IDENTIFYING AN ATTRACTIVE EXPORT MARKET Exporters seek the best foreign markets for their products and services. Managers conduct market research to determine the viability of potential export markets. They examine such factors as market size, growth rate, economic status, competition, and the degree of political stability. Without this market research, firms can fail in their export ventures. Managerial Challenge The task of choosing the best export markets is complex. What makes an ideal market? What market potential indicators should managers consider? The managerial challenge is to choose the best export markets by following a systematic process of international market research. In this exercise as a prospective manager, you will: 1. Learn the important indicators used to assess the viability of potential export markets 2. Access information needed to develop international business plans 3. Research country-level barriers that firms face in exporting IDENTIFYING AN ATTRACTIVE EXPORT MARKET Expanded Background In this exercise, assume you work for a firm that makes and markets portable DVD players. Assume that the average selling price of your firm's DVD players is US$100. Your firm is new to international business and would like to begin exporting DVD players soon. Exporting is the most widely used entry mode and primary means through which most firms engage in international business. This is especially true for firms that are new to international business and for firms with substantial production facilities at home. Research is particularly important to small and medium-sized enterprises, which usually lack the resources to sustain significant losses from failed exporting efforts. For most companies, the great majority of potential customers live outside the firm's home country. Focusing only on the domestic market means the firm is reaching just a small share of potential customers. The foundation of successful exporting efforts is planning. In turn, planning requires the development of knowledge about the most appropriate target markets. Successful exporting involves taking time to identify market opportunities and understand the characteristics and conditions of target markets. Research helps management gain insights on customer requirements, competitor activity, and different ways of doing business. Managers show their commitment to exporting by conducting research to reveal the most promising markets and to uncover any potential challenges that can be addressed proactively. Exporters need to learn about the technology level of potential target markets. In countries with low technological knowledge, distributors or customers may need to be trained in the product's features and usage. If distributors and customers require extensive training, the attractiveness of the country as an export target may decrease. Small and medium-sized enterprises account for the vast majority of all exporters. Such businesses usually lack the resources to sustain significant losses from failed exporting efforts. Consequently, it is especially important for smaller firms to conduct research to uncover the most viable export markets and to understand the specific characteristics of those markets.Your Task and Modem Until now, suppose your rm has marketed its line of DVD players only in the home country; Management has made the decision to begin marketing DVD players abroad and has given you the task of researching a collection of foreign countries, to evaluate their viability as potential export markets. As part of the exercise, you will visit several online portals and gather relevant data. You will examine such factors as market size, market growth rate, and nature of potential foreign markets. Your task is to conduct research and write a brief report in which you formulate and explain a ranking of the best export markets that management should target with exports of portable DVD players. In developing your report. you are to focus your research on the following six countries: WM rm and China. For each of these countries, you are to gather data on the following variables: 3 Population 3 Per-capita GDP 3 Prolected per-sepita GDP Grouch 1 Status and stability of the national economy (for example, inflation rate. level of government debt) 3 Degree of political stability 3 Extent of government intervention 2 Level of technology In general. for exporters it is best to target countries with high per-capita incomes. substantial population levels. and relatively rapid GDP growth. Exporters also favor countries with a relatively stable economy and government. minimal govemment intervention. and a level of technology suitable for the exported product or service. To complete this exercise. it is best to perform a spreadsheet analysis. You should perform the following tasks: 1. Visit the websites listed below and collect data on each of the variables listed above. for each of the six countries. 2. Convert the data for each of the Indicators into a standardized polnt score (say. on a scale from 1 to 10. with 1 being lowest and 1t] being highest} so that the performance of each country can be numerically compared to that of each of the other countries. One approach for making comparisons is to use the country with which you are most familiar as :8 benchmark. and then set the ratings for all the other countries by comparing them to the hchrnarlr. 3. Assign relative weights for each Indicator based on the importance of each. Assigning weights is a somewhat subjective process. You must decide which vanaqu are most important and then assign the appropriate weights. Not all indicators are equally important as predictors of export market potential. Some indicators are more Important than others. in the real-wond setting, you would ordinarily assign the weights before beginning research in order to malts costlbenet'lt decisions in the process of collecting data. Note that in the real- world setting. the resultant country rankings would be one of only several factors used in deciding which markets to enter. Management would also consider the characteristics, strengths, and weaknesses of the firm and its products, as well as prior international experience and budgetary constraints. Management would consider qualitative factors that may be hard to quantify, such as existing personal relationships in a specific country or information that a major domestic customer is setting up a factory in a country. Template As shown in the examples below, you should develop two spreadsheets: 1) One that contains the data for each of the variables for each country, and 2) one that contains the weighted scores that you have established for each variable, for each country. In your final report, you should provide your ranking of the potential export countries and write a memo in which you advise top management on which countries appear most appropriate for entry. Be sure to justify your recommendation, based on the scores and ranking that you have devised EXAMPLE COMPLETED ASSIGNMENT Initial Research Data, Using Example Countries Country Population Per- Projected Status and capita per-capita stability of Degree of Extent of Technology GDP, GDP Growth, the national Political US $ Government Level* percent economy" Stability* Intervention Chile 17,200,000 8,200 4.1 22,300 2.8 7 6 7 6 8 France 63,000,000 9 Japan 126,345,000 23,675 3.1 8 10 Mexico 96,385,000 8,435 2.6 7 17 Russia 148,030,000 7,300 2.4 6 U.S 296,240,000 32,455 9 8 2.8 10 Rated on a scale from 1 to 10, where 1 is very bad and 10 is very good EXAMPLE COMPLETED ASSIGNMENT Assigning Weights and Point Scores, Using Example Countries Country Population Per- Projected Status and Extent of capita per-capita stability of Degree of Political Govern- Technology Level* Total GDP, GDP the Stability* ment US $ Growth, national Intervention percent economy" Standardized Value Weight Weighted Score Standardized Value Weight Weighted Score Standardized Value Weight Weighted Score Standardized Value Weight Weighted Score Standardized Value Weight Weighted Score Standardized Value Weight Weighted Score Standardized Value Weight Weighted Score Chile 10 40 21 24 151 12 24 France 155Japan 18y Mexico 118 Russia 121 J.S 218 Standardized values range from 1 to 10. Weights range from 1 to 5, with '1' meaning not very important, to 5 meaning 'very important' EXAMPLE COMPLETED ASSIGNMENT Final Export Market Ranking, Using Example Countries Country Total United States 218 Japan 189 France 155 Chile 151 Russia 121 Mexico 118 These results suggest that the United States is the best overall export market. It is particularly strong regarding population, per-capita GDP, status and stability of the national economy, degree of political stability, extent of government intervention, level of technology. This helps explain why the United States is a favored export market of many companies around the world. Suggested Resources for this Exercise globalEDGE located at http://globaledge.msu.edu/ . See especially "Market Potential Indicators for Emerging Markets" at http://globaledge.msu.edu/mpi World Bank at www.worldbank.org/ provides various types of statistics, particularly related to countries' level of development United Nations at www.un.org, the world body provides various types of statistics Central Intelligence Agency World Factbook the CIA site at www.cia.gov/cia/publications/factbook/ is particularly useful for general country information, as well as data on per-capita GDP, economic and political situation, and technology level, for nearly all countries Economist Country Briefings at www.economist.com/countries/ provides economic forecasts Transparency International at www.transparency.org for information on corruption levels, political stability, and extent of government intervention in the local economy