International or Foreign Market Selection Process
Process 1 # –
Identifying Foreign Markets:
Identification and selection of markets
is the first stage in international marketing. Before making an entry in the
international market, a firm has to identify those markets in which it can sell
its products easily. To take this decision, firm has to analyse the potentials
of various foreign markets and their respective marketing environments. Some
markets may not be potentially good, and the firm’s objectives and resources
may not allow it to operate in some other markets.
Therefore, a proper analysis is necessary
for selecting the proper and appropriate foreign market. One market differs
from another but still in one respect or the other, they can be grouped in
different segments. It is important for the firm entering the world market to
segment them in such a way that it is able to effectively meet their
requirements. No matter how much attempt is made, the firm will not succeed
unless it is marketing right product in the right market.
It costs lot of time and money to find
out a suitable foreign market for a product. No firm has unlimited resources.
Proper selection of markets would avoid waste of time and effort. One product
may be more acceptable in some countries than in others. It would, therefore,
be better to concentrate on a few markets than in more markets.
Process 2 # – Proper Selection of International Markets:
There are ample opportunities for export
in a number of countries but taking into account the various factors it is not
possible for a firm to do business in all the countries. It has to pick out a
few possible markets out of the total markets surveyed. A preliminary study may
help in avoiding the markets which are obviously impossible or less likely ones
in comparison to other.
Criteria for Eliminating the Markets:
The following are some of the points
which may serve as the criteria for eliminating the markets from an Indian
exporter’s point of view:
(i) The Government of India has banned
export to some countries.
(ii) There may be some commodities, the
export of which are restricted or prohibited either completely or only to some
countries.
(iii) Incompatibility of technical
standards may eliminate some markets.
(iv) In some cases cost of product
adaptation may be so high that an exporter may not be able to afford it.
(v) Some importing countries may impose
quotas on the import of certain specific products from some specific countries.
In such cases export is not possible.
(vi) If some countries impose formidable
tariff barriers which may make the product too costly in the concerned country,
it will not be possible to export such commodities to those countries.
(vii)There may be some non-tariff
barriers which may make the export of some products to some countries virtually
impossible or difficult.
(viii) In some cases, shipping costs may
be too high. Therefore, export in such cases is not possible.
(ix) Where the competition is quite
severe it may not be easy to enter the market or it may not be profitable to
sell the product in such markets without high costs.
(x) In the case of technically
sophisticated products too much promotional expenditure may have to be made and
make them difficult to export.
In this way the foreign market selection
process usually begins with a screening process that involves gathering
relevant information on each country and after screening, eliminating loss
making countries. Therefore while selecting foreign market, one must keep in
mind the above facts and the following steps must be carefully analysed.
Process 3 # – Steps for Selection of Foreign Markets:
First Step:
First Step of the foreign market
selection process is to use macro variables to discriminate between countries
having basic opportunities and countries with no or little opportunities. Macro
variables of the country describe the total market in terms of social,
economic, geographic and political information. For example economic statistics
of the country will disclose gross national product, population size, per
capita income, personal disposable income etc. Political stability, political
relations with the exporting country, geographical distance, climatic
conditions etc., also influence the selection of a country.
Second Step:
Second Step of the process focuses on the
factors that indicate the potential market size and acceptance of the product.
Generally proxy variables are used in this screening process. A proxy variable
is a similar or related product that indicates a demand for firm’s product.
Other factors such as stage of economic development of the country, taxes,
duties etc., are also considered while selecting a country.
Third Step:
Third Step of the selection process
focuses on micro level considerations such as competition, cost of entry and
profit potential. In other words, in this process main focus is given on
profitability.
The Fourth Step:
The
fourth and last step of the screening process is an evaluation of potential
target markets based on firm’s resources, objectives and strategies.
Process 4 # – Criteria for Selecting Target Countries:
The process of selecting target countries
through the screening process requires that the exporter identify the criteria
to be used for selecting a country or differentiate one country from the other.
Market research on international
marketing has shown that the following main factors are responsible for market
selection:
1. Market Size.
2. Political Environment.
3. Social and Cultural Environment.
4. Legal Environment.
1. Market Size:
Market size is an important factor in
selecting foreign markets.
Various factors influence market size and
growth. Some important factors are as under:
I. Economic Factors:
(i) Total Gross National Product / Gross
National Income = the total domestic and foreign output claimed by resident of
the country = Consumption + Investment + Government + Net Export + Income
earned by domestic resident.
