ITERATIVE ASSESSMENT AND SELECTION OF THE COUNTRY MARKETS.
TASK
The Russian enterprise decided to expand its business abroad.
1. Choose a product which can be delivered for export.
2. Select using the offered technique the suitable country markets for the chosen product.
3. Show the portfolio «Investment attractiveness of the country – Competitive advantages of the firm»
4. Offer the strategies of the development of the chosen country markets.
The process of the market selection presents iterative process which can be divided into two phases:
The first phase includes PRIMARY CHOICE when prospects and factors of the external environment of different country markets are investigated and the countries which are not satisfying to the most important criteria are excluded from the further consideration.
On the second phase called SELECTIVE ANALYSIS the primary selected country markets (by means of the rating method according to the criteria of the market attractiveness and competitiveness of the firm-supplier) are ranked as the most attractive countries for the further development of the strategies.
THE TECHNIQUE OF THE PRIMARY CHOICE AND SELECTIVE ANALYSIS OF THE COUNTRIES
I. THE PRIMARY CHOICE OF THE COUNTRIES
1.1. Preparation of a list of the countries (you can choose at least 30 countries)
1.2. Assessment of common environmental factors:
a) Determination of a set of criteria for groups of factors
1.2.1 The political situation
1.2.2 Legal restrictions of foreign business
1.2.3 The overall economic situation
1.2.4 Social and cultural constraints
1.2.5 Geographical factors
b) Determination of importance for groups of factors
c) Carrying out the assessment procedure in tabular form
d) Countries that received by any above criteria “1” are eliminated from the further review
d) Ranking of the remaining countries.
II. THE SELECTIVE ANALYSIS
2.1. Determination of a set of core criteria and subcriteria:
2.1.1 Conditions for import
2.1.1.1. Tariff restrictions
2.1.1.2. Non-tariff restrictions
2.1.2 Sales and Marketing
2.1.3 The marketing opportunities for the individual country markets
2.1.4 Specific risks of overseas transactions
2.1.5 The dynamics of the markets
2.2. Selecting the scale of assessments and evaluations of classes
2.3. Determination of the importance of criteria
2.4. The assessment procedure in tabular form.
2.5. Countries that received by any above criteria rating of “1” are eliminated from further review
2.6. Ranking remaining after the assessment countries
2.7. Combining of country markets in the groups:
– very attractive markets
– attractive markets
– possible markets
– random markets
– unsuccessful markets
III. PORTFOLIO POSITIONING OF THE SELECTED MARKETS
3.1. Identifying the criteria of the market appeal
3.2. Determination of the criteria of the competitive position
3.3. Determination of the criteria weights
3.4. Assessment of the country markets according to the criteria of market appeal and competitive advantages
3.5. Construction of the Country Portfolio
IV. FORMULATION OF THE RESULTS AND WORKING OUT OF THE STRATEGIES
SOLUTION
1. THE PRIMARY CHOICE
Within the PRIMARY CHOICE the specific factors of country environment are investigated. Each factor is assessed from 1 till 5 points. After that the importance of each criterion (from the point of the market appeal of the good) is determined. Then the assessment of each criterion (number of points) is multiplied by its importance. In the end the sum of all weighted criteria for each country is determined. The RATING OF THE COUNTRY (the sum of points for each country) characterized the INTEGRATED MARKET ATTRACTIVENESS OF EACH COUNTRY. This method can be practically applied for all countries around the world. To eliminate subjectivity, evaluation can be performed by different groups of experts.
1.1. BUSINESS ENVIRONMENT
1.1.1. POLITICAL SITUATION can be described by such parameters as the dominant form of government, economic system of the country in general and the methods of trade policy. Depending on the level of political stability each country can be estimated as follows
– completely political unstable countries
– countries with low political stability
– countries with medium political stability
– countries with high political stability
– completely political stable countries – 1 point
– 2 points
– 3 points
– 4 points
– 5 points
1.1.2. LEGAL RESTRICTIONS OF FOREIGN BUSINESS is characterized by factors like import quotas, customs and administrative restrictions, etc. Depending on the level of the restrictive policy each country can be estimated as follows:
– countries with the strongest restrictions
– countries with strong restrictions
– countries with medium restrictions
– countries with few restrictions
– countries with no legal restrictions – 1 point
– 2 points
– 3 points
– 4 points
– 5 points
1.1.3. ECONOMIC SITUATION can be characterized by such indicators as GDP per capita, economic growth, the level of purchasing power, the balance of payments (currency liquidity). The countries can be estimated as follows:
– countries with the negative economic conditions (the countries with net income per capita per year less than $200 or with the population less than 100,000 people)
– countries with the weak economic conditions (the countries with net income per capita per year less than $1,000 and with relatively low number of population)
– countries with the economic conditions of the medium level (the countries with net income per capita per year between $ 1000 and $ 3000 and the medium ability to pay)
– countries with the good economic conditions (net income per capita per year above $ 3,000 and high payment ability)
– countries with very good economic conditions (annual income per capita above $ 7000 and the number of consumers is over 1 million people)
– 1 point
– 2 points
– 3 points
– 4 points
– 5 points
.
