Factors Influence the International Market Selection Process - Coursework Example

Identify and critical evaluate the factors which influence the international market selection process

Executive Summary

This study aims to examine the critical factors that have a significant influence on the international market selection process. International marketing literature emphasises on the various models which have contributed the issues found in international market. The paper defines the concept of international market selection and identifies the problems associated with it. It explores how the international marketers screen the potential countries/market by using the model of Market attractiveness/Competitive strength matrix. The study realises the importance of segmentation in the formulation of global marketing strategy. The selection of appropriate marketing strategies to expand in the international region is determined by the evaluation of critical determinants like language, religion, culture, education, demography and geographic location. The external analysis of the international country is evaluated by using PESTLE strategic tool. Moreover, the specific characteristics of international country such as cultural and lifestyle of the demographics are acknowledged by realising their strong impact on the international market selection process.

Table of Contents

1.0Introduction4

2.0 Literature Review4

2.1 Market screening model4

2.2 The factors influencing the international market selection process6

2.2.1Geographic location6

2.2.2 Demography7

2.2.3Language7

2.2.4 Religion8

2.2.5Education8

2.2.6Political factors9

2.2.7Economical factors9

2.2.8Technology9

2.2.9Society10

2.4 The influence of specific characteristics12

2.4.1 Cultural characteristics12

2.4.2 Lifestyle13

2.5 Screening through Market attractiveness/Competitive strength matrix13

Reference List17

• 1.0Introduction

Majority of the firms have their operating points in different countries all over the world. Entering a new market; particularly in international countries, have numerous factors to be considered, which has a significant impact on the firm’s performance. The international market selection (IMS) procedure varies from a large company to that of a small or medium sized one (SMEs) (Andersen and Strandskov, 1998). Moreover, international market selection for the SMEs is mainly based on following criteria.

• Low “cultural distance” - Lower perceived distance between the host and home country.
• Lower geographic distance
• Lower “psychic” distance- Most importantly, Psychic distance is referred to the differences in culture, language, education and industrial development, political and economic system, etc (Brewer, 2001).

Identifying the right market to enter is essential for significant reasons, as it can be considered as the major determinant of business failure and success, especially in the early stages of internationalisation. The decision taken on critical factors, influence the nature of foreign marketing programs in the specified country. Moreover, the scenario of geographic locations on the selected market, have a significant impact on the ability of a firm to coordinate with the foreign operations.

• 2.0 Literature Review
  • 2.1 Market screening model

The outline model for International Market selection has been depicted in the following figure. The elements of IMS are thus discussed in details below.

Fig 1: International Market segmentation

(Source: Hollensen, 2012, p. 246)

Fig 2: International Market segmentation (general and specific characteristics)

(Source: Hollensen, 2012, p. 247)

As shown in the figure, higher the degree of accessibility and measurability, higher will be the indication towards general characteristics as criteria (Brouthers and Nakos, 2005). Hence, it can be realised that more than one measure is used simultaneously in the process of segmentation.

• 2.2 The factors influencing the international market selection process
  • 2.2.1Geographic location

The geographic location of the market is considered to be a critical factor in the selection of world market. Middle East and Scandinavian countries are clustered in respect to the geographic proximity. For example, the air conditioning needs in various parts of Arab Countries makes the manufacturer consider the above mentioned countries as a specific cluster.

• • 2.2.2 Demography

Demography is one of the key considerations in selection. While expanding internationally, it becomes essential to analyse the characteristics of population in the respective country in terms of percentage of youth and elderly people.

If the population of country gets older, the number of infants per thousand people declines. This is a significant factor in European countries, which is to be considered by a baby food company while entering in that country (Dow, 2000). The life span of individuals in Europe is increasing; whereas, the birth rate in that very continent is dipping down. Hence, the European based companies trading with toys, nappies and baby foods are facing a sharp competition along with difficulty in sustainable growth.

