduced to 3 months. 400 US workers laid off and 4 factories closed!

Decision Criterion for IB

1. 2. 3. 4. 5. 6. 7. Political Risks Market Access Factor Costs and Conditions Shipping Considerations Country Infrastructure Foreign Exchange Competitive Advantage

Decision Criterion for IB / Shipping Considerations

Decision Criterion for IB / Shipping Considerations

Transportation Costs and Transit times are Proportional to the distance between the product source and target market.

Decision Criterion for IB / Shipping Considerations

Transportation expenses constitute about 5% of total costs of import and export.

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Decision Criterion for IB / Shipping Considerations

Innovation (like alliances, free fewer border controls (EU), and inter-modal services) and new technologies have drastically reduced
Shipping & Transportation Rates and Time. E.g. - Acer (Taiwan) - Fast-food business model

Decision Criterion for IB / Shipping Considerations

E.g. - Acer (Taiwan) - Fast-food business model Logistics Strategy
Non-perishable components (Cabinets, KB, Mouse, Floppy disks, CDs, DVDs, etc.) are manufactured in Taiwan and shipped to their 39 RBUs. Perishables Memory Drives and HDDs (which are constantly being upgraded) are manufactured as needed and air shipped to RBUs where the final product is assembled.

Eliminates 2 month time lag and need for costly inventory and enables delivery of latest products.

Decision Criterion for IB

1. 2. 3. 4. 5. 6. 7. Political Risks Market Access Factor Costs and Conditions Shipping Considerations Country Infrastructure Foreign Exchange Competitive Advantage

Country Infrastructure

Country Infrastructure
A country may have cheap labor but does it have the necessary supporting services or infrastructure to support a manufacturing activity? Pics Example: Mumbai Sea Port

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Country Infrastructure
FACTORS: 1. Power,

Country Infrastructure
FACTORS: 1. Power, 2. Transportation and Roads,

Country Infrastructure
1. 2. 3. FACTORS: Power, Transportation and Roads, Communications, 1. 2. 3. 4.

Country Infrastructure
FACTORS: Power, Transportation and Roads, Communications, Service & Component Suppliers,

Country Infrastructure
1. 2. 3. 4. 5. FACTORS: Power, Transportation and Roads, Communications, Service & Component Suppliers, Labor Pool, 1. 2. 3. 4. 5. 6.

Country Infrastructure
FACTORS: Power, Transportation and Roads, Communications, Service & Component Suppliers, Labor Pool, Civil Order,

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Country Infrastructure
1. 2. 3. 4. 5. 6. 7. FACTORS: Power, Transportation and Roads, Communications, Service & Component Suppliers, Labor Pool, Civil Order, Reliable Access to Foreign Exchange, 1. 2. 3. 4. 5. 6. 7. 8.

Country Infrastructure
FACTORS: Power, Transportation and Roads, Communications, Service & Component Suppliers, Labor Pool, Civil Order Reliable Access to Foreign Exchange, Physically Secure Setting, and

Country Infrastructure
1. 2. 3. 4. 5. 6. 7. 8. 9. FACTORS: Power, Transportation and Roads, Communications, Service & Component Suppliers, Labor Pool, Civil Order Reliable Access to Foreign Exchange, Physically Secure Setting, and Effective Governance.

Decision Criterion for IB

1. 2. 3. 4. 5. 6. 7. Political Risks Market Access Factor Costs and Conditions Shipping Considerations Country Infrastructure Foreign Exchange Competitive Advantage

Foreign Exchange

Foreign Exchange
The cost of production supplied by a country source will be determined in part by the prevailing foreign exchange rate for the countrys currency.

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Foreign Exchange
Exchange Rates are so volatile today that many companies pursue global sourcing strategies as a way of limiting exchangerelated risk.

Foreign Exchange
The dramatic shifts in price levels of commodities and currencies are a major characteristics of the world economy today. Such volatility argues for a sourcing strategy that provides alternative country options for supplying markets.

Foreign Exchange
Example The financial crisis in Russia in 1998 saw the ruble drop from 6 to the US$ to 25 rubles to the dollar! Rupee posts biggest single day fall in 3 years Graph Rupee fall may inflate India Inc's foreign loan bill by $2 billion. Zimbabwe to print first $100 trillion note CNN

Indian Rupees to 1 USD

Creating a PRODUCT-MARKET Profile

Creating a PRODUCT-MARKET Profile

The first step in choosing export markets is to establish the key factors influencing sales and profitability of the product in question.

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Creating a PRODUCT-MARKET Profile

If a company is getting started for the first time in exporting,
its product-market profile will most likely be based on its experience in the home market,

Creating a PRODUCT-MARKET Profile

The basic questions to be answered can be summarized as the 9Ws:

which may or may not be relevant to the individual export markets being considered.

Creating a PRODUCT-MARKET Profile

The basic questions to be answered can be summarized as the 9Ws: 1. Who buys our products?

Creating a PRODUCT-MARKET Profile

The basic questions to be answered can be summarized as the 9Ws: 1. Who buys our products? 2. Who does not buy our product?

Creating a PRODUCT-MARKET Profile

The basic questions to be answered can be summarized as the 9Ws: 1. Who buys our products? 2. Who does not buy our product? 3. What need or function does our product serve? 1. 2. 3. 4.

