6.

Evaluating new markets

6.1

Criteria for evaluating new markets

Criteria for evaluating the geographical market in general Key figures
Development of population Development of GDP Development of GDP per capita

Criteria for evaluating industry markets inside the geographical market Key figures
Development of quantities in total and per sub-market Development of prices in total and per sub-market Development of market volume in total and per sub-

market

Legal restrictions for economic activities

Possible legal forms Conditions for profit repatriation Conditions for sales (e.g. local production) Operations risks

Market system
Players

Flows of products and services Flows of information

Society

Political system Ethnic and religious groups Languages Demographic structure Cultural distance Political risks

Producers and traders

Sub-markets

National and international competitors Wholesalers and retailers Competitive intensity

Infrastructure

Traffic infrastructure

Customers

Telecommunications infrastructure Health care system

Link between customer segments and sub-markets; industry segments Demand similarity

Customer segments

2012 R. Grnig/D. Morschett

6. Evaluating new markets

6.2

Process for evaluating new markets

1. Producing an initial list of potential new markets
= usual sequence of steps = most important possible loops

2. Eliminating the less attractive markets

3. Selecting the most attractive markets

2012 R. Grnig/D. Morschett

6. Evaluating new markets

6.3

China's BERI ratings 2001 to 2007

Year Combined score Political risk index Operations risk index Remittance and repatriation factor 66 67 69 70 71 72 73

2001 2002 2003 2004 2005 2006 2007

(BERI, 2009)

57 58 58 59 60 61 61

56 56 56 56 56 57 57

49 50 50 51 52 53 53

2012 R. Grnig/D. Morschett

6. Evaluating new markets

6.4

Capacity shares of Holcim, Lafarge and Cemex in selected markets in 1999

Country Argentina Canada France Indonesia Mexico Philippines South Africa Spain Venezuela Holcim 38% 19% 13% 0% 19% 38% 36% 10% 25% Lafarge 11% 33% 34% 3% 4% 21% 26% 19% 24% Cemex 0% 0% 0% 44% 65% 22% 0% 27% 41% Total 49% 52% 47% 47% 88% 81% 62% 56% 90%

(adapted from Bartlett/Beamish, 2011) 2012 R. Grnig/D. Morschett

6. Evaluating new markets

6.5

Initial list of potential new markets

Geographical market Country A Country B Region C1 in country C Rest of country C Country D Country group E, F and G Country H
= potential new markets = no potential new market

Industries Industry market I

Industry market II

Industry market III

2012 R. Grnig/D. Morschett

6. Evaluating new markets

6.6

Summary of market data

Industries General information for geographical market Geographical market Country A Country B Region C1 in country C Rest of country C Country D Country group E, F and G Country H
= potential new markets = no potential new market
GDP per Real capita annual GDP growth Political Operarisk tional Index risk Index Profit repatriation factor

Industry market I
Market size Size of relevant submarket

Industry market II
Market size Size of relevant submarket

Industry market III

Market size Size of relevant submarket

2012 R. Grnig/D. Morschett

6. Evaluating new markets

6.7

Comparison of three car part markets

Number of cars

Country A

Country C Country B

Average age of cars

= current situation = expected position in five years

2012 R. Grnig/D. Morschett

6. Evaluating new markets

6.8

Remaining markets after the first round

Industries General information for geographical Industry market I market Geographical market Country A Country B Region C1 in country C Rest of country C Country D Country group E, F and G Country H
GDP per Real capita annual GDP growth Political OperaRisk tional Index risk Index Profit repatriation factor Market size Size of relevant submarket

Industry market II
Market size Size of relevant submarket

Industry market III

Market size Size of relevant submarket

= potential new markets

= no potential new market

= eliminated in the first round

2012 R. Grnig/D. Morschett

6. Evaluating new markets

6.9

Managing the cultural barrier in international market research

Company Option A Agency Customers, traders, competitors

Company Option B

Agency

Local branches

Customers, traders, competitors

Company Option C

Foreign agencies

Customers, traders, competitors

Cultural barrier
(adapted from Cateora/Gilly/Graham, 2009)