1.1.4. SOCIAL AND CULTURAL RESTRICTIONS include opinions, views, attitudes, etc. in relation to the products. They connected with the religion prevailing in this country, family traditions, national views, and traditional values of the population.
– countries with very strong social and cultural constraints (e.g. male cosmetics is prohibited)
– countries with strong social and cultural barriers (where there is a strong religious influence on the determined groups of potential users)
– countries with the medium level of social and cultural constraints (where there are groups of critical consumers related to the product, its chemical composition, or its country of origin)
– countries with the weak constraints in social and cultural sphere
– countries with the tolerant, open major religions, liberal social values – 1 point
– 2 points
– 3 points
– 4 points
– 5 points
1.1.5. GEOGRAPHICAL FACTORS are characterized by such criteria as availability of transportation routes, climate, population number and population density, quality of infrastructure.
– countries with the population less than 1 million people and low population density, lack of infrastructure and the remoteness from the place of manufacture or storage
– countries with poorly developed transport network, which allows to create an inefficient system of distribution and relatively low population
– countries with the medium level of population and the medium level of population density, well-developed transport infrastructure and transport services
– countries with the united transport network, effective traffic and guaranteed service – 1 point
– 2 points
– 3 points
– 4-5 points
1.2. EVALUATION OF THE BUSINESS ENVIRONMENT FACTORS WITH REGARD TO THEIR SIGNIFICANCE
Mentioned criteria of country markets evaluation have different importance for markets selection and organization of successful business. The coefficients of the importance of the criteria presented in the table below:
Table 1
Coefficients of the importance of the estimated criteria
Factors of business environment Significance
1. Political situation 3
2. Legal restrictions of foreign business 3
3. Economic situation 4
4. Social and cultural restrictions 2
Legal restrictions limit the so-called major markets that are available to the company’s products (in this example, the significance of the factors are determined from the point of the German cosmetics manufacturer). In addition, legal restrictions are essential to the adoption and the implementation of the entering strategy. Due to these reasons, this factor has the significance of 3. Economic conditions within the potential target markets determine the sales chances (sales volume). Therefore, this factor has the highest importance. Social and cultural constraints and geographical factors have a lower importance, because the company sometimes can affect on them.
Countries that received by any of the criteria “1” are excluded from the further consideration.
In the Table 2 the results of country markets primary selection are combined.
B – the number of points for determined factor (from 1 till 5)
G – the importance of factor
Table 2
Primary selection of country markets using the ranking method
Factors of business environment
Political situation
Legal restrictions of foreign business Economic situation
Social and cultural restrictions
Geographical factors
Sum
Country ? GxB ? GxB ? GxB ? GxB ? GxB
Afghanistan 1 —–
Egypt 3 9 2 6 3 12 4 8 2 4 39
……………
2. SELECTIVE ANALYSIS
2.1. ESTABLISHING THE ASSESSMENT CRITERIA
Countries that remained in the list after the primary choice should be analyzed according to SPECIFIC (DEPENDING ON THE COMPANY AND PRODUCT) CRITERIA and each of them is divided into the subcriteria. All subcriteria can be combined into 5 main groups:
1) THE TERMS OF IMPORT
These terms include tariff and non-tariff trade restrictions. The trade of some product is connected with concrete tariff barriers and other terms of import. The examples of non-tariff restrictions are quotas for determined products, licenses, marking requirements; hidden restrictions, that differed from the world practice of certification or customs taxation, etc.
2) SALE AND MARKETING TOOLS
The objective is to determine the tools of marketing to be used in the choosing of foreign markets. Analysis of the product in this case aims to provide the minimum legal requirements, such as the ingredients used for the soft creams, as well as to identify the specific needs of customers. The comparative analysis should be done for the requirements in the distribution of goods (sales opportunities and marketing logistics), as well as for the requirements in the field of communications (the possibility of advertising, sales promotion and PR). Also, the structure of the prices should be investigated in order to identify important consequences of pricing policy, etc.
3) SALE CHANCES IN A SELECTED COUNTRY
For the selected products should realistically the future sales and market opportunities be assessed. In this context, national and international trade import and export statistics is examined. The dynamics of the previous five years are, on the one hand, a basis for assessing the past market and price situation, and, on the other hand – the basis for the sales forecast for the companies in these countries.
4) SPECIFIC RISKS
The assessment of political risk in selected country is connected primarily with the long-term political analysis of the country. Another risk factor is the solvency of the country, which should be analyzed using data of the import development as well as the sum of foreign debt.
