Warm up: Selecting foreign markets
In this training session we’ll take a look at how to plan an analysis of target markets and classify them so we can make an easier and more logical choice.
We should point out first of all that any method or technique used will not exempt the working group from subsequently assessing the data resulting from the analysis within the framework of the company Business Plan. Let’s just say that the market selection method must give an “organized” input into subsequent stages of strategic assessment and always remain open to continual review.
We can identify reactive or proactive inputs to the analysis. The reactive approach is based on previous signs of success of your product: information requests received from potential customers in the area, past sales, competitors’ activities or feedback from existing customers. If you manage to identify trends rather than individual or sporadic events, all the better.
The proactive approach, on the other hand, places an emphasis on analysing factors and indicators that are completely independent of previous performance. Geographical location, macroeconomic data, growth rates for the specific sector, efficiency of the importation channels and the presence of infrastructure, regulations tied to use of the product, etc.
Regardless of your basic strategy, it is important for you to make a first selection of markets. 15-20 target countries that might seem promising for your product.
Using this analytical method will lead immediately to a major benefit: that of encouraging the team to conduct a structured analysis of key factors and get a better knowledge of the strengths and weaknesses of the product and of the company BEFORE entering a market. This will also let you identify and limit risk factors.
We therefore have to identify the relevant indices and enter them in a matrix that enables them to be classified by priority.
Some suggestions:
– Limit the relevant indicators to no more than 10 or 12. These are more than enough to cream off the best candidates and create a ranking of countries;
– Look for the indicators which express the total size of the target market;
– Prefer quantitative indicators. They are precise. Qualitative indicators are more difficult to catalogue and measure;
– Always enter at least one indicator reflecting the import flows into the individual countries;
– Use the same source to extract information about the countries you are analyzing. That way you will avoid distortions in the definitions and measurement of data;
– Always enter an indicator of the complexity of doing business from the standpoint of market entry methods. Especially if you intend to invest directly. Therefore, the legal, political, financial and fiscal aspects, etc.;
– Enter an indicator that expresses the level of tariff and other barriers.
Now you have to attribute a weight to these indicators and convert the data obtained into a score. Depending on your specific business, some indicators will have more weight than others.
– The weight/importance of the indicators can be expressed using a scale from 0 to 100, with 100 being the total of the levels of importance of all the indicators taken into consideration.
– Conversion of data into a score. Use a scale from 1 to 10. Assign 10 points to the country that obtained a value higher than all the others (top indicator). Then calculate as follows:
Country points = (value of each country/value of the top indicator) x 10
Scores of less than 1 point will be rounded up.
Here is an example of a matrix showing a country by country analysis:
How to use the results of the matrix.
As said at the beginning, the results of the analysis should serve as a starting point for discussions, further assessment and verification of consistency with the company’s business strategies.
It is important to compare the results obtained with the company’s organizational structure. Availability of personnel to be sent abroad, language skills, financial resources and tangible opportunities.
It is also worth identifying the points of contact among the listed countries. Are there any similarities that can be exploited as a common factor for approaching a group of countries? Some classic examples: countries located within a geographic area or countries which share the same language or are parties to trade agreements. Common strategies can be devised, so that the choice will fall on some countries in the list rather than others.
Note: in this case as well Project Management has a part to play. It is important to plan these activities within the framework of an “Internationalization Project” which explicitly defines the objectives, human and financial resources, responsibilities, breakdown into phases, time frame and costs.
That’s all for this training session!
The next topic will be: Where to get information for our analysis.
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