MARK 4700 Exam 1 Study Guide Foreign Market Selection Determining Demand Size of Market o Population Indicators Absolute size total population People consumers are needed to make a market Population Growth Rates Trends growth or decline over time indicate future market potential Western Europe v SE Asia Africa Distribution of Population Characteristics like age density and gender Population pyramid o Income indicators Distribution Wide differences exists across and within countries o Ex top 10 bottom of pyramid etc Gini Index o Aka Gini coefficient this is a common indicator of income distribution such that the higher the number the greater the income inequality between people in a country Per Capita Roughly equates to a country s level of economic development and is a good indicator of the size or quality of a market PPP measures of per capita income attempt to get better measures of the actual purchasing power in a country Some goods ex industrial goods may not correlate with per capita income National Income Exchange rate o A number in the same unit currency is required to compare country incomes o Often the US dollar is used as a common currency o Purchasing power parity PPP takes into account relative price differences and purchasing power between countries Gross Domestic Product GDP o All products and services produced in a country in one year Gross National Income GNI o National income while including items that come in from other counties Comparison of Income across countries See Chart in Powerpoint Ranking Foreign Markets o Market Screening 1 Identifying indicators for the selection criteria 2 Converting the data into comparable indicators 3 Weighing each indicator 4 Analyzing the results Foreign Market Entry Foreign Entry Mode Types o Indirect Exporting A foreign market entry mode in which the manufacturer is not the exporter instead a third party conducts the export transaction Upside offers benefits of additional sales without risk and cost of direct involvement nor prior experience Downside Provides the manufacturer with very little control or feedback and prevents the manufacturer from gaining important internationalization knowledge Types Piggybacking o One product rides on the back of another from one national market to another Export Management Companies EMCs o Companies that specialize in exporting and handle the export transaction on behalf of the manufacturer Export Trading Companies ETCs o Companies that specialize in international trade generally organized as vertically or horizontally integrated entities o Prevalent in some SE Asian markets Japan South Korea Advantages No experience required Faster to market Low cost Disadvantages Limited control Limited feedback o Direct Exporting The manufacturer is the exporter and directly sells to an importer in another country The foreign importer may be the final consumer or an intermediary like an agent or distributor Direct exporting offers greater control and feedback than indirect exporting but the costs and risks are greater Direct exporting varies by the type of foreign partner used such as Agents o Individual or organization located in the foreign market that makes the international sale on behalf of the manufacturer Distributors o An organization located in the foreign market that takes title ownership of the manufacturer s product and sells the product Direct sales o Such as through the internet o Occurs when a manufacturer sells direct to foreign buyers o B 2 C Advantages Greater control Greater feedback Gain market knowledge Disadvantages More costly More time and effort o Direct Exporting with FDI Foreign Direct Investment FDI means a financial investment in a foreign market involving ownership of foreign assets and or foreign offices and employees Factors Forcing FDI Barriers to export success o Cost of transportation o Cost of local import barriers Need for increased control and feedback o May need additional control and feedback to maximize returns o Increased success may lead to increased market involvement ex customer support Sales and Customer Needs o The firm itself may be best able to serve customers rather than training an intermediary Types of FDI Overseas offices for marketing and sales o To maximize its effectiveness in managing overseas marketing and sales a firm may elect to open an overseas office o Overseas offices allow greater market participation in trade shows selling seminars training events and marketing efforts Overseas Distribution o A firm may also open a distribution to the local market and adjacent foreign markets o The firm can then ship greater quantities and get lower shipping costs o Allows for more control of inventory and better ability to make local adaptations Advantages Greater control Greater feedback Better meet customer needs Disadvantages More complex More time and effort o Foreign Manufacturing Foreign Sales and Distribution Foreign Assembly Occurs when a firm produces domestically all or most of the components or ingredients of its product and ships them to foreign markets for assembly May occur when transportation costs or tariffs are high May be direct or through licensing Contract Manufacturing When a firm s product is produced in a foreign market by another producer under contract with the firm Marketing is handled by the firm not the contract manufacturer Works best when marketing is the firm s competitive advantage Quality control and limited profits are drawbacks Wholly Owned Foreign Production Acquiring o An existing local manufacturer is quicker eliminates a potential competitor and takes advantage of existing contacts with labor and govt Greenfield o Build from the ground up takes longer but enables the use of the latest technology avoids organizational culture clashes and a fresh start on building the brand Advantages o Greater percentage of the profits more control and increased experience and feedback Disadvantages o Costly in terms of capital and management resources and put the firm at greater economic and political risk Advantages Full control Greater feedback Keep all profits Disadvantages Most expensive Most time and effort required o Licensing Arrangement wherein the licensor gives something of value to the licensee in exchange for specified performance and payments from the licensee Positives o Requires no capital for the licensor o Quick way into a foreign market o Allows for gain in foreign market knowledge Negatives o May create a future