• • 2.2.3Language

Language is considered to be an indication about the culture of a specific place. The implication of language as an international marketer is evident, due the reason of translating advertisements. Representation of brand name for international acceptability as well as business negotiations are made through expensive interpreters or by appointing expensive foreign translators (Erramilli, 1991). Hence, language is an essential influential factor that is evident while expanding a business in the international market, as contract negotiation and persuasion of business presents difficulty, even when it is conducted in mother tongue.

Foreign language; most importantly, implies to the various patterns of thoughts and motivations of customers. Hence, to gain a good knowledge, language is facilitated as more than mere communication and provides significant impact on the relevant culture of the country.

• • 2.2.4 Religion

Customs and religion forms the key factor in marketing. For example among Christians, there is a tradition of exchanging presents that takes place in December, which is a significant pitfall for the international marketers. Moreover, in Christian countries, this custom of exchanging gifts takes place on Christmas day, which extends throughout December and continues till the beginning of January (Eslava et al., 2013).

Again, the impact of marketing is crucial in Islamic countries. The Islamic laws are mainly based on Quran, which provides guidance for the various human activities that include economic activities as well.

• • 2.2.5Education

The level of education in a particular country is of particular interest for the international marketers, from two main standpoints – level of literacy in the developing countries and economic potential of the youths. The system of education varies extensively from one country to another, due to which, the compensation for on-job training varies to a great extent.

In most industrialised countries, the level of literacy and education is close to 100 percent and hence, the entire range of communication medium is open to the marketer (Gaston-Breton and Martín, 2011). In these significant countries, the purchase of radio and television sets is even economically beyond the reach of most of the population. Rather, the communal television sets are available at times. Consequentially, the consumer marketer experience real challenge while deciding and implementing their promotional activities in such countries.

This portion of the report emphasises on external factors of the country, which is further evaluated by the use of PESTLE analysis.

• • 2.2.6Political factors

The countries are grouped and the world markets are segmented in accordance with the broader characteristics of political environment. The central government exploit its degree of power in the criterion of market segmentation (He and Wei, 2011). For instance, a chemical manufacturing company finds it difficult to enter various world markets, due to the strict the governmental regulations.

• • 2.2.7Economical factors

The level of economic development is a critical variable in the international market segmentation. For instance, electronics goods business requires a higher level of GDP growth. Consequentially, the trend of electronics business is not supported in India due to its significantly lower economic growth. In comparison, the electronic products are almost a basic necessity for the population (Koch, 2001). Moreover, the consumption pattern in certain countries tends to emerge on the level of economic development. Societies with higher income and high disposable income have the flexibility to spend money on education, services, recreation, etc.

• • 2.2.8Technology

The degree of agricultural technology and technological advancement forms the basis of international market segmentation. A software company planning to enter and expand in the international market is likely to segment by estimating the number of computers per thousand of the total population. Hence, it would not be worthwhile for the company to enter a market having below the required number of PC’s that are needed per thousand of the total population in a given country (Moen, Gavlen and Endresen, 2004). For example, the entrance to Pakistan, Africa, Arab countries, Iran, and countries in Eastern Europe are not advanced in terms of technology and hence, entrance to these countries is significantly less satisfactory.

• • 2.2.9Society

Society or family groups form the main purchase group which influences the sustenance of trading businesses in specific countries. In Europe, the marketers are familiar with the purchase group of nuclear family, that include mother, father and children living together in the same house. Such family orientation has become evident with the increasing societal change (Ozturk, Joiner and Cavusgil, 2015). Alternatively, in some other countries, extended family groups form the key unit where three to four generations live together under a single roof.

Socio-economic factor is extensively used as a segmentation tool in United States. The country has classified socio-economic factors into six categories – upper upper class, upper middle, upper lower class, lower upper class, lower middle class and lower lower class (Rahman, 2006). The high income professionals in US are demoted to the lower upper class and this group of people are referred to as those people who have earned the position and not inherited it.

Comparatively, it is difficult to find effective socio-economic groups in Russia, beyond the farm workers, blue collared workers and white collared workers.