Creating a PRODUCT-MARKET Profile

The basic questions to be answered can be summarized as the 9Ws: Who buys our products? Who does not buy our product? What need or function does our product serve? What problem does our product solve?

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Creating a PRODUCT-MARKET Profile

1. 2. 3. 4. 5. The basic questions to be answered can be summarized as the 9Ws: Who buys our products? Who does not buy our product? What need or function does our product serve? What problem does our product solve? What are customers currently buying to satisfy the need and/or solve the problem for which our product is targeted?
1. 2. 3. 4. 5. 6.

Creating a PRODUCT-MARKET Profile

The basic questions to be answered can be summarized as the 9Ws: Who buys our products? Who does not buy our product? What need or function does our product serve? What problem does our product solve? What are customers currently buying to satisfy the need and/or solve the problem for which our product is targeted? What price are they paying for the products they are currently buying?

Creating a PRODUCT-MARKET Profile

1. 2. 3. 4. 5. 6. 7. The basic questions to be answered can be summarized as the 9Ws: Who buys our products? Who does not buy our product? What need or function does our product serve? What problem does our product solve? What are customers currently buying to satisfy the need and/or solve the problem for which our product is targeted? What price are they paying for the products they are currently buying? When is our product purchased?
1. 2. 3. 4. 5. 6. 7.

Creating a PRODUCT-MARKET Profile

The basic questions to be answered can be summarized as the 9Ws: Who buys our products? Who does not buy our product? What need or function does our product serve? What problem does our product solve? What are customers currently buying to satisfy the need and/or solve the problem for which our product is targeted? What price are they paying for the products they are currently buying? When is our product purchased?

8.

Where is our product purchased?

Creating a PRODUCT-MARKET Profile

1. 2. 3. 4. 5. 6. 7. 8. The basic questions to be answered can be summarized as the 9Ws: Who buys our products? Who does not buy our product? What need or function does our product serve? What problem does our product solve? What are customers currently buying to satisfy the need and/or solve the problem for which our product is targeted? What price are they paying for the products they are currently buying? When is our product purchased? Where is our product purchased?

Creating a PRODUCT-MARKET Profile

Any company must answer these critical questions if it is going to be successful in export markets.

9.

Why is our product purchased?

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Creating a PRODUCT-MARKET Profile

Each answer provides an input into decisions concerning the 4Ps.

Creating a PRODUCT-MARKET Profile

Remember, the general rule in marketing is that, if a company wants to penetrate an existing market, it must offer more value than its competitors
Better benefits, Lower prices, Or both!

Market Selection Criterion

1. 2. 3. 4. 5. 6.

Market Selection Criterion

Market Potential Market Access Shipping Costs and Time Potential Competition Service Requirements Product Fit

Market Selection Criterion

1. 2. 3. 4. 5. 6. Market Potential Market Access Shipping Costs and Time Potential Competition Service Requirements Product Fit

Market Selection Criterion

Market Potential
What is the basic Market Potential for the product? Use Secondary Data/Information provided by various Govt. & non-Govt. sources (like CII, FICCI, etc.) Global Marketing Information Systems and Research

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Market Selection Criterion

1. 2. 3. 4. 5. 6. Market Potential Market Access Shipping Costs and Time Potential Competition Service Requirements Product Fit

Market Selection Criterion

Market Access
This aspect of Market Selection concerns the entire set of national controls that applies to imported merchandise and any restrictions that the home country government might have. It includes such items as: Export License Import Duties Import Restrictions or Quotas Local Content Requirements Foreign Exchange Regulations, and Preference Arrangements.

Market Selection Criterion

1. 2. 3. 4. 5. 6. Market Potential Market Access Shipping Costs and Time Potential Competition Service Requirements Product Fit

Market Selection Criterion

Shipping Costs and Time
If a similar product is already being produced in the target market, shipping costs may render the imported product uncompetitive.

Market Selection Criterion

Shipping Costs and Time
If it takes months for the product to reach the target market and the product competes in a rapidly changing category such as computers or mobile phones, alternative transportation strategies should be considered.

Market Selection Criterion

Shipping Costs and Time
It is important to investigate alternative modes of shipping as well as ways to differentiate a product to offset the price disadvantage.

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Market Selection Criterion

1. 2. 3. 4. 5. 6. Market Potential Market Access Shipping Costs and Time Potential Competition Service Requirements Product Fit

Market Selection Criterion

Potential Competition
A companys commercial representative can provide a very useful report based on a comparison of the companys product with the market needs and offerings.

Market Selection Criterion

Potential Competition
Typically,
1. Size, Type, Model, or Variety of The Products Manufactured, 2. Descriptive Brochures indicating features and advantages, and 3. Estimated landed price (CIF) and retail price in the target market.

Market Selection Criterion

1. 2. 3. 4. 5. 6. Market Potential Market Access Shipping Costs and Time Potential Competition Service Requirements Product Fit

Market Selection Criterion

Service Requirements
If service is required for the product, can it be delivered at a cost that is consistent with the size of the market?

Market Selection Criterion

1. 2. 3. 4. 5. 6. Market Potential Market Access Shipping Costs and Time Potential Competition Service Requirements Product Fit

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Market Selection Criterion

Product Fit
A product fits a market if it satisfies the criteria discussed previously and is profitable!

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