INTERNATIONAL COMPETITIVE ANALYSIS (Market Analysis) Definition of Market A market is an organized process by which buyers and sellers exchange

goods and services for money, the medium of exchange. Some Facts about the Market *Market has two sides: demand (made up of buyers) and supply side made up of suppliers. *Markets can local, regional, national, and international. *Market and industry often used synonymously. However, industry denotes much broader concept than market. *Market is the basic economic institution in our free-enterprise system. *Market has principal aspects as an institution: Value and Functions.

INTERNATIONAL COMPETITIVE ANALYSIS (Market Analysis) The Functional Aspects of the Market (Some questions) *What goods and services shall we produce and in what amounts? *How are goods and services to be produced? *Who shall get and consume the goods and services we produce? *What is new? To answer these questions, we should look at the three basic institutional devices which handle the process and result: *Traditional (ancestors pattern of life support *Command (centralized decision making, by government/priest *Market (million of consumers, workers, employers, investors etc)

INTERNATIONAL COMPETITIVE ANALYSIS (Market Analysis)

1. Market Analysis Framework

Basic conditions

Basic conditions are the primary determinants of the market structure. Structure is the primary cause of the conduct of the participants in the market. Conduct explains or accounts for market performance. Market performance is efficiency, fairness, and equality of the market.

Structure Conduct Performance

(This model has been copied from the Textbook of the course)

INTERNATIONAL COMPETITIVE ANALYSIS (Industrial Organisational Framework: Conduct Analysis)

1.1 The Basic Conditions in the Industry 1.1.a: Consumer Demands >consumer tastes are affected by personal likes/dislikes/social trends, >the level and distribution of income is important, >geographic and demographic factors for the spatial-and age/sexdistribution of population, >information has a powerful influence on consumer behaviour, For example, human ability to acquire and process information is progressively strained as the number, complexity and variety of product grow; and preferences for certain brands may have shaped by their advertising etc. 1.1.b: Basic Conditions in Supply >the importance of technology in the emerging automobile industry, >technology provides a potential for a product to be made/produced, >development of cheap and rapid transportation/communication system, For example, vast railroad construction in the US and Europe brought industrial transformation during the nineteenth century.

INTERNATIONAL COMPETITIVE ANALYSIS

(Market Analysis)
1.1.c: The Political Environment >Federal Antitrust Laws to halt the spread of monopoly, >Anti-merger provisions limit mergers between large firms, >Other government rules, restrictions and regulations which either prohibits firms actions like horizontal mergers or encourage monopoly like protecting the new technology by Federal Patent Law. 1.2. The Structure of the Industry 1.2.a: Economies of Scale >may result from adaptation of technology (as in basic conditions), >the way some tasks which complement production like co-ordination, resource acquisition, research, promotion and distribution are performed, >to have access to the better/improved information by the firm, 1.2.b: Barriers to Entry <these are the results of the basic conditions like the technology developed by a existing firm may be protected be patent law and thus may be denied to all others. >all other factors which prohibit firms to enter a particular industry.

INTERNATIONAL COMPETITIVE ANALYSIS (Market Analysis)

1.2.c: The Industry Concentration >the number and relative size of firms in the market, >scale economies are an important determinant of firm size, >barriers to entry are a major limit on the ability of outsiders to challenge established firms in the market. 1.2.d: Product Differentiation >differentiation is the market adaptation to certain market imperfection, >differences in tastes, locations, and imperfection in consumer information are all preconditions for differentiation, >it represents the absence of pure competition--competition based solely upon price in the market. >products supplied by different firms are not perfect substitutes for one another, and competition may take the form of shifting demands. The question: there are no scale economies, no barriers to entry, no concentration, and no product differentiation, what sort of market would we have?

