CHAPTER 4

ANSWERS TO QUESTIONS FOR DISCUSSION

4.1 Strategic export planning requires the development of an effective marketing strategy,
including market selection and direction (development). What major implications does this
have for the companys export manager?

The implications are:

a The export marketer must consider the role of each market and product within the corporate portfolio.

b Market selection must focus on broader strategic issues as well as on issues of segmentation and
differentiation.

c The export marketer needs to contribute to strategic planning, providing detailed views of foreign
markets without neglecting the overall or aggregate picture.

4.2 Explain the difference between export market selection and export market direction.

Market selection is the process of evaluating opportunities, relative to a companys abilities, in order to
select markets to enter. Market direction is the related process of determining whether to build, hold,
divest, or abandon its position in a given foreign market.

4.3 What is market segmentation, and why is it more complex for foreign markets than it is for
domestic markets?

Market segmentation means the breaking down of all overall market for a particular product or service into
sets of customers who respond differently to marketing strategies. It is more complex in export markets
because of the diverse economic, cultural and political environments encountered.

4.4 What is the best way for segmenting export markets? Explain.

There are many ways for segmenting export markets, and no single best way. There are general market
indicators and specific product indicators that may be applied at the country market or customer market
level.

The desirability of any particular way of segmenting depends upon the results of an evaluation of the
following factors: (a) measurability, (b) accessibility, (c) profitability, and (d) actionability.

4.5 Give examples of global market segments and companies that are marketing on that basis.
Can small and medium-sized enterprises market successfully to such segments? Explain.

Students may come up with a number of different segments and companies. One segment would be the
very wealthy and prestige-conscious individuals globally to which Rolls Royce sold its automobiles (before
the company was sold). Another would be the large segment of people who want soft drinks, to which
Coca Cola has marketed so successfully.

Small and medium-sized companies can market successfully to such segments in a wide range of
markets from clothing through specialized industrial products to professional services. The World Wide
Web has made such marketing easier.
4.6 Explain the difference between a proactive market selection approach and one that is
reactive. Is one approach better than the other? Why?

In a reactive market selection approach, the exporter (or potential exporter) simply responds to incoming
orders or proposals from foreign distributors. In a proactive approach, the exporter carries out systematic
research to find and assess potential markets. An in-between approach occurs when a business person
becomes aware of opportunities regarding a potential market through personal travel or comments from
colleagues, and then takes action.

There is no definitive answer to the question of which approach is better. Much depends upon an
individual company and its objectives and size as well as its commitment to doing business in foreign
markets. The proactive approach is one that involves more formal processes for market selection and is
marketing oriented. In contrast, reactive market selection is informal, unsystematic for the most part, and
purchasing oriented; export marketing, therefore, is sporadic.

4.7 What is psychic distance? How useful is it to a manager to be able to measure (by index or
scales) such distance between countries? Explain.

Psychic distance is a measure of the differences between countries in many areas including culture,
history, and economic and industrial development. A manager may find it useful, when considering
entering new primary or secondary markets, to have some knowledge of the relative differences between
the domestic market and foreign markets under consideration. The index or scales provide indicators of
the uncertainties involved in entering specific foreign markets and the resulting breadth and depth of
information that must be developed in order to successfully enter the particular markets.

4.8 Distinguish between expansive and contractible market selection procedures. If you were
making a decision on such a procedure, which would you favor, and why?

In the expansive or clustering methods of market selection procedures, expansion proceeds from the
home market to a similar one(s), and then on to other similar ones based on experience. In the
contractible market selection procedure, the company starts with a review of all national markets and
uses a series of screenings to eliminate the less promising markets.

Responses to the question about which approach is preferred can be expected to vary. Empirically,
reported research suggests that the expansive method is most commonly used in practice, at least
among small and medium-sized exporters.

4.9 Differentiate between market concentration and market spreading as expansion strategies. Is
one universally better than the others for a given product?

In a market concentration strategy, the company enters relatively few foreign markets and devotes a high
level of effort to developing each one deeply (achieving a high level of market penetration). In a market
spreading strategy, the company enters a larger number of markets and spreads its resources more
thinly, often relying on foreign agents and preserving flexibility.

It is not possible to state categorically that one strategy is better than the other, even for companies
marketing the same product. For any company, it is situational. Table 4.4 in the text summarizes the major
considerations.
4.10 If sales response functions are S-curves, is it more cost effective to expend a little marketing
effort in each of several markets, or to concentrate efforts in fewer markets? What if the sales
response functions are concave?

If the sales response function is S-shaped, it means that the response to lower levels of marketing effort
is very low, but increases more than proportionally with increased effort. Therefore, more marketing effort
should be expended in fewer markets. With a concave sales response function, the greatest returns are
generated by expending a little effort each in a larger number of markets.
4.11 Using the variables shown in Table 4.5 develop operational measures of each, specify
differential weights you feel are realistic, and apply these for a matrix analysis (such as
shown in Figure 4.5) of the EU countries and ASEAN countries, using a consumer durable
product of your choice.

