Country Evaluation and Selection: Tool #1
Trade Analysis and Analogy Methods:
Trade analysis and country analogy methods are widely used for country evaluation by estimating their market size. In simple terms, the market size of a country may be determined by subtracting the exports of a product from the sum-total of its production and imports.
Market size = Production + Imports – Exports
One can arrive at market size by using data based on ITC(HS) code classifications up to eight digits for specific product categories. Published data on exports and imports can be obtained through international sources, such as the WTO, International Trade Centre, and the UNCTAD.
National governments comply trade statistics through customs and central banks, for instance, in India, through DGCI&S and Reserve Bank of India (RBI).
Production statistics are generally available through government organizations for broad product categories, such as agricultural commodities, textiles, steel, cement, minerals, etc. More product-specific statistics are compiled by commodity organizations and trade associations.
For new product categories, with little consumption and production in the past, various types of analogy methods are employed. In the analogy method, a country at similar stage of economic development and comparable consumer behaviour is selected whose market size is known.
Besides, a surrogate measure is also identified, which has similar demand to the product for the international market. Alternatively, the analogy method for different time periods, which may be compared with similar demand patterns in two different countries, may also be used.
Country Evaluation and Selection: Tool #2
Opportunity-Risk Analysis:
Carrying out a cross-country analysis of opportunities and risks provides a useful tool to compare and evaluate various investment locations based on a company’s objectives and business environment. The internationalizing firm may choose variables both for opportunities (such as market size, growth, future potential, tax regime, costs, etc.) and risks (political, economic, legal, operational, etc.).
Values and weights may be assigned to each of these variables depending upon their perceived significance by the firm. Thus, it provides an opportunity to a company to evaluate each country on the weighted indicators.
On the basis of business opportunities and risks, ranking of various countries may be made for investment. Countries with low-risks and high-returns are often preferred investment destinations. In addition, such grids may also be used for future projections.
Although, such grids (Exhibit 10.2) serve as useful tools for cross-country comparison of opportunity versus risk, it hardly provides any insight into relationships among the investment destinations.
Countries for investment can also be plotted in form of a matrix, as shown in Fig. 10.23, to indicate opportunities and risks. Besides, the countries can be placed for a pre-defined future time, both for opportunities and risks. In addition to inter-country evaluation, the country placements and its benchmarking with the global average opportunities and risks may also be carried out.
Country Evaluation and Selection: Tool #3
Products-Country Matrix Strategy:
With an objective to examine market diversification and commodity diversification, the product-country matrix strategy is employed. Under this approach, previous trade statistics are analysed to identify the major markets and major products, based on which a suitable marketing strategy is developed.
The matrix based on a predominantly supply side analysis reveals comparative advantages. In 1995, the Government of India carried out the analysis of trade data of the mid-nineties to prepare such a matrix. The analysis revealed the restricted commodity/country basket for India’s exports.
It was observed that 15 countries and 15 commodities accounted for around 75-80 per cent of India’s exports. An attempt was made to involve trade and industry to set up trade facilitators for achieving increased exports in the 15 products and 15 markets.
However, the exercise of the trade facilitation did not get enough support and response from various stakeholders. The focus on the 15 x 15 matrix, based on past performance data was a useful exercise as it helped to focus on the importance of a few commodities and a few destinations in India’s export performance.
There has been a market diversification for the top products though there has also been a product consolidation for the top markets. The analysis also reveals that the 15 X 15 matrix is dynamic and mature as it has undergone changes over the years and it requires modification of marketing strategy on a continuous basis.
Country Evaluation and Selection: Tool #4
Market Focus Strategies:
In view of market potential of a region, market focus strategies can be formulated. Under this technique, the market potential, generally on a regional basis is determined and major product groups that need to be focused are identified. Subsequently, strategies for increasing exports to the identified markets can be formulated.
India’s major markets have been identified on the basis of pre-defined criteria, such as country’s share in imports and its growth rate, GDP and its growth rate, and trade deficits which facilitate segmentation and targeting of markets. India has formulated such market focus strategies for Latin America, Africa, and CIS countries.
Considering the potential of the Latin American region, an integrated programme ‘Focus LAC was launched in November 1997 with an objective to focus at the Latin American region, with added emphasis on the nine major trading partners of the region.
The strategy emphasized identification of areas of bilateral trade and investments so as to promote commercial interaction. This region, comprising 43 countries, accounted for about 5 per cent of the world trade. But India is not a significant trading partner of this region. Under the programme, nine major product groups for enhancing India’s exports to the Latin American region were identified.
These included:
- Textiles including ready-made garments, carpets, and handicrafts
- Engineering products and computer software
- Chemical products including drugs/pharmaceuticals.
On similar lines, Focus Africa was launched on 1 April 2002, which initially covered seven countries in the first phase of the programme to include Nigeria, South Africa, Mauritius, Kenya, Tanzania, and Ghana.
Subsequently, it was extended to 11 other countries of the region, i.e., Angola, Botswana, Ivory Coast, Madagascar, Mozambique, Senegal, Seychelles, Uganda, Zambia, Namibia, and Zimbabwe along with the six countries of North Africa—Egypt, Libya, Tunisia Sudan, Morocco, and Algeria.
