Market screening approach

Read the following chapters from : Wild, John J., Kenneth L. Wild & Jerry C.Y. Han. International Business: The Challenges of Globalization, 5th Edition. Pearson Learning Solutions

12 Analyzing International Opportunities

Learning Objectives

After studying this chapter, you should be able to

1 Explain each of the four steps in the market- and site-screening process.

2 Describe the three primary difficulties of conducting international market research.

3 Identify the main sources of secondary international data and explain their usefulness.

4 Describe the main methods used to conduct primary international research.

A LOOK BACK

Chapter 11 showed us how companies plan and organize themselves for international operations. We explored the different types of strategies and organizational structures that international companies use to accomplish their strategic goals.

A LOOK AT THIS CHAPTER

This chapter begins with an explanation of how managers screen potential new markets and new sites for operations. We then describe the main difficulties of conducting international market research. We also identify the information required in the screening process and where managers can go to obtain such information.

A LOOK AHEAD

Chapter 13 describes the selection and management issues surrounding the different entry modes available to companies going international. We examine the importance of an export strategy for exporters and the pros and cons of each entry mode.

Global Buzz Over Starbucks

Osaka, Japan — Starbucks (www.starbucks.com) began its global journey in 1996 with its first coffeehouse in Tokyo, Japan. Pictured below is a Starbucks located in the Japanese city of Osaka. Today Starbucks has around 1,500 coffeehouses in 43 markets outside North America. Although it has closed some underperforming stores, Starbucks still creates a buzz worldwide.

Starbucks brought European-style coffee to the United States and then took its American-style coffeehouses to Europe. The coffee giant was right that paper-cupped lattes and nonsmoking venues could take on Europe’s traditional cafés. Although in Britain since the late 1990s, Starbucks waited patiently before steaming into Zurich, Switzerland, in 2001 and into Paris, France, in 2004. Starbucks carefully researched Europe’s markets before opening its first European café in Zurich, and then branching out to other nations. With its multicultural and multilingual population, the Swiss market gave Starbucks a “tremendous opportunity to learn how to operate elsewhere in Europe,” revealed Mark McKeon, president of Starbucks Europe, Middle East, and Africa.

Source: © Andy Rain/CORBIS. All Rights Reserved.

At the same time, Starbucks introduced a coffee culture to tea lovers in China. Starbucks is encouraged by the fact that one-third of all Chinese households keep a jar of instant coffee on hand. Starbucks is trying to make coffee the drink of choice for the average 18- to 45-year-old Chinese consumer. “Per capita consumption of coffee in China is very small,” admitted Howard Behar, president of Starbucks Coffee International. “But what you have is a tremendous amount of people, so the market will grow.”

Starbucks founder and CEO, Howard Schultz, says that an integral component of Starbucks’ strategy is its image as a fair-trading multinational, which it acquired by promoting its “fair trade” coffee. As you read this chapter, consider how companies research, analyze, and select the international markets they will enter.1

Companies traditionally become involved in international business by choosing to enter familiar, nearby countries first. Managers feel comfortable entering nearby markets because they likely have already interacted with the people of those cultures and have at least some understanding of them. Companies in Canada, Mexico, and the United States often gain their initial international experiences in one another’s markets. Likewise, businesses in Asia often seek out opportunities in one another’s markets before pursuing investment opportunities outside the region.

Yet companies today find themselves bridging the gaps presented by space and culture far more often than in the past. For one thing, technological advances in communication and transportation continue to open markets around the globe. Some companies can realistically consider nearly every location on earth as either a potential market or as a site for business operations. The expansion of regional markets (such as the European Union) also causes companies to analyze opportunities farther from home. Businesses locate production facilities within regional markets because producing in one of a region’s countries provides duty-free access to every consumer in the trade bloc.

The rapidly changing global marketplace forces companies to view business strategies from a global perspective. Businesses today formulate production, marketing, and other strategies as components of integrated plans. For example, to provide a continuous flow of timely information into the production process, more and more firms locate research and development (R&D) facilities near their production sites abroad. Managers also find themselves screening and analyzing locations as potential markets and as potential sites for operations simultaneously. When Mercedes (www.mercedes.com) introduced the M-class sport utility vehicle to the U.S. market, executives also decided to build the vehicle there. The company did not merely estimate the size of the potential market for the vehicle, but simultaneously selected a suitable production site.

This chapter presents a systematic screening process for both markets and sites. After describing important cultural, political, legal, and economic forces affecting the screening process, we explain the difficulties of conducting international research. We then explore the central sources of existing market data and the prime methods for conducting international research firsthand.

Screening Potential Markets and Sites

Two important issues concern managers during the market- and site-screening process. First, they want to keep search costs as low as possible. Second, they want to examine every potential market and every possible location. To accomplish these two goals, managers can segment the screening of markets and sites into the following four-step process (see Figure 12.1):

1. Identify basic appeal

2. Assess the national business environment

3. Measure market or site potential

4. Select the market or site

This screening process involves spending more time, money, and effort on the markets and sites that remain in the later stages of screening. Expensive feasibility studies (conducted later in the process) are performed on a few markets and sites that hold the greatest promise. This approach creates a screening process that is cost effective yet does not overlook potential locations. Let’s now discuss each of the four steps above in detail.