(ii) Per capita income
(iii) Income growth rate
(iv) Income and wealth distribution
(v) Personal disposable income
(vi) Import size of the country and
growth rate of import
(vii) Export-Import policy and other
Trade Policies of the country
(viii) Export restrictions and incentives
(ix) Balance of payment = BOP is the
statement of all transaction made between entities in one country and the rest
of the world over a defined period of time, such as a quarter or a year.
(x) Trade agreements with other
countries, and
(xi) Competition in the market and
competitor’s market share.
II. Population Factors:
(i) Total population
(ii) Population growth rate
(iii) Distribution of population
(a) rural-urban wise
(b) Age-wise
(c) Sex-wise
(d) Income-wise
(e) Literacy-wise, and
(f) Religion-wise.
(iv) Work habits and occupations.
(v) Consumer mobility, geographically and
within social class structure.
(vi) Population density.
III. Geographical Factors:
(i) Size of country.
(ii) Climate.
(iii) Topographical characteristics.
2. Political Environment:
The impact of an importing country’s
political environment on market selection is obvious. The exporter must
consider the political influences as they affect consumers, present and
potential customers or suppliers, international trade policies and the economy
as regards business cycles, monetary stability, and taxation system etc. It
means the government policies and their effects on the national economy should
also be carefully analyzed.
Some indicators of political risks are as
under:
(i) Probability of nationalization,
(ii) Government intervention and
restrictions,
(iii) Limits on foreign ownership,
(iv) Restrictions on capital and profit
movements, and
(v) Number of riots.
3. Social and Cultural Environment:
A culture, to some extent, determines its
members’ needs and expectations. Understanding of socio-cultural conditions of
the country is very important since, ultimately, it is the consumer who is to
be served by the firm. Therefore, the impact of social and cultural environment
on market selection is very important.
The following are the main elements of
culture:
(i) Material Culture—Technology,
technique and physical things
(ii) Language
(iii) Education, and
(iv) Religion, beliefs and attitudes.
4. Legal Environment:
In different countries not
only are the rules for business different, but the ways they are applied also
vary. This variation presents very difficult environment for international marketing;
therefore, it is necessary to understand legal complexities before determining
a selection of foreign market.
International or Foreign Market Selection Process
Process 5 # – Preferences Available to Indian Exporters:
Export promotion is an important method
of encouraging economic growth and correcting the imbalance of trade. Export
promotion means export encouragement in which old and new exporters are
encouraged to increase exports. They are provided with cash help for this
purpose. Bank loans are given. The import of some capital goods, necessary
machinery and other raw material is allowed in lieu of exports. Concessions are
given on train and marine fare to export goods.
Moreover, exporters and export organizations
are given tax relief. Economists are of the opinion that export promotion is
the only way to make India self-reliant, making balance of trade favorable,
earning foreign exchange and industrial development. Foreign exchange can be
earned only though exports.
Therefore, it is the government’s duty to
give more importance to export promotion. The success of five-year plans
depends upon exports. It corrects the imbalance of trade and completes
progressive projects. Since independence India’s balance of trade has always
been unfavorable.
Therefore, there is a constant need for
export promotion. The various projects of the country depend upon export growth
because the machinery, equipments and chemicals required for these projects are
imported. Export promotion is necessary in order to reduce the burden of
foreign loans. It is also used for selling new products made in India.
The various types of preferences
available to Indian exporters are as follows:
1. The Generalized System of Preferences
or GSP:
Under the generalized system of
preferences, the developed countries allow the imports from developing
countries like India either duty free or at concessional rates. It has
naturally helped India’s exports to such countries. GSP makes the imports cheap
in comparison to products coming from countries which are not entitled to GSP.
To take advantage of GSP, an exporter
must know- (i) whether his product is covered by GSP, (ii) the preference
margin enjoyed by his product, (iii) quotas for the import in that country, and
(iv) procedural formation on this point may be gathered from the Indian
Institute of Foreign Trade, Trade Development Authority, the Ministry of
Commerce and Export Promotion Councils.
2. Exchange of Preferences among
Developing Countries:
16 developing countries, including India,
have been exchanging preferences among themselves under 1972 agreements. These
countries are Brazil, Chile, South Korea, Spain, Mexico, Pakistan, Philippines,
Tunisia, Turkey, Uruguay, Yugoslavia, Israel, Egypt, Paraguay, Bangladesh and
India. India is also a member of ESCAP (The Economic and Social Commission
for Asia and the Pacific). ESCAP members are extending preferences to each
other on 93 products. The exporter must be aware of the products covered in the
list of those 93 products.
