Global Market Opportunity Assessment: GMOS & Entry Modes

Internationalization Process: Why, Where, and When

Global Market Opportunity Assessment (GMOA)

• GMOA is a favorable combination of circumstances, locations, or timing that offers prospects for exporting, investing, sourcing, or partnering in foreign markets.
• Typical opportunities include:
  • Selling products and services.
  • Establishing factories or other production facilities to enhance competence or cost-effectiveness.
  • Procuring raw materials, components, or services of lower cost or superior quality.
  • Entering collaborative arrangements with foreign partners.

Learning Outcomes

1. Understand how firms conduct a formal assessment of readiness to internationalize.
2. Determine the suitability of products and services for foreign markets.
3. Describe the method firms use to screen countries to identify target markets.
4. Understand how companies conduct in-depth assessment of industry-specific market potential.
5. Explain how companies identify and choose foreign business partners.
6. Determine how managers estimate a company’s sales potential.

Six Tasks of Global Market Opportunity Assessment (GMOA)

1. Analyze organizational readiness to internationalize.
2. Assess the suitability of the firm’s products and services for foreign markets.
3. Screen countries to identify attractive target markets.
4. Assess the industry market potential, or the market demand, for the product(s) or service(s) in selected target markets.
5. Choose qualified business partners, such as distributors or suppliers.
6. Estimate company sales potential for each target market.

Task 1: Organizational Readiness

• Analyze organizational readiness to internationalize to provide an objective assessment of the firm’s preparedness to engage in international business.
• Achieved by examining company strengths and weaknesses for international business, by evaluating key factors in the firm such as:
  • Appropriate tangible (financial) and intangible (skills) resources. What demands will internationalization place on company resources, such as finance, personnel, and manufacturing capacity?
  • Management’s commitment to internationalization. Is international business expansion consistent with other company goals, now or in the future? What does the firm hope to gain from international business? For example, increasing sales or profits, challenging competitors, pursuing a global strategy?

Task 2: Product Suitability

• Assess suitability of the firm’s products and services for foreign markets by conducting a systematic assessment of company offerings for international customers.
• Evaluate the fit between the offerings and foreign customer needs.
• For each possible target market:
  • Identify the factors that may hinder market potential.
  • Determine how the offering may need to be adapted.
  • Assess the offering regarding such factors as foreign customer characteristics, laws and regulations, channel intermediary requirements, and nature of competitors.

Products with Best Foreign Sales Prospects

• A) Sell well in the domestic market
  • E.g., Microsoft Xbox, wireless headphones, or popular fast food.
• B) Cater to universal needs
  • E.g., Cancer drugs, personal care products, and energy efficient refrigerators.
• C) Address a need not well served in foreign markets
  • E.g., Mutual funds, mini notebooks, and portable housing.
• D) Address a new or emergent need abroad
  • E.g., A major earthquake creates urgent need for portable housing; AIDS in Africa creates need for drugs and medical supplies

Task 3: Country Screening

• Screen countries to identify target markets.
• Reduce the number of countries that warrant in-depth investigation as potential target markets to a manageable few.
• Identify five or six countries that hold the best potential by assessing each country regarding such criteria as:
  • Size and growth rate.
  • “Market intensity” (customers’ buying power).
  • “Consumption capacity” (size and growth rate of the middle class).
  • Country’s receptivity to imports; infrastructure for doing business.
  • Economic freedom.
  • Country risk.

Screening Methodology for Potential Country Markets: Two Methods

• With GRADUAL ELIMINATION, the firm starts with numerous prospective target countries and narrows the choices by examining increasingly specific information. Initially, the researcher obtains macro-level indicators like population, income, and economic growth before delving into specific information.
• With INDEXING and RANKING, the firm assigns scores to countries based on their overall market attractiveness. For each country, the researcher identifies a set of market-potential indicators and ranks each country on each indicator. Weights are assigned to each variable to establish its relative importance.

Variables Used in the Potential Index

Global Sourcing Factors

• Cost and quality of inputs
• Stability of exchange rates
• Reliability of suppliers
• Presence of a work force with superior skills

FDI Factors

• Long-term prospects for growth and sizeable returns.
• Cost of doing business, based on available infrastructure, tax rates, wages, and worker skills.
• Country risk, including regulatory, financial, political, and cultural barriers, and intellectual property protections.
• Competitive environment.
• Government incentives such as tax holidays, subsidized training, grants, or low-interest loans.