Answers will vary, but each student should have followed a similar approach. Choose a particular product
(a Whirlpool TM clothes washing machine for example). The country attractiveness for each country must
be determined. First assign a weight to each of the six items in the first column of Table 4.5. Then, for
each country, indicate how it ranks on a scale of l to 10. Multiply the assigned weights by the assigned
importance and sum the results to obtain a country attractiveness of between 1 and 10. Then do the
same for the nine competitive strength characteristics from the second column for the particular product
for the particular company. This will enable you to place each productcountry combination in a matrix
such as that shown in Figure 4.6.

4.12 Repeat the exercise stated in question 4.11 for an industrial product. Explain any difference in
the resulting matrix from that derived in 4.11.

Question 4.12 will be answered using the same general method that was used in question 4.11. The
weighting of individual elements and the rankings can be expected to be different for the industrial product
than they were for the consumer durable product.

4.13 What changes would you make in the variables used in Table 4.5 to measure country
attractiveness and competitive strength? Explain why you have added or deleted variables to
those shown.

Students answers will vary.

ANSWERS TO CASE QUESTIONS

4.1 IKEA
1. Evaluate the market expansion approach taken by IKEA.

IKEAs initial international expansion involved foreign sourcing of products (inward internationalization, as
discussed in Chapter 1) because of inability to obtain goods from local manufacturers at a low price. In
international marketing they adopted an expansive strategy with a modification first to target the most
conservative market in Europe, followed by a relatively slow further expansion into other northern
European countries, and higher-income English-speaking nations.

The approach is appropriate for a company that has identified its competitive strengths in designing and
marketing high-quality, mass produced, and reasonably priced furniture in kit form. Assembly is left to the
final consumer. The emphasis on working with manufacturers to ensure quality components and feasible
designs coupled with the relatively slow approach to expansion has avoided overextension, a cause of
failure for some other marketers.

2. Is it better for IKEA to own its factories or to contract for its products?

In general, it is better for IKEA to contract for its products rather than to purchase or build factories. Its
competitive advantages, as discussed in the answer to question #1, are in design and marketing. It has
been able to ensure feasibility of design and quality of components by working closely with contract
suppliers. Owning more factories would tie up money, which can be used more effectively in expansion of
marketing activities, and would expose the company to more risk. In special cases, taking an ownership
position or providing financing may be necessary to assure availability of components, quality, or
responsiveness by suppliers.

4.2 Seven-Eleven Japan

1. What factors accounted for Seven-Elevens initial success in Japan?

Seven-Eleven initial success was due to:

a their recognition of the potential market for a business of their kind because of demographic changes
with more women in the workforce, less time for them to shop, and high income levels;

b high concentrations of people going to and from work and other activities that made it easy for many
potential customers to reach well-located stores;

c cultural willingness to pay more for extra service;

d a lack of competitors willing and able to serve this market;

e a recognition that economies in distribution could be made by developing their own distribution chain;
and

f its recognizing the value of having a host country partner because of the business environment.

2. What factors accounted for Seven-Elevens continuing success in Japan?

Their continuing success is due to continual innovation:

a continually improving the mix of products and the quality of products;

b continually improving and expanding the services available (and hereby attracting more customers
and store visits, as well as increasing earnings through the sale of services);

c developing improved information systems to support inventory and supply systems; and

d working cooperatively with other companies in order to offer additional products at competitive prices
more efficiently and effectively.

Seven-Eleven Japan has kept ahead of their competitors in most of these areas.
3. Is Seven-Eleven Japan wise in extending its delivery and payment services to Taiwan?

Though the per capita income in Taiwan is only one-third that of Japan, the population is even more
concentrated, relies heavily on public transportation, and also goes though choke points on its way to and
from work. There are more Seven-Eleven outlets in Taiwan, on a per capita basis, than in Japan. Taiwan
has had rapid economic growth, people who are obviously willing to pay for convenience and frequent
Seven-Eleven stores, and people who are reluctant to give out credit card information over the telephone.
It appears to be a good market to expand this service.

4. If its extension of services to Taiwan is a success, should it extend such services to the
United States, Thailand, or other countries? What factors should be taken into account in
making such a decision?

Factors to be considered include income levels and distributions in target market areas, population
densities, ease of access/closeness of large numbers of people to Seven-Eleven stores, willingness to
pay for convenience, willingness to use the Internet combined with reluctance to provide credit card data
over the telephone.

On Seven-Eleven Japans web page (http://sej.gsc.ne.jp), students should be able to find data on the
number of Seven-Eleven stores in each of the countries in which it operates. Population and density
figures, income levels, and other information about the societies are available from government sources
and elsewhere.

5. Is the offering of more services in Japan, including banking, provision of in-store terminals
for use by customers, etc., likely to cause problems for part-time workers in the franchises?

It is likely to cause problems for part-time workers in the franchises. Since some (or many) individual
franchisees may not have the resources to provide the necessary training, Seven-Eleven itself must do
this as it continues to expand its offering and install associate equipment. This is likely to involve
substantial costs unless turnover rates are quite low.