Focus CIS was launched on 1 April 2003, which include focused export promotion to 12 CIS (commonwealth of independent states) countries, i.e., Russian Federation, Ukraine, Moldova, Georgia, Armenia, Azerbaijan, Belarus, Kazakhstan, Uzbekistan, Kyrgyzstan, Turkmenistan, and Tajikistan—the Baltic states of Latvia, Lithuania, and Estonia.
The programme was based on an integrated strategy to focus on major product groups, technology and services sectors for enhancing India’s exports and bilateral trade and co-operation with countries of the CIS region.
The strategy envisaged at making integrated efforts to promote exports by the Government of India and various related agencies, such as India Trade Promotion Organisation (ITPO), Export Promotion Councils (EPCs), Apex Chambers of Commerce and Industry, Indian missions abroad, and institutions such as Export Import Bank and Export Credit and Guarantee Corporation (ECGC).
Such integrated and focused approaches are conceptually sound but their success depends upon effectiveness of implementation of the programmes. On 1 April 2006, the Focus Market Scheme was launched in order to enhance the competitiveness in the select markets. The scheme notifies 83 countries form Latin America, Africa, and CIS.
Country Evaluation and Selection: Tool #5
Growth-Share Matrix:
The technique offers a useful tool to evaluate countries for different product categories based on their market share and growth rate. Products are classified under four categories on the lines of BCG matrix based on a model developed by Boston Consulting Group for classification of strategic business units (SB Us) of an organization, as shown in Fig. 10.24.
Such a matrix can be prepared either for country’s exports or firm’s exports so as to facilitate segmentation of the products under the broad categories:
High-growth high-share [stars] products:
Such products offer high-growth potential but require lot of resources to maintain the share in high-growth markets.
Low-growth high-share [cash cows) products:
Products under this category bring higher profits, although have a slow market growth rate.
High-growth low-share [question marks) products:
These are the products under high risk category with an uncertain future, sometimes called problem children. A highly competitive strategic business decision is required to invest resources to bring it to the category of stars by achieving a higher market share.
Low-growth Low-share (dogs) products:
These products have low growth and low market share, therefore generally do not call for investing much resources.
For each of the product groups under the growth share matrix, differentiated strategies need to be formulated and adopted. Similar matrix can also be prepared country-wise for formulating country-specific business strategies.
Country Evaluation and Selection: Tool #6
Country Attractiveness-Company Strength Matrix:
An analysis may be carried out for country evaluation and strategy development based on business attractiveness of countries and the competitive strength of the company.
Various factors, such as market size, market growth, customers’ buying power, average trade margins, seasonality and fluctuations in the market, marketing barriers, competitive structures, government regulations, economic and political stability, infrastructure, and psychic distance may be taken into account to assess the country attractiveness.
The competitive strength of a firm is often determined by its market share, familiarity and knowledge about the country, price, product-fit to the market, demands, image, contribution margin, technology position, product quality, financial resources, access to distribution channels, and their quality.
An analysis can be carried out in the form of a matrix, assigning weight to each of these factors. Based on this analysis, a matrix may be drawn as in Fig. 10.25.
The countries depicted in the matrix may be segmented as
Primary Markets:
These countries offer the highest marketing opportunities and call for a high level of business commitments. The firms often strive to establish permanent presence in these countries.
Secondary Markets:
In these countries, the perceived political and economic risks are too high to make long-term irrevocable business commitments. A firm has to explore and identify the perceived risk factors or the firm’s limitations in these countries and adopt individualized strategies, such as joint ventures so as to take care of the limitations of operating business.
Tertiary Markets:
These are countries with high perceived risks; therefore, allocation of firm’s resources is minimal. Generally a firm does not have any long-term commitment in such countries and opportunistic business strategies such as licensing are often followed.
Based on the above analysis, a firm should focus its country selection and expansion strategies in countries at the top left of the matrix where the country attractiveness and the competitive strengths of the company are very high. On the other hand, the firm should focus on harvesting/divesting its resources from countries where the country attractiveness and company strength both are very low.
However, a firm may use licensing as a mode of business operation with little resource commitment but continue to receive royalties. Countries at the extreme right top of the matrix signify higher country attractiveness but lower company strength.
A firm should identify its competitive weaknesses in these countries and strive to gain the competitive strength. It may also enter into joint venture with other firms, which most of the time are local and have complementarities to gain competitive strength.
In countries where a firm has medium competitive strength and country attractiveness needs to carefully study the market condition and adopt appropriate strategy. Ford tractors used the country attractiveness-company strength matrix and placed India under the extreme right top of the matrix wherein the country attractiveness was very high but the competitive strength of the company was low.
Decisions to expand business across national boundaries require much higher level of commitment of a company’s resources as any business failure may have serious repercussions. By way of effective evaluation and selection of countries, the internationalizing firm avoids wastage of time and resources and it can focus its efforts on a few fruitful locations.
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