POM/U5 Topic 4 Identifying and Selecting Foreign Market: Foreign Market Entry Mode Decisions
The first stage in international marketing is to identify the right market where the exporter can sell his product profitably because one market differ from one another and a person cannot sell his product in all the market of the world. So, he has to segment them in such a way that he may be able to meet the requirements of the market.
Identifying Foreign Markets
Identification and selection of markets is the first stage in international marketing. Before making an entry in the international market, a firm has to identify those markets in which it can sell its products easily. To take this decision, firm has to analyse the potentials of various foreign markets and their respective marketing environments. Some markets may not be potentially good, and the firm’s objectives and resources may not allow it to operate in some other markets.
Therefore, a proper analysis is necessary for selecting the proper and appropriate foreign market. One market differs from another but still in one respect or the other, they can be grouped in different segments. It is important for the firm entering the world market to segment them in such a way that it is able to effectively meet their requirements. No matter how much attempt is made, the firm will not succeed unless it is marketing right product in the right market.
It costs lot of time and money to find out a suitable foreign market for a product. No firm has unlimited resources. Proper selection of markets would avoid waste of time and effort. One product may be more acceptable in some countries than in others. It would, therefore, be better to concentrate on a few markets than in more markets.
Proper Selection of International Markets
There are ample opportunities for export in a number of countries but taking into account the various factors it is not possible for a firm to do business in all the countries. It has to pick out a few possible markets out of the total markets surveyed. A preliminary study may help in avoiding the markets which are obviously impossible or less likely ones in comparison to other.
Criteria for Eliminating the Markets
The following are some of the points which may serve as the criteria for eliminating the markets from an Indian exporter’s point of view:
(i) The Government of India has banned export to some countries.
(ii) There may be some commodities, the export of which are restricted or prohibited either completely or only to some countries.
(iii) Incompatibility of technical standards may eliminate some markets.
(iv) In some cases cost of product adaptation may be so high that an exporter may not be able to afford it.
(v) Some importing countries may impose quotas on the import of certain specific products from some specific countries. In such cases export is not possible.
(vi) If some countries impose formidable tariff barriers which may make the product too costly in the concerned country, it will not be possible to export such commodities to those countries.
(vii)There may be some non-tariff barriers which may make the export of some products to some countries virtually impossible or difficult.
(viii) In some cases, shipping costs may be too high. Therefore, export in such cases is not possible.
(ix) Where the competition is quite severe it may not be easy to enter the market or it may not be profitable to sell the product in such markets without high costs.
(x) In the case of technically sophisticated products too much promotional expenditure may have to be made and make them difficult to export.
In this way the foreign market selection process usually begins with a screening process that involves gathering relevant information on each country and after screening, eliminating loss making countries. Therefore while selecting foreign market, one must keep in mind the above facts and the following steps must be carefully analysed.
Steps for Selection of Foreign Markets
First Step of the foreign market selection process is to use macro variables to discriminate between countries having basic opportunities and countries with no or little opportunities. Macro variables of the country describe the total market in terms of social, economic, geographic and political information. For example economic statistics of the country will disclose gross national product, population size, per capita income, personal disposable income etc. Political stability, political relations with the exporting country, geographical distance, climatic conditions etc., also influence the selection of a country.
Second Step of the process focuses on the factors that indicate the potential market size and acceptance of the product. Generally proxy variables are used in this screening process. A proxy variable is a similar or related product that indicates a demand for firm’s product. Other factors such as stage of economic development of the country, taxes, duties etc., are also considered while selecting a country.
Third Step of the selection process focuses on micro level considerations such as competition, cost of entry and profit potential. In other words, in this process main focus is given on profitability.
The Fourth Step
The fourth and last step of the screening process is an evaluation of potential target markets based on firm’s resources, objectives and strategies.