2012 R. Grnig/D. Morschett

6. Evaluating new markets

6.10

The five cultural indices of Hofstede for Switzerland, Germany, France and China
Uncertainty avoidance index 70 56 65 86 30 Masculinity index Indices Power distance index Individualism index Long term orientation index 40 40 31 39 118

Countries

French - speaking Switzerland German - speaking Switzerland Germany France China

(Hofstede/Hofstede, 2005)

70 26 35 68 80

64 69 67 71 20

58 72 66 43 66

2012 R. Grnig/D. Morschett

6. Evaluating new markets

6.11

Cultural differences between regions of Switzerland, Germany, France and China

Differences in long term orientation Differences in masculinity Differences in power distance Differences in uncertainty avoidance Total differences 77 35 60 104 41 213 180
Indices differences Countries Differences

German - French Switzerland German Switzerland Germany French Switzerland Germany German Switzerland France French Switzerland France German Switzerland China French Switzerland China

44 9 35 42 2 54 10

Differences in individualism 5 2 3 2 7 49 44

14 6 8 29 15 6 8

14 9 5 30 16 26 40

0 9 9 1 1 78 78

2012 R. Grnig/D. Morschett

6. Evaluating new markets

6.12

Industry segments in the European market for low budget cars

Customer Families Young Purchasers Retired group with low people of a 2nd car persons income buying Product their first group car Micro cars Subcompacts Compacts 4-wheel sub-comp. 4-wheel compacts Cheap minivans Cheap cabriolets Second hand cars Companies Crafts-men Car rental + Farmers providing etc. car sharing company companies cars

X X X X X X X X X X
= industry segments

X X X X X X X X X X X X X X X X X X X

X X X X

X X

X = important in terms of volume (Grnig, 2012)

2012 R. Grnig/D. Morschett

6. Evaluating new markets

6.13

The largest retailers for food and near food

Company Country of origin USA France UK Revenue from food and near food 2004 288 99 65 839 3,500 Revenue from food and near food 2009 405 120 90 1,087 4,800

Wal-Mart Carrefour Tesco Total for top ten Total world market
Figures in billion USD (Deloitte, 2011; ETC group, 2005)

2012 R. Grnig/D. Morschett

6. Evaluating new markets

6.14

Scoring model for selecting the most attractive markets

Option Geographical market Industry market Criteria Cultural distance Size of the Growth of Competitarget sub- the target tive intensity markets submarkets Importance of the criteria 2 A C1 I III I II III Rest of C E, F + G H III I II I II 2 2 3 3 3 3 2 2 2 2 3 4 2 2 3 1 2 4 3 1 4 2 3 2 2 1 3 2 2 3 2 3 2 4 3 1 2 2 3 4 3 2 2 3 3 3 2 1 1 1 3 3 2 4 39 25 26 24 22 25 37 34 21 38 25 35.5 29.5 24 32 Overall evaluation Access to Industry market distribution channel Geographical market

Scores: 4 = very positive, 3 = positive, 2 = negative, 1 = very negative Importance of the criteria: 3 = high, 2 = medium, 1 = low 2012 R. Grnig/D. Morschett

7. Evaluating market entry modes

7.1

Different alternatives within exporting

Manufacturer Export firm Buyer

Manufacturer Agent Manufacturer

Buyer

Buyer

Manufacturer

Distributor
Sales representative

Buyer

Manufacturer

Buyer

Manufacturer Border
= Company = Partners/customers

Sales branch/ subsidiary

Buyer

2012 R. Grnig/D. Morschett

7. Evaluating market entry modes

7.2

Process for evaluating market entry modes

1. Eliminate the less suitable entry modes based on external and internal conditions 2. Select the best suitable entry modes based on a detailed evaluation