2.3 Critical analysis

While the large literature focuses on the criteria that are used for the purpose of market segmentation, however less attention has been paid for the accompanying requirements presented by (). He argued that, any proposed market segmentation model must focus on the four determinants in terms of Actionability, Accessibility, Profitability, Measurability.

The criteria for effective segmentation have been considered in details below:

Accessibility - The degree to which the resulting segments shown in the figure are effectively achieved and served.

Actionability – It is the extent to which an organisation has enough resources to construct effective marketing strategies, in order to make things happen.

Profitability - The extent to which the segments are adequately extensive and profitable.

Measurability - It is the degree to which one can measure the size of given segments along with purchase power.

Each of determinants has a significant impact on the decision of market selection and plays an effective role in determining the segment viability. In reference to the model of STP, market segmentation is considered to be an adaptive strategy. It consists of market partitions having the purpose to select one or more market segments, which the organisation can target by developing specific marketing mixes.

In contrast, Dow (2000) opines that marketing segmentation need not be adaptive, rather the process of selection can be achieved by having competitive advantage relative to the competitors within that segment. Hence, it can be said that, particular attention to the individual factors is not necessary to attain the objective.

According to Erramilli et al.(1991), true segmentation of market can be done by meeting three criteria, that include (a) grouping of segments separate segments for homogeneous and heterogeneous, (b) a true segment must meet the practical requirements to meet the practical requirement of reacting to the particular marketing mix. Thirdly, (c) it refers to the efficiency potential to reference to cost and feasibility of attaining a segment.

Koch (2001) recommends to consider the non-demographic traits which has been neglected in majority of literatures while focusing on traditional demographic traits. The demographic traits of age, income, gender, education level, no longer serves the purpose and basis of market segmentation alone. On the other hand, non-demographic traits such as the values, preferences and taste of target market has great influence on the consumer purchase behaviour in comparison to the demographic traits as a whole.

• 2.4 The influence of specific characteristics
  • 2.4.1 Cultural characteristics

Cultural characteristics have a significant impact on the process of international market selection. The companies which are planning to expand in the international market, are require to gain a strong insight of the factors that drive the customer behaviour in various markets, which in turn helps them to capture the global segments or global market (Sakarya, Eckman and Hyllegard, 2007). The cultural behaviour of members in a given society is specifically shaped by a set of dynamic variables which are also used as criteria of segmentation. These variables include language, values, religions, attitude, belief, technology, education, aesthetics and social institutions.

• • 2.4.2 Lifestyle

The analysis of lifestyle is done by using the tools of consumer interest, their activities and opinions which have a significant impact on their purchase behaviour. However, these determinants are not wholly appropriate for analysing the segmentation in international market (Shabani, Saen and Vazifehdoost, 2013). The consumption habits of consumers can be used as the effective tool of indication for lifestyle. Similarly, the type of food habits can easily indicate the lifestyle which is used by a company planning to expand in the international market. For example, the Indian hot curries are not very popular in Germany. Similarly, the hot Arab dishes are not preferred by the population of Western Europe. Again, Indian consumers do not eat beef burgers as compared to Iran and western countries.

• 2.5 Screening through Market attractiveness/Competitive strength matrix

This market portfolio model is used to identify the “best opportunity” target customers by replacing two single dimensions of BCG growth matrix share with two composite dimensions that applied for global marketing issues.

Fig 3: Market attractiveness /competitive strength matrix

(Source: Hollensen, 2012, p. 247)

The dimensions of country/market attractiveness and that of competitive strength are considered in details below.

Market attractiveness

Competitive strength

Size of market

Market share

Growth rate of market

Capacity and ability of marketing

Purchase power of customers

Products fitting the market demand

Market fluctuations and seasons

Price

Competitive determinants

Brand image and customer loyalty

Market barriers

Technological implication

Political factors and Governmental regulations

Quality of product

Infrastructure

Support from market

Political and economic stability

Quality of distribution and service

Psychic distance (from home to host country)

Availability of financial resources, access to distribution network

The overall market volume for a specific country/market each year is estimated as:

Production (of a particular product in a specific country) + import – export = theoretical market size ± stock size change = Effective market size.

