Tools for Country Evaluation and
Selection
Country
Evaluation and Selection: Tool # 1.
Trade
Analysis and Analogy Methods:
Trade
analysis and country analogy methods are widely used for country evaluation by
estimating their market size. In simple terms, the market size of a country may
be determined by subtracting the exports of a product from the sum-total of its
production and imports.
Market size = Production + Imports – Exports.
One
can arrive at market size by using data based on ITC(HS) code classifications
up to eight digits for specific product categories. Published data on exports
and imports can be obtained through international sources, such as the WTO,
International Trade Centre, and the UNCTAD.
National
governments comply trade statistics through customs and central banks, for
instance, in India, through DGCI&S and Reserve Bank of India (RBI).
Production
statistics are generally available through government organizations for broad
product categories, such as agricultural commodities, textiles, steel, cement,
minerals, etc. More product-specific statistics are compiled by commodity
organizations and trade associations.
For
new product categories, with little consumption and production in the past,
various types of analogy methods are employed. In the analogy method, a country
at similar stage of economic development and comparable consumer behaviour is
selected whose market size is known.
Besides,
a surrogate measure is also identified, which has similar demand to the product
for the international market. Alternatively, the analogy method for different
time periods, which may be compared with similar demand patterns in two
different countries, may also be used.
Country
Evaluation and Selection: Tool # 2.
Opportunity-Risk
Analysis:
Carrying
out a cross-country analysis of opportunities and risks provides a useful tool
to compare and evaluate various investment locations based on a company’s
objectives and business environment. The internationalizing firm may choose
variables both for opportunities (such as market size, growth, future
potential, tax regime, costs, etc.) and risks (political, economic, legal,
operational, etc.).
Values
and weights may be assigned to each of these variables depending upon their
perceived significance by the firm. Thus, it provides an opportunity to a
company to evaluate each country on the weighted indicators.
On
the basis of business opportunities and risks, ranking of various countries may
be made for investment. Countries with low-risks and high-returns are often
preferred investment destinations. In addition, such grids may also be used for
future projections.
Although,
such grids (Exhibit 10.2) serve as useful tools for cross-country comparison of
opportunity versus risk, it hardly provides any insight into relationships
among the investment destinations.
Countries
for investment can also be plotted in form of a matrix, as shown in Fig. 10.23,
to indicate opportunities and risks. Besides, the countries can be placed for a
pre-defined future time, both for opportunities and risks. In addition to
inter-country evaluation, the country placements and its benchmarking with the
global average opportunities and risks may also be carried out.
Country
Evaluation and Selection: Tool # 3.
Products-Country
Matrix Strategy:
With an objective to examine market diversification and
commodity diversification, the product-country matrix strategy is employed.
Under this approach, previous trade statistics are analyzed to identify the
major markets and major products, based on which a suitable marketing strategy
is developed.
The
matrix based on a predominantly supply side analysis reveals comparative
advantages. In 1995, the Government of India carried out the analysis of trade
data of the mid-nineties to prepare such a matrix. The analysis revealed the
restricted commodity/country basket for India’s exports.
It
was observed that 15 countries and 15 commodities accounted for around 75-80
per cent of India’s exports. An attempt was made to involve trade and industry
to set up trade facilitators for achieving increased exports in the 15 products
and 15 markets.
However,
the exercise of the trade facilitation did not get enough support and response
from various stakeholders. The focus on the 15 x 15 matrix, based on past
performance data was a useful exercise as it helped to focus on the importance
of a few commodities and a few destinations in India’s export performance.
There
has been a market diversification for the top products though there has also
been a product consolidation for the top markets. The analysis also reveals
that the 15 X 15 matrix is dynamic and mature as it has undergone changes over
the years and it requires modification of marketing strategy on a continuous
basis.
Country
Evaluation and Selection: Tool # 4.
Market
Focus Strategies:
In
view of market potential of a region, market focus strategies can be
formulated. Under this technique, the market potential, generally on a regional
basis is determined and major product groups that need to be focused are
identified. Subsequently, strategies for increasing exports to the identified
markets can be formulated.
India’s
major markets have been identified on the basis of pre-defined criteria, such
as country’s share in imports and its growth rate, GDP and its growth rate, and
trade deficits which facilitate segmentation and targeting of markets. India
has formulated such market focus strategies for Latin America, Africa, and CIS
countries.
Considering
the potential of the Latin American region, an integrated programme ‘Focus LAC
was launched in November 1997 with an objective to focus at the Latin American
region, with added emphasis on the nine major trading partners of the region.
The
strategy emphasized identification of areas of bilateral trade and investments
so as to promote commercial interaction. This region, comprising 43 countries,
accounted for about 5 per cent of the world trade. But India is not a
significant trading partner of this region. Under the programme, nine major
product groups for enhancing India’s exports to the Latin American region were
identified.
These
included:
i.
Textiles including ready-made garments, carpets, and handicrafts
ii.
Engineering products and computer software
iii.
Chemical products including drugs/pharmaceuticals.
On
similar lines, Focus Africa was launched on 1 April 2002, which initially
covered seven countries in the first phase of the programme to include Nigeria,
South Africa, Mauritius, Kenya, Tanzania, and Ghana.
Subsequently,
it was extended to 11 other countries of the region, i.e., Angola, Botswana,
Ivory Coast, Madagascar, Mozambique, Senegal, Seychelles, Uganda, Zambia,
Namibia, and Zimbabwe along with the six countries of North Africa—Egypt,
Libya, Tunisia Sudan, Morocco, and Algeria.
