Foreign Entry

1
Foreign Entry Business Considerations

• Business Conditions
• its Impact

2

• Entering Foreign markets is not an easy task.
  Companies are taking enormous risks by entering
  into new markets. New markets poses new
  challenges while enticing with new opportunity.
• Market Research is the necessary first step
  before expanding abroad.

3
Key Points

• Global market research involves issues like
• Current Market potential
• Future Market Growth Estimates
• Political environment
• Business Environment
• Trade Bloc Membership
• Competitive Environment
• Entry Barriers

4
Political risks evaluation is the first level Go
or No-Go decision maker

• Political Risk Factors
• General Instability
• Revolution, Coup, Riots, Violence, Terrorism etc.
• Expropriation
• Asset seizure, Nationalization, Contract
  Revocation
• Operations
• Import Restrictions, Local content Requirements,
  Taxes Export Requirements
• Finance
• Exchange Rate Risks, Limitations on repatriations
  of Profits, Investments limitations etc

5
Political Risks

• Once Political risks are evaluated, marketing
  basics can be considered
• US Government Department of Commerce releases
  Political Risks Assessment data for companies
• Cultural also acts as Political risks, Often
  times Cultural factors are not visible in foreign
  markets
• E.g KFCs controversy in India
• Financial stability of a country can be assessed
  from the investment rating for that country
• Moodys, Standard Poors

6
Buying Political Risk Information

• Several independent research companies sell
  political risk analysis reports. A typical report
  consists of
• Highlights
• Comment Analysis
• Databank History of key domestic
  international economic indicators
• Forecast Scenarios A 5 year 18 month forecasts
  based on various political scenarios
• Political Framework The political system,
  Policies key politicians in the country
• Background Information of that Country

7
Basic Environment Factors

• Physical Environment
• Climate, Weather, Propensity for Natural
  disasters etc determines consumption demand
  factors
• Socio-Cultural Factors
• Religion, Culture, Society, Education levels
• Economic Environment
• Income levels, Disposal Income, Saving rate, GDP,
  etc
• Regulatory Environment
• Local Government rules regulation which enable
  or inhibit certain business practices

8
Macro Segmentation

• There are about 200 countries to invest in!!
• Macro Segmentation means grouping countries with
  similar characteristics which are important for
  marketing purposes.
• Socio-demographic data, Economic data
• Affiliation to a Free Trade Area
• GDP, GNP, Economic growth
• Culture, Political systems
• Countries are grouped together for Cluster
  Analysis, A simplified method of analyzing a
  country.

9
Cluster of Countries

• Its easier to cluster or group countries based on
  growth potential Competition.
• Final selection stage requires secondary data,
  subjective judgments and experiences during
  visits to that country.
• Often times managers use Guesstimate for
  missing data or other information
• It is good to do sensitivity analysis for various
  competitive scenarios

10
Researching Competitors

• Local markets abroad will have competitors, both
  Domestic Global.
• Competitive landscape must be analyzed
• SEC 10K or similar disclosure data
• Information from suppliers, customers middlemen
  for competitors
• Key strengths of foreign competitors are not
  easily reveled remains hidden
• E.g Keiretsu network in Japan

11
Bureaucratic Business Relationship

• De-Regulation, Trade liberalization
  Privatization of Industry has led to chaotic
  conditions. Forecasting the competitive
  environment in such countries is tough
• In most countries, Bureaucratic-Business
  relationships act as a strong business advantage
  for the entrenched players
• Telecommunications, Healthcare, Defense,
  Broadcasting media sectors are highly regulated
  in most countries.
• Rules always favor Local businesses

12
Entry Evaluation Procedure
Country Identification
Market Size, GDP, Growth rate
Preliminary Screening
Political, Economic Business Risks
In-Depth Screening
Market Potential, Attractiveness
Final Selection
Risks, Costs, Benefits, ROI
13
Special Criteria

• Competitive Factors
• Follow your competition into a new country or
  preempt competition to gain first mover advantage
• Learn from Leading Markets
• Enter a leading market to learn from competition,
  customers, suppliers
• E.g Japanese Car manufactures in Germany,
  Philips in Japan
• Leading Markets may not necessarily be the
  largest market but they are very strong at the
  high end of the product line. Customers there
  have high demands

14
Getting Country Data

• Primary Sources
• WTO, OEDC, World Bank, IMF reports
• US Department of Commerce
• Foreign Consulates
• Trade associations
• Primary data is usually available through
  websites
• Useful for preliminary analysis, to short list
  countries for consideration

15
Country Reports

• Secondary Sources A large number of private
  market research companies collect, compile and
  sell business data about various countries.
• Popular ones are
• ACNielsen Taylor Nelson Sofres, Dentsu Research
  Inc, United Information Group, NFO worldwide,
  Lexus-Nexus, Dun Bradstreet
• Private agencies provide more in-depth data
  analysis which is useful in making final
  decision.
• Private agencies also provide in-depth Market
  research reports Market size, potential,
  attractiveness etc

16
Forecasting Foreign Sales

• Market Research should give both market size and
  market share that can be achieved in foreign
  country.
• Often historical data for a product in foreign
  country may not be available. Economic
  demographic data may not be sufficient.
• Bootstrap forecast is then done is based on
  past data from other markets (such as home
  building to predict sales of appliances)
• Often needs innovative methods to forecast sales
  in foreign markets

17
Mazdas Shorthand Forecast

• Developed by Mazda in 1981
• First projected industry sales is polled from
  various sources
• Second, Market share for imports is polled from
  the same source
• Third, Japanese share among imports is estimated
• Finally, the companys share is estimated
• Sales Industry sales x Market Share
• Short cut method is not accurate not applicable
  for all industries. Trade barriers, Product life
  cycle other factors must be considered

18
Stages in Product Lifecycle
Sales
4
1
2
3
5
6
Legend 1 Pioneer 2 Early Adopter 3 Early
Majority 4 Late Majority 5 Late Adopter 6
Laggards
Time
19
Product Life Cycle

• Sales forecast also depends on Product Life
  cycle.
• In early stages, little data is available for
  statistical forecasting.
• In later stages when past sales and market share
  data are available more sophisticated methods can
  be used
• Three types of forecasting techniques can be used
  in early stages
• Build-up Method
• Forecasting by Analogy
• Judgmental Method

20
Judgmental Forecasts

• Jury Technique
• Expert Pooling
• Panel Consensus
• Delphi method
• Time Series Extrapolation
• Regression-Based Forecasts
• The Size Component
• Willingness to buy
• Ability to Buy
• Sales per Customer
• Market Sales

21
Forecasting Market Share

• Predicting Competition
• Identifying Competitors
• Domestic Competitors
• Foreign Competitors

22
Closing Thoughts

• Foreign Entry decisions involve country selection
  based on political risks, business environment,
  and rules and regulations of trade
• Once a country to enter is identified, Through
  Market research needs to be done
• In New markets, the best market research is
  subjective in nature as hidden factors such as
  country of origin effects, consumer preferences
  to local products other intangibles are not
  known.
• Consultants research firms help, so use them!