Problem 10.7 Multinational Product Portfolio Analysis

Introductory Comments

One of the most important requirements in multinational strategic planning is the development of a product-by-country portfolio. The purpose is to position products in foreign markets by the opportunity for profits and the company's ability to exploit the opportunity. Positioning products/countries on a product portfolio then allows the company to determine whether products should be candidates for further growth, for selective investment or for harvesting and eventual divestment. The portfolio will also help management determine the potential sources for investment on the basis of projected cash flows. Thus, the strength of a well-known brand in a domestic market may be a source of cash for entry of the brand into additional international markets. In short, the objectives of product portfolio analysis in a multinational context are the same as those related to the General Electric (GE) market attractiveness/business position matrix, except that products in the international portfolio are positioned by country or region.

Because of the range of environmental and market factors required to evaluate products in foreign markets, the GE/McKinsey approach should be the basis for multinational portfolio analysis. This approach utilises a broad range of variables to analyse both market opportunities and the company's ability to exploit them (the company's business position).

Business position can be evaluated in the same manner as marketing opportunity. Management defines several variables that indicate the company's resources and the product's position relative to competition.

Problem

A hypothetical multinational portfolio for Lady Godiva International Co. is illustrated in Figure 10.6 using the GE/McKinsey approach. Four product lines are represented in various areas of the world by their market attractiveness (market opportunity) and business position (the company's ability to exploit the market opportunity).

Figure 10.6 Multinational product-portfolio matrix for Lady Godiva International Co.

The determination and evaluation of market opportunity was carried out on a formal basis by listing key evaluative variables and weighting them by importance. The international marketing opportunity analysis (MOI) undertaken by the company included market variables such as market size, market growth, level of competition, cyclicality as well as the norms and values of the target segment. The MOI approach used by Lady Godiva International Co. also included environmental variables such as barriers to entry, price controls, product standards, political stability, social attitude towards foreign business and rate of inflation. An importance weight was assigned to each variable on the basis of managerial judgement. The company placed greatest value on market growth, minimal competition, market size and the likelihood that the target market segment's values and norms conform to the prospective positioning of the product. Lady Godiva International Co. has considered market variables significantly more important than environmental variables.

Regarding environmental variables, the greatest emphasis was given to trade and political factors that facilitate market entry (lack of tariff barriers, quotas and so forth). Price controls and product standards were singled out but were given less weight. The company also gave political stability little weight.

Outcomes for each variable were found on the basis of a scaling procedure. The most desirable outcome was valued at 10 and the least desirable at 1. An overall opportunity score for a product in a country can be computed by multiplying the importance weight by the value of the outcome for each variable and summing the results across variables. Such a score would then be compared with scores for alternative foreign investment opportunities. For example, if the total market-opportunity rating for a particular brand in a particular country or world region was 466 and, assuming that the average for other international investment opportunities was 350, the brand's entry into that country or world region would then be evaluated positively. This type of market opportunity analysis is very similar to the evaluation of investment attractiveness in the GE portfolio approach.

Each product-country is positioned on the vertical axis by an analysis of the market potential and environmental conditions based on a number of key variables. Products in each region should also be positioned by the company's business position in that particular market. The horizontal axis shows whether the company has the physical, human and financial resources and the know-how to exploit the market opportunity.

Assume Lady Godiva International Co. follows the successful introduction of its women's line of cosmetics in the UK with an attempt to market them in Europe. After two years it assesses its current business position, using the variables in Table 10.8.

The table lists two types of variables, those dealing with the product's market position and those dealing with the company's resources. Market position represented by market share, sales share of the leading competitor and ROI. Company resources are measured by the strength of the distribution system local market support (local personnel, use of local advertising agency), plant capacity and current capital requirements.

The company has not yet established a strong local representation in Europe. As a result, the cosmetics line receives a low overall rating in business position (right-hand side of the matrix in Figure 10.6). But an analysis of marketing opportunity based on the variables described earlier shows strong potential for women's cosmetics in Europe. AS a result, the product line is positioned in the upper right-hand part of the matrix in Figure 10.6.

Investment Strategies

Once the products have been positioned by a country or world region, the company can determine whether various countries warrant investment for growth (boxes 1, 2 and 4 in Figure 10.6), investment to maintain current position (boxes 5 and 7) or a reduction in effort through harvesting and possible divestment (boxed 6, 8 and 9). Box 3 presents a problem because the company is not sure whether to move towards divestment because of the poor business position or to invest for growth because of the market opportunity.

Questions

1.What are the limitations associated with the international marketing opportunity analysis approach used by the company?

2.Calculate the total business position score for Lady Godiva's cosmetics line in Europe. Assume that the average business position score for other Lady Godiva product lines in foreign markets is 350 and rate the business position for the cosmetics line in Europe.

3.Based on the international marketing business position analysis and the multinational product portfolio matrix developed by the company, recommend specific investment strategies that could be implemented by Lady Godiva International Company.