GMS 522- CLASS 6-Approach to Selecting Foreign Markets

Approach to Selecting Foreign Markets

This section covers strategies and considerations for selecting foreign markets for business expansion.

Market Selection Overview

  • Discussion begins with the perspective of a CEO or executive regarding foreign market presence.

  • Example provided: Selection of Mexico as a target country.

Cultural Distance

  • Definition: Cultural distance refers to the extent of difference between the culture of the home country and the host country.

  • This factor is crucial when considering market entry strategies, as it impacts understanding and communication with consumers.

Psychic Distance

  • Definition: Psychic distance is a broader term than cultural distance; it encompasses a variety of factors influencing market selection.

  • It includes:

    • Differences in political systems

    • Other aspects that hinder the free flow of information and knowledge between the home country and host country

  • Key Point: Psychic distance can disrupt effective communication and understanding.

Market Segmentation

  • Focus is on segmenting countries rather than consumers to enhance market communication and marketing effectiveness.

  • Goal: Grouping nations that facilitate improved marketing strategies.

Criteria for Country Selection

  • Criteria for market selection should be measurable.

  • Process encompasses secondary screening, which evaluates the readiness and appropriateness of the company for market expansion.

Secondary Screening

  • Definition: Secondary screening does not concern the country but rather examines the firm's internal capabilities and readiness.

  • Consultants typically evaluate factors such as:

    • Brand image

    • Reputation

    • Technology

  • A report is produced to guide management on whether market expansion is advisable.

Site Visits

  • Final step in market selection involves visiting the potential market site to gather first-hand data and insights.

Modes of Entry

  • Definition: Modes of entry refer to institutional arrangements between parties that facilitate market entry into foreign markets.

  • These arrangements can be categorized into three groups:

    • Export Modes

    • Definition: Arrangements where a firm exports products to foreign markets.

    • Includes:

      • Direct exporting

      • Indirect exporting

    • Benefit: 100% control and benefit for the exporting firm.

    • Intermediate Modes

    • Further explanation and examples forthcoming.

Risk Versus Reward in Entry Modes

  • It is essential to weigh the risks associated with each entry mode against potential rewards.

  • Exporting considered a low-risk method due to minimal engagement in foreign markets.

Sequence of Market Entry

  • Firms often follow a sequence when entering foreign markets: starting with indirect exporting and potentially moving to a direct exporting or a licensing agreement, and eventually to foreign production.

  • Visual representation provided in the lecture to help understand this progression.

Conclusion and Real-World Examples

  • Theoretical sequences often differ from real-world practices; specifics will be addressed as the course progresses.