Focus
CIS was launched on 1 April 2003, which include focused export promotion to 12
CIS (commonwealth of independent states) countries, i.e., Russian Federation,
Ukraine, Moldova, Georgia, Armenia, Azerbaijan, Belarus, Kazakhstan,
Uzbekistan, Kyrgyzstan, Turkmenistan, and Tajikistan—the Baltic states of
Latvia, Lithuania, and Estonia.
The
programme was based on an integrated strategy to focus on major product groups,
technology and services sectors for enhancing India’s exports and bilateral
trade and co-operation with countries of the CIS region.
The
strategy envisaged at making integrated efforts to promote exports by the
Government of India and various related agencies, such as India Trade Promotion
Organization (ITPO), Export Promotion Councils (EPCs), Apex Chambers of
Commerce and Industry, Indian missions abroad, and institutions such as Export
Import Bank and Export Credit and Guarantee Corporation (ECGC).
Such
integrated and focused approaches are conceptually sound but their success
depends upon effectiveness of implementation of the programmes. On 1 April
2006, the Focus Market Scheme was launched in order to enhance the
competitiveness in the select markets. The scheme notifies 83 countries form
Latin America, Africa, and CIS.
Country
Evaluation and Selection: Tool # 5.
Growth-Share
Matrix:
The
technique offers a useful tool to evaluate countries for different product
categories based on their market share and growth rate. Products are classified
under four categories on the lines of BCG matrix based on a model developed by
Boston Consulting Group for classification of strategic business units (SB Us)
of an organization, as shown in Fig. 10.24.
Such
a matrix can be prepared either for country’s exports or firm’s exports so as
to facilitate segmentation of the products under the broad categories:
High-growth
high-share [stars] products:
Such
products offer high-growth potential but require lot of resources to maintain
the share in high-growth markets. E.g. Thumpsup, Maza, Kindley Mineral Water,
Youtube, Android, Google+ etc
Low-growth
high-share [cash cows) products:
Products
under this category bring higher profits, although have a slow market growth
rate. E.g. Limca, Coca cola, Google etc.
High-growth
low-share [question marks) products:
These
are the products under high risk category with an uncertain future, sometimes
called problem children. A highly competitive strategic business decision is
required to invest resources to bring it to the category of stars by achieving
a higher market share. E.g. Fanta, Sprite, Google Play etc.
Low-growth
Low-share (dogs) products:
These
products have low growth and low market share, therefore generally do not call for
investing much resources. E.g. Diet Coke, Minute Made, Kinlay Soda Water, Web
2.0, Orkut etc.
For
each of the product groups under the growth share matrix, differentiated
strategies need to be formulated and adopted. Similar matrix can also be
prepared country-wise for formulating country-specific business strategies.
Country
Evaluation and Selection: Tool # 6.
Country
Attractiveness-Company Strength Matrix:
An
analysis may be carried out for country evaluation and strategy development
based on business attractiveness of countries and the competitive strength of
the company.
Various
factors, such as market size, market growth, customers’ buying power, average
trade margins, seasonality and fluctuations in the market, marketing barriers,
competitive structures, government regulations, economic and political
stability, infrastructure, and psychic distance may be taken into account to
assess the country attractiveness.
The
competitive strength of a firm is often determined by its market share, familiarity
and knowledge about the country, price, product-fit to the market, demands,
image, contribution margin, technology position, product quality, financial
resources, access to distribution channels, and their quality.
An
analysis can be carried out in the form of a matrix, assigning weight to each
of these factors. Based on this analysis, a matrix may be drawn as in Fig.
10.25.
The
countries depicted in the matrix may be segmented as
Primary
markets:
These
countries offer the highest marketing opportunities and call for a high level
of business commitments. The firms often strive to establish permanent presence
in these countries.
Secondary
markets:
In
these countries, the perceived political and economic risks are too high to
make long-term irrevocable business commitments. A firm has to explore and
identify the perceived risk factors or the firm’s limitations in these
countries and adopt individualized strategies, such as joint ventures so as to
take care of the limitations of operating business.
Tertiary
markets:
These
are countries with high perceived risks; therefore, allocation of firm’s
resources is minimal. Generally, a firm does not have any long-term commitment
in such countries and opportunistic business strategies such as licensing are
often followed.
Based
on the above analysis, a firm should focus its country selection and expansion
strategies in countries at the top left of the matrix where the country
attractiveness and the competitive strengths of the company are very high. On
the other hand, the firm should focus on harvesting/divesting its resources
from countries where the country attractiveness and company strength both are
very low.
However,
a firm may use licensing as a mode of business operation with little resource
commitment but continue to receive royalties. Countries at the extreme right
top of the matrix signify higher country attractiveness but lower company
strength.
A
firm should identify its competitive weaknesses in these countries and strive
to gain the competitive strength. It may also enter into joint venture with
other firms, which most of the time are local and have complementarities to
gain competitive strength.
In
countries where a firm has medium competitive strength and country
attractiveness needs to carefully study the market condition and adopt
appropriate strategy. Ford tractors used the country attractiveness-company
strength matrix and placed India under the extreme right top of the matrix
wherein the country attractiveness was very high but the competitive strength
of the company was low.
Decisions
to expand business across national boundaries require much higher level of
commitment of a company’s resources as any business failure may have serious
repercussions. By way of effective evaluation and selection of countries, the
internationalizing firm avoids wastage of time and resources and it can focus
its efforts on a few fruitful locations.