3. Import Promotion Centers in Some
Countries:
Some countries have established import
promotion centers for imports from developing countries and to provide
assistance to their exporters. A directory of such import promotion centers
(IPC) has been compiled by the International Trade Centre UNCTAD/GATT and can
be obtained from them. The countries where such centers have been established
are Australia, Austria, Belgium, Canada, Denmark, Finland, France, Germany,
Hungary, Israel, Italy, Japan, New Zealand, Norway, Poland, Sweden,
Switzerland, Russia and U.K. etc.
4. Other Advantages:
An Indian exporter should also examine
whether India has got any particular advantage in the market. Such advantages
may be- (a) proximity, (b) trade dominated by persons of Indian origin, (c)
existence of shipping facilities, (d) political relations, if they are not
good, business may get setback even if the terms offered are more attractive,
and (e) existence of rupee payment agreements.
Thus, after carrying out market surveys,
some markets where entry is impossible or difficult, should be rejected and in
other cases where some additional preferences are available, those markets
should be favorably considered.
Sources of Information Available to
Exporters:
There are many sources of information
available to Indian exporters to help them.
Such sources are as follows:
(i) Export Promotion Councils, Commodity
Boards, the Trade Development Authority, and various chambers of commerce.
(ii) Libraries maintained by foreign
embassies in India provide a number of references to assist exporters.
(iii) United Nations publish detailed
international trade statistics which can help the exporters in locating the
market for their products.
(iv) Commercial banks and the Export
Credit Guarantee Corporation of India can provide information about the foreign
exchange and payment conditions in different countries and also the credit
ratings and risks.
(v) Export-Import Bank can provide
information about assistance provided by the bank to Indian exporters and
foreign importers of Indian goods.
(vi) Reserve Bank of India publishes the
Reserve Bank of India Bulletin incorporating the policies regarding exchange
control regulations and other credit information.
Process 6 # – Export Promotion Organizations:
Export promotion organization of each
country tries to promote the export of their country. In India also Export
Promotion Councils (EPC), Export Development Authorities, Commodity Boards,
India Trade Promotion Organization (ITPO), Exim Bank and others offer great
help in easing Indian product sales abroad. They provide information by
advertisements, sale promotion programmes and public relations. They do not do
this to help a particular firm.
Their object is to promote Indian
products abroad. Main objects of export promotion bodies are
(i) To be aware of chances of Indian
product export,
(ii) To impress foreigners about Indian
industrial development and technical capacities, (iii) To improve impressions
about quality of Indian goods.
Following suggestions need to be
considered for encouraging India’s export:
1. The government should set up a control
room in the trade ministry in order to encourage exporters. This control room’s
job will be to increase the facilities of exports and to solve the problems
faced in export. It should work towards streamlining exports.
2. It is necessary to increase exports
that the government should sets up training institutes. Export training should
be popularized in the country. India Trade Promotion Organization should make
special efforts. It should arrange for foreign trade courses to be taught in
various universities.
3. The government should arrange for the
production of goods that are in demand abroad. Proper plans should be prepared
for export of goods. Export goods should be produced continuously. The goods
that are in demand in the domestic market should be exported only when the
domestic demand is fulfilled. These goods should be of high quality and should
be priced competitively.
4. The government should give priority to
the export sector. It should publicize as to what is in demand abroad. The
country’s doctors, technicians etc., should be encouraged to work abroad on the
basis of business agreements. Artists and entertainers should be encouraged to
perform abroad. Foreign tourism should be given facilities on priority basis.
5. Government trade has an important
place in increasing exports. But in our country, it has not proved to be very
effective and profitable. It is necessary that government sector adopts a
private sector like approach towards exports. For exports to increase it is
important the government does bilateral trade agreements with other countries.
It is necessary to make foreign trade successful.
6. Indian industrialists should set up
joint operations in India and the government should do so abroad. This will
have a favorable effect on our exports. Moreover, foreign industrialists should
be encouraged to set up more and more export-oriented units in India.
Multinational companies can be very effective in this regard. Indian industrial
houses should also try to get foreign help.
7. It is necessary for the government to provide necessary information to the public on exports. The people should know what to export. Country- wise export research should be done. Studies should be done about the possibilities of exports. People should know about the facilities that the government gives to exporters. Such as Startup Business.
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