As shown in the figure, the outcomes of this process are prioritized within the classification of markets/countries into distinctive characteristics.

A countries - The portion falling under A country highlights the primary markets that offer the best opportunities for the international traders thereby, ensuring strategic long-term development (Steenkamp and Hofstede, 2012). Considering the prospects in A countries, companies expect to establish their presence in such countries permanently and hence, set for thorough research programmes regarding the influential factors.

B countries- These are secondary markets, where the opportunities are identified. However, the economic and political risks are quite high. As a result of this, identified potential risks such countries, must be handled in a sensible and realistic manner.

C countries- These are tertiary countries offering enough opportunity to market anything and everything. Such a scenario makes the allocation of resources minimum; hence, they are considered to incur higher risk. The objective in such countries is short-term and opportunistic in nature. Hence, companies do not offer any real commitment.

3.0 Conclusion

From the above analysis, it is evident that there is significant dominance of psychographic and demographic factors for the purpose of market selection process. However, on critical evaluation, extraneous variables such as trends, market conditions and price has great influence on the purchase power of consumers. The potential of traditional or demographic market segmentation critically depends on several extraneous variables provided by the market and consumer conditions. Hence, research in line with the following area would add significant value to the literature in area of segmentation. It has also been observed that, the process of market selection is entirely depend on all the four traditional determinants and does not focus on only one. This facilitate the need for more research in the area of market segmentation in order to find the dominating basis for market selection planning.

• Reference List

Andersen, P.H. and Strandskov, J., 1998. International market selection: A cognitive mapping perspective. Journal of Global Marketing, 11(3), pp.65-84.

Brewer, P., 2001. International market selection: developing a model from Australian case studies. International Business Review, 10(2), pp.155-174.

Brouthers, L.E. and Nakos, G., 2005. The role of systematic international market selection on small firms’ export performance. Journal of Small Business Management, 43(4), pp.363-381.

Dow, D., 2000. A note on psychological distance and export market selection. Journal of International Marketing, 8(1), pp.51-64.

Erramilli, M.K., 1991. The experience factor in foreign market entry behavior of service firms. Journal of international business studies, 22(3), pp.479-501.

Eslava, M., Haltiwanger, J., Kugler, A. and Kugler, M., 2013. Trade and market selection: Evidence from manufacturing plants in Colombia. Review of Economic Dynamics, 16(1), pp.135-158.

Gaston-Breton, C. and Martín, O., 2011. International market selection and segmentation: a two-stage model. International Marketing Review, 28(3), pp.267-290.

He, X. and Wei, Y., 2011. Linking market orientation to international market selection and international performance. International Business Review, 20(5), pp.535-546.

Hollensen, S. (2012) Essentials of Global Marketing. 2nd ed. Pearson.

Koch, A.J., 2001. Factors influencing market and entry mode selection: developing the MEMS model. Marketing Intelligence & Planning, 19(5), pp.351-361.

Moen, Ø., Gavlen, M. and Endresen, I., 2004. Internationalization of small, computer software firms: Entry forms and market selection. European journal of marketing, 38(9/10), pp.1236-1251.

Ozturk, A., Joiner, E. and Cavusgil, S.T., 2015. Delineating Foreign Market Potential: A Tool for International Market Selection. Thunderbird International Business Review, 57(2), pp.119-141.

Rahman, S.H., 2006. International market selection process: an investigation of the relevance of business operating environment. Journal of International Business Research, 5(1), p.73.

Sakarya, S., Eckman, M. and Hyllegard, K.H., 2007. Market selection for international expansion: Assessing opportunities in emerging markets. International Marketing Review, 24(2), pp. 208-238.

Steenkamp, J.B.E. and Ter Hofstede, F., 2002. International market segmentation: issues and perspectives. International Journal of Research in Marketing, 19(3), pp.185-213.