5) MARKET DYNAMICS
New market includes significant costs for market entering, requires considerable time for organization the successful activity. Therefore, the assessment of future results should take into account the dynamics of the market, i.e. the development of the certain product in a given country in the future.
Further analysis is carried out as in the PRIMARY CHOICE of countries by estimating of each country from 1 till 5 points taking into consideration the importance of each criterion.
Countries that received by any of the criteria “1” are excluded from the further analysis.
2.2. THE IMPORTANCE OF EACH CRITERION
Table 3
Coefficients of the importance of the estimated criteria
Criteria Significance
1. The terms of import 1
2. Sale and marketing tools 1
3. Sale chances in a selected country 2
4. Specific risks 2
5. Market dynamics 4
2.3. THE RESULTS OF THE SELECTIVE ANALYSIS
2.3.1. CLASSIFICATION OF FOREIGN MARKETS FROM THE POINT OF SUCCESS POTENCIAL
The results of selective analysis are presented like a ranking list of countries (according to the market attractiveness) (Table 4).
Table 4
The assessment of country markets within the selective analysis
Main criteria Terms of import Sale & marketing tools Sale chances Specific risks Market dynamics Sum
Country ? GxB ? GxB ? GxB ? GxB ? GxB
Belgium 49
Egypt 25
………..
Based on the results of SELECTIVE ANALYSIS we determine the limit assessments of each group of countries and divide the markets into groups (Table 5):
Table 5
Very attractive markets > 44
Attractive markets > 35
Possible markets > 29
Random markets > 26
Unsuccessful markets > 20
Table 6
Grouping of the country markets according to the business success
(market chances)
Very attractive markets Attractive markets Possible markets Random markets Unsuccessful markets
Country Rating Country Rating Country Rating Country Rating Country Rating
Belgium 49 Italy 43 Kuwait 34 Greece 29 India 26
USA 47 Denmark 39 Austria 33 Mexico 28 Egypt 25
………
2.3.2. GROUPING OF COUNTRY MARKETS BY THE TOOL OF PORTFOLIO MATRIX
Using the matrix McKinsey “Market attractiveness – competitive advantages” makes it possible to distribute the selected country markets in the portfolio according to the criteria of their market attractiveness and competitive position of the company (product) in these markets. At the same time identifying the relevant country market position provides guidance for the development of the market strategies like entering, expanding, protecting or going out from the market. Portfolio matrix is constructed based on the actual data obtained during the current assessment and selection of the countries, and also on the target (planned, desired) data. Similarly to the above multi-scores analysis, the criteria of McKinsey matrix must be assessed according the importance of criteria.
The following terms are accepted:
• The sum of the importance coefficients in this example must be equal to 10
• Each criterion is assessed from 1 to 10 points
• The maximum amount of points that can get every country market is 100 points
Table 7
The criteria of market attractiveness and company competitive position.
Coefficients of criteria importance in the portfolio
Criteria Importance
MARKET ATTRACTIVENESS
1. Market chances
1.1 Market capacity
1.2 The level of competition
1.3 Dynamics/ growth of the market
2. Specific market risks
3. Factors of the business environment
3.1 Common factors
3.2 Specific factors
2
2
4
1
0,5
0,5
Result 10,0
Competitive position
1. Success opportunity
1.1 Possible market share
1.2 Turnover
1.3 Profit
6
2
2
Result 10,0
Then the country markets could be classify regard to two criteria (Tables 8, 9):
Table 8
The assessment of the market attractiveness criteria
Criteria of the market attractiveness
Importance Market capacity
2 Level of the competition
2 Market growth
4 Market risks
1 Common factors
0.5 Specific factors
0.5 Sum
?. Very attractive markets
Belgium 10 3 3 10 10 8 57
B. Attractive markets
Italy 8 1 6 7 8 6 56
C. Possible markets
Kuwait 6 6 5 7 6 7 57,5
D. Random markets
Turkey 6 9 9 4 5 6 75,5
E. Unsuccessful markets
India 5 7 4 4 5 5 49
Table 9
The assessment of the competitive positions criteria
Competitiveness criteria Possible market share
Turnover
Profit
Result
Importance 6 2 2
A. Very attractive markets
Belgium 4 8 8 56
B. Attractive markets
Italy 2 4 3 26
C. Possible markets
Kuwait 4 3 7 44
D. Random markets
Turkey 8 4 7 70
E. Unsuccessful markets
India 3 3 5 34
3. RESULTS
The example demonstrates the two-staged selection method within you can decrease the number of countries (from 30 till 10 or…) and group them into 5 types of markets. Very attractive country markets must be further analyzed. Markets that considered being not profitable could be transferred to other exporters and importers (Picture 2).
Market attractiveness
high medium low
Company position in the struggle between the most important rivals low
medium
high
Picture 2. Country Portfolio as the basis of strategic recommendations