INTERNATIONAL COMPETITIVE ANALYSIS (Market Analysis)

1.3: The Conduct of the Industry Conduct is the term used in reference to the behaviour of firms in the market. How the firm reacts to the conditions imposed by the market structure and interact with rivals?. 1.3.a: Pricing and Product Design Behaviour >direct control of price----perfect monopoly, >no control at all of price----pure competition, >product manipulation by a firm may result in changes in market structure. 1.3.b: Internal Organisational Behaviour >a change in size or scope of activity may result in profit increase and that may increase the market power, >this market power could alone be a competitive advantage if your competitor fails to follow suit, For example, consolidation of several existing firms via a series of mergers and acquisition by one firm of exclusive access to important supplies of resources or channels of distribution may lead to elimination of competitors.

INTERNATIONAL COMPETITIVE ANALYSIS (Market Analysis) 1.4: The Market Performance Ultimate Values Freedom Proximate Values Free choice in consumption. Free entry and investment. Free political parties and national security. Equal opportunity, economic power Equal bargaining power for supplier/buyer Prohibition of unfair practices, honesty Full disclosure, fair labor standards Full employment, price stability, health, safty Clean environment. Rising real income and technological developt.

Equality Justice & Fairness Welfare/Happiness

Progress

INTERNATIONAL COMPETITIVE ANALYSIS (Market Analysis) What is the Market Power?

Market power is the ability to influence market price and/or subdue rivals. The power which is the ability lies with a seller or buyer who may use it or not to influence the market. Specially, the prices.

Who are the power targets? *Consumers * workers *raw materials suppliers * *competing firms, government regulatory agencies, and so on.

INTERNATIONAL COMPETITIVE ANALYSIS (Market Analysis) What are Potential Sources of Market Power? +Product Differentiation (with differentiation many buyers prefer particular brands for non-price reasons as style and ad image) +The Market Share (the larger the firms share the greater is the market influencing power) >but a small firm (with 10%) may gain more market share than a larger firm (with 90% share) by cutting prices? +Barriers to Entry ( existing firm may reduce prices) +Vertical Integration +Diversification and growth

INTERNATIONAL COMPETITIVE ANALYSIS (Market Analysis) Selection of Foreign Markets: System Approach
Initial Screening: Basic need/potential for trade and investment Second Screening: Economic and financial forces

Third Screening: Political and legal forces

Fourth Screening: Socio-cultural forces Fifth Screening: Competitive Forces

Final Selection: Personal visits plus, research in the local market

INTERNATIONAL COMPETITIVE ANALYSIS (Market Analysis) The Perfect Market and Market Failure?
Conditions for perfect market? +Large numbers of sellers and buyers +Free entry and exit from the market + A homogenous product (identically same for all suppliers/buyers) +Free and complete information available to all market players

If the above conditions are not functioning properly in any market, that means the market is failing. Otherwise, imperfect competition takes place.

INTERNATIONAL COMPETITION (The Market Power) The Market Indicators Market indicators are economic data that serve as yardsticks for measuring the relative market strengths of various geographic areas. A well know example is the buying power index published in the annual Survey of Buying Power by Sales and Marketing Management, in USA.

Business International also publishes an index employing 40 indicators in 117 countries. The indicators include population, GDP, various categories of private consumption and production of for example, steel, cement, electricity, and energy, and ownership of telephones, cars, buses, trucks and televisions. These factors are combined to form composite indexes of: *Market size *Market intensity *Market growth

INTERNATIONAL COMPETITIVE ANALYSIS (Market Analysis) Basic Elements of a Market Attractiveness 1. The number, size, and financial strength of the competitors 2. Their market share, and sales figures 3. Their apparent marketing strategies 4. The apparent effectiveness of their promotional strategies 5. The quality levels of their product lines 6. The source of their products (imported or locally produced) 7. Their pricing strategy 8. The levels of their after sales service 9. Their distribution channels 10. The coverage of the market (could market segmentation produce niches that are currently poorly attended)

INTERNATIONAL COMPETITIVE ANALYSIS (Market Analysis)

Learning Points What are the basic sources of market power? What do you mean by market and market power? How would you analyze a market? What are the trouble ahead for the emerging markets like Mexico or India? What did you really learn from this module of the course: knowledge, skills and values?