DECISION MAKING IN INTERNATIONAL MARKETS

1. DECISION MAKING ININTERNATIONAL MARKETS • Market Distance • Segmentation • Of countries • Of consumers within countries • Approaches • Country screening • Evaluation of market potential

2. Market Distances GEOGRAPHICAL DISTANCE ECONOMIC DISTANCE DOMESTIC FIRM TARGET MARKET POLITICAL DISTANCE PSYCHIC DISTANCE

3. Identifying International Markets • Reactive approach • Accidental entry through foreign orders not anticipated • Economic pressure for sales increases • Systematic approach • Proactive • Concentration of resources as needed • Based on market scanning and research

4. Country Segmentation • Geographic • Demographic • Income

5. Averages of countries are often not meaningful Implications of demographic factors will depend on country context—e.g., family income of $20,000 would be very affluent in India Will be able to pay for a lot of local service and manufacturing Able to hire others Example: Segmentation of Indian consumer families by income Rich (benefit maximizers--$4840/yr) Consumers (cost-benefit optimizers--$1,030-4,839) Climbers (cash-limited benefit seekers--$495-1029) Aspirants ($360-494) Destitutes ($0-359) Segmentation Within Countries

6. China by age Generation I (45-59) Some received education Usually work or worked for State firms Generation II (30-44) Limited education opportunities Married, 1 “little emperor” Generation III (18-29) Better education Prospects for better, market economy Indian youth—psychographic Homebodies—traditional, low individuality Two-faced—”outwardly traditional; outwardly modern” Wannabes--“Materialistic mainstream;” “show-offs;” part of crowd Rebels—traditional parents; often first generation professionals; understood by friends, not parents Cool guys—”work hard-play hard;” confident, westernized More Within-Country Segmentation Examples

7. Country Market Segmentation by “Overall Market Attractiveness” • “Platform” countries—for gathering intelligence and market info • Emerging markets—current minimal markets but growing potential over time • Growth markets—already experiencing high levels of growth • Maturing markets—well entrenched competitors; often have sizable middle class • Established markets—mature, usually fewer growth prospects; high competition but quite affluent

8. Preliminary screening Market size Population Income Accessibility—barriers: Tariff Import Export Non-tariff Government participation Procedures Product requirements Profitability Cost of barriers Risks Exchange rate Political Legal Selection and targeting Trade analysis Analogy—estimation based on performing of “leading” country (e.g., using China to estimate Vietnamese potential) Selection of Foreign Markets

9. International Market Analytical Tools • Boston Consulting Group (Growth-Share) Matrix • Market Attractiveness/Company Strength • Primary markets • Secondary markets • Tertiary markets

10. The Japanese Keiretsu • Collection of firms with informal cross-ownership of stock Preference for buying within the keiretsu • Benefits • Assures demand for product • Able to pool resources over the Product Life Cycle (bank in center) • May keep inefficient firms in business too long

11. Example of a Keiretsu CHEMICAL STEEL ELECTRO- NICS AGRI- CULTURE AUTO BANK FOOD PRO- CESSING HEAVY MACHI- NERY REST- AURANT TRANS- PORTA- TION

12. Some Economic Concepts • “Permanent” income—expected average over lifetime • Retirement expectations • Employment expectations • Conspicuous consumption

13. Approaches to International Market Segmentation • Countries as segments (Macro-level segmentation]--country aggregate characteristics are used to classify country--e.g., • demographics (age distribution, urbanization, ethnic composition) • socioeconomic (level of development] • Segments within countries: • intramarket segmentation (unique segmentation scheme for each country] • intermarket segmentation [some segments overlap between countries]

14. INTRAMARKET VS. INTERMARKET SEGMENTATION INTRAMARKET INTERMARKET • No overlap between countries • Some, but not all,segments overlap between the two countries • Comparable segments may differ in size between countries COUNTRY 1 COUNTRY 2 COUNTRY 1 COUNTRY 2 A A E G A B C B F B H C D H C D MKT 440 Lars Perner, Instrucror Rev. 2/98

15. Intermarket vs. Intramarket Differences, Part I • (Compare to Analysis of Variance [ANOVA] in statistics) • Average differences between countries but also significant differences within countries • Segment structure may be similar, but segment sizes are likely to differ • Relative vs. absolute differences--what is “upscale” in a given country?

16. Intermarket vs. Intramarket Differences, Part II • Global brands can serve similar consumers across borders --> possible economies of scale • Product life cycle--segments in one country may follow or lead those of other country

17. Uniform or differential positioning across markets? Optimal position for product across countries may differ due to Country-of-origin effects Competitive and cost structure within country markets However, consistent image may be desirable due to spillover of advertising and promotional efforts (e.g., satellite TV, cross-country circulation of periodicals, portrayal in film/media) consumption by individuals who cross boundaries Positioning Across Markets:Not an Easy Choice!

18. Marketing Mix Issues • Need to address markets with • Entrenched competitors • High consumer expectations • Discretionary income for new products • Marketing mix decisions • Product • Price • Distribution • Promotion