Task 4: Assess Industry Market Potential

• The firm estimates the most likely share of sales that can be achieved in each target country, including consideration of market entry barriers.
• Firm should develop a 3 to 5-year forecast of industry sales.
• Assess industry market potential in each market by examining such criteria as:
  • Size and growth rate of the market, and industry trends.
  • Tariff and nontariff trade barriers to market entry.
  • Standards and regulations that affect the industry.
  • Availability and sophistication of distribution.
  • Unique customer requirements and preferences.
  • Industry-specific market potential indicators.

Methods for Estimating Industry Market Potential

• Simple trend analysis examines aggregate production for the industry as a whole.
• Monitoring key industry-specific indicators examines unique industry drivers of market demand.
• Monitoring key competitors helps estimate their sales levels provides an estimate of market potential.
• Following key customers around the world can provide an estimate of likely sales in an industry that the firm supplies.
• Tapping into supplier networks can offer valuable information for assessing sales and competitor activity.
• Attending international trade fairs facilitates learning about market characteristics and sales potential.

Task 5: Choose Foreign Business Partners

• The firm decides on the type of foreign business partner, clarifies ideal partner qualifications, and then crafts an appropriate market entry strategy.
• Initially the firm determines what value-adding activities must be performed by foreign business partners, and then seeks the appropriate partners.
• The firm assesses and selects partners based on such criteria as industry expertise, commitment to the venture, access to distribution channels, financial strength, quality of staff, and appropriate facilities.

Types of Foreign Business Partners

• Licensing Partners are independent businesses that apply intellectual property to produce products in their own country.
• Franchising Partners are Franchisees: independent businesses abroad that acquires rights and skills from the focal firm to conduct local operations.
• International Collaborative Ventures include joint venture and strategic alliance partners.
• Exporters tend to collaborate with foreign market intermediaries, such as Distributors and Agents.
  • Willing and able to invest to grow the business.
  • Access to distribution channels and end-users.
  • Strong industry knowledge.
  • Well-connected with local government.
  • Committed and loyal.

Task 6: Estimate Company Sales Potential

• The firm estimates the most likely share of industry sales that the company can achieve, over a specific period of time, for each target market.
• Firm develops 3- to 5-year forecast of its own sales in each target market based on criteria such as capabilities of partners, access to distribution, competitive intensity, pricing and financing, market penetration timetable of the firm, and risk tolerance of senior managers.
• Determine the factors that will influence company sales potential.

Company Sales Potential

• An estimate of the share of annual industry sales that the firm expects to generate in a particular target market.
• Requires obtaining highly refined information from the market (Task 4: Assess Industry Market Potential) .
• Researcher must project the firm’s revenues and expenses for 3 to 5 years into the future; very challenging.

Factors to Estimate Company Sales Potential in the Foreign Market

• A) CUSTOMER CHARACTERISTICS
  • Demand level and predicted evolution;
  • Purchasing power;
• B) COMPETITION
  • Intensity of the competitive environment. Existing competitors may react strongly against entrants;
  • Market penetration timetable. Fast or slow?;
  • Competitive positioning of local brand;
• C) PRICING
  • Attractiveness of pricing and financing to buyers, channel members;
  • Customary margins for distributors.
• D) CHANNEL EFFORT
  • Human and financial resources. Major factor in the proficiency and speed of company success;
  • Access to distribution channels. Ability to set up and use intermediaries and channel infrastructure;
  • Partner capabilities and incentives;
  • The firm’s institutional/governmental network in the market;
• E) CUSTOMER RECEPTIVITY
  • Promotional effort;
  • Reputation. Success may be faster if customers are already familiar with the firm’s brands and reputation.

Methods for Estimating Company Sales Potential

1. Survey end-users and intermediaries.
2. Trade audits
   • Visit retail outlets and question channel members to assess competitors’ offerings and strengths. Reveals opportunities for new products, and for differentiating existing products and marketing.
3. Competitor assessment
   • The firm can benchmark itself against main competitors in the market and estimate the level of sales it can potentially attract away from them.
4. Obtaining estimates from local partners
   • Collaborators such as distributors and franchisees already familiar with the market can often provide reliable estimates.
5. Limited marketing efforts to “test the waters”
   • A limited entry in the market helps gauge long-term sales potential and provides better understanding of the market.
6. The Analogy Method and Proxy Indicators are useful for emerging markets and developing economies, where information is often scarce
   • With analogy, the researcher draws on known statistics from one country to gain insights into the same phenomenon in a similar country.
   • With proxy indicators, the researcher uses known information about one product category to infer potential about another product category, especially if the two are complementary.

Readings

• Cavusgil, S.T., Knight, G., Riesenberger, J.R. International Business: Strategy, Management and New Realities. Pearson (First part Chapter 12 Ed. 5)''