The costs of the additional training must be justified by the additional traffic, revenue, and profits
generated for Seven-Eleven.

6. Does China offer good potential for further expansion for Seven-Eleven?

China does offer good potential for Seven-Eleven because of its concentrations of large numbers of
people in a number of cities, increasing incomes, and interest in greater convenience. There are also
dangers because of the lack of transparency, the importance of relationships, and sometimes a lack of
consistency in policy in business and government in China. The choice of partners is critical. Reliability,
trustworthiness, and appropriate political/societal contacts of partners are extremely important.

7. Was Seven-Elevens entry strategy appropriate for the country? Explain why or why not.

The entry strategy was appropriate. The initial use of licensing agreements allowed them to determine the
viability of the market and the appropriateness of possible product mixes. It also provided them with a
better understanding of the cultural/business/political environments. With this experience, the company
was then in a good position to undertake equity investments with partners.
4.3 Better Way Company Limited
1. What are the major considerations in Mistines attempts to continue its growth and
dominance in the market?

In product development, it needs to: (1) continue developing high-quality new products in order to keep
present customers interested and to attract new customers; (2) continue to attract additional salespeople,
and retain a satisfactory percentage of existing salespeople, with backgrounds appropriate for existing
and targeted new market segments; (3) identify and expand in to attractive new market segments
domestically and internationally; and (4) continue to develop advertising, promotion, and sales person
motivation appropriate to existing and new market segments.

2. Evaluate the growth strategy that Better Way has been using both domestically and
internationally.

It has been very effective in Thailand as evidenced by its market dominance and sales growth. This has
been accomplished by identifying new market segments, such as teenagers and men, by product
development, and by effective promotion. Internationally, it is using top manufacturers around the world to
produce its products. It has introduced its products in nearby low-income countries, and is investing in
manufacturing facilities in Vietnam and the Philippines (which should increase it local presence and
recognition).

3. What actions would you recommend over the next five years? How would you apply specific
marketing mix decisions to those actions you have recommended?

The company needs to be sure that its marketing methods (including identification of appropriate
marketing segments, specific products to be introduced, pricing, organization structure and treatment of
managers, attraction and remuneration of sales personnel, advertising and promotion) are appropriate to
the cultures in each of the countries in which it operates. Laws and customs must be accurately
determined and carefully followed. In Taiwan, with its higher income levels, selecting target markets and
pricing will be of particular importance. If distribution is to be done through intermediaries in Taiwan, this
must be carefully thought out and monitored so that brand name and company reputation are maintained.
It can be expected that a possible entry to Hungary and Russia, with their different cultures and economic
structures, will need to be carefully researched, planned, and executed.

TEST BANK

1 The international marketer must focus on:

(a) individual products and their foreign markets.
(b) strategic measures used in strategic planning.
(c) the role of each product within the corporate portfolio.
(d) All of the above.
(e) None of the above.

2. Experienced international marketers virtually never fail to determine if there is an adequate market
for their products or services prior to market entry.
(a) True
(b) False
3. With the introduction of the Euro, the European customers comprise a single market in every way.
 (a) True
(b) False

4. Market segmentation is a process of breaking down overall markets into segments of types of
customers for particular products in particular countries.
(a) True
(b) False

5. In market segmentation, actionability refers to deciding whether or not to take action.

(a) True
(b) False

6. In choosing an export market expansion strategy, a market concentration strategy is characterized by:
(a) funneling resources that can be made available into a small number of markets.
(b) a gradual rate of growth in the number of markets served.
(c) Both of the above.
(d) None of the above.

7. In market selection procedures:

(a) contractible methods are used to reduce total foreign involvement.
(b) contractible methods usually focus first on the nearest neighbor.
(c) expansive methods work outward from the core.
(d) All of the above.
(e) None of the above.

8. In the contractible method of market selection procedures, you work outward from the core market to
the nearest neighbors.
(a) True
(b) False

9. In the expansive method of market selection, the exporter/international marketer:

(a) will not adapt products.
(b) will not target other segments.
(c) may or may not adapt products and target other segments.
(d) All of the above.
(e) None of the above.
10. The expansive method of market selection is sometimes called the nearest neighbor approach.
(a) True
(b) False

11. There are many possible methods to use in export market segmentation and applying mixed criteria
can create the most meaningful segments.
(a) True
(b) False

12. In the market selection process, many companies begin exporting through reactive approaches.
(a) True
(b) False

13. Accurate political risk assessment has been made easy by the availability of the Business
Environment Risk Index (BERI) which makes further risk analysis unnecessary.
(a) True
(b) False

14. The critical mass is the threshold at which small increases in time and resources can be expected to
result in significant gains in volume and profit.
(a) True
(b) False

15. Market portfolio analysis is a tool that provides a total export marketing picture so other tools are not
needed.
(a) True
(b) False

Answers to Test Bank Questions

1. (d) 2. (b) 3. (b) 4. (a) 5. (b) 6. (c) 7. (c) 8. (b) 9. (c) 10. (a)
11. (a) 12. (a) 13. (b) 14. (a) 15. (b)