2012 R. Grnig/D. Morschett

7. Evaluating market entry modes

7.3

Matching market attributes, internal attributes and entry modes

Market attractiveness Market attractiveness

high

Production subsidiary

Joint venture

high

Joint venture

Production subsidiary

low

(Direct) export

Licensing

low

Indirect export

Direct export/ Licensing

low
(Zentes, 1993)

high

Market barriers

low

high

Competitive strengths

2012 R. Grnig/D. Morschett

7. Evaluating market entry modes

7.4

Scoring model for selecting the market entry mode

Criteria Importance of the criteria Options Export via distributor 1 2 4 4 1 1 2 4 2 45 Export via sales subsidiary 4 4 2 2 1 1 3 2 4 46 Licensing 2 2 4 3 4 4 2 4 1 59

Control over marketing Control over after-sales service Required financial resources Requires management resources Production costs Custom duties to be paid Flexibility to switch entry modes Access to distribution channels Risk of knowledge dissemination Overall evaluation

2 2 3 1 3 2 1 3 2

Scores: 4 = very positive, 3 = positive, 2 = negative, 1 = very negative Importance of the criteria: 3 = high, 2 = medium, 1 = low (adapted from Mhlbacher/Dahringer/Leihs, 2006) 2012 R. Grnig/D. Morschett

8. Developing an internationalization strategy for new markets

8.1

Process for developing an internationalization strategy for new markets

0. Preparing the strategy planning project
= usual sequence of steps = most important possible loops

1. Evaluating potential markets and selecting the most attractive ones

2. Determining the market entry modes for the attractive markets

3.Developing Developingfeasibility feasibilitystudies studiesfor forentering entering theattractive attractive country markets 3. the country markets 4. Developing the internationalization strategy 3.IfDeveloping feasibility studies for entering the attractive country markets 5. needed: Signing agreements with partners

3.Developing Developingthe feasibility for entering the attractive country markets 6. market studies entry programs

2012 R. Grnig/D. Morschett

8. Developing an internationalization strategy for new markets

8.2

Market - entry mode combinations as result of Step 2

Most attractive markets Geographical markets A Entry modes Sales Distributor subsidiary

Industry markets Production subsidiary I III

E, F + G

I II

H
= selected entry mode = entry mode which would fit best

II

2012 R. Grnig/D. Morschett

8. Developing an internationalization strategy for new markets

8.3

Table of contents of a feasibility study for entering a country market

1. 2. 3. 4. Served industry markets Market entry mode(s) If needed: Partner(s) Marketing plans for the served industry markets 4.1 Industry market A 4.2 Industry market B 5. Resources needed 5.1 Human resources 5.2 Assets 5.3 Working capital 6. Quantitative objectives 6.1 Industry market A 6.2 Industry market B 7. Measures 7.1 Order of entering the industry markets 7.2 Steps and time needed for building up activities in industry market A 7.3 Steps and time needed for building up activities in industry market B 8. Responsibilities 9. Budget 9.1 Expenses including investments 9.2 Revenues 10. Economic evaluation
2012 R. Grnig/D. Morschett

8. Developing an internationalization strategy for new markets

8.4

Net present values of market entry options

Market entry options Free cash flows Year 0 Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 Market A with wholly owned production subsidiary Dis- NPV count rate

-1,500 +150 +200 +250 +250 +250 +250 +250 +750

10%

-58

Market E, F + G with sales -600 subsidiary Market H with -400 sales subsidiary
Figures in 1,000 EUR NPV = net present value

+90

+120 +150 +150 +150 +150 +150 +150

9%

+160

+60

+80

+100 +100 +100 +100 +100 +100

8%

+131

2012 R. Grnig/D. Morschett

8. Developing an internationalization strategy for new markets

8.5

Table of contents of an internationalization strategy for new markets

1. Country and industry markets to build up 2. Entry modes and, if needed, partners 3. Quantitative market objectives 4. Timetable 5. Responsibilities 6. Investment budgets and free cash flow targets

2012 R. Grnig/D. Morschett

http://www.springer.com/978-3-642-24724-8