International market assessment is a form of environmental scanning that permits a firm to select a small number of desirable markets on the basis of broad variables. Companies must determine where to sell their products or services because they seldom have enough resources to take advantage of all opportunities. Not using scanning techniques may create the tendency to overlook growing markets. For example, European companies have often neglected the fastest-growing markets in Southeast Asia while expanding their traditional markets in North America. Assessment of foreign markets involves subjecting countries to a series of environmental analysis with a view to selecting a handful of desirable markets for exports. In the early stages of assessment, secondary data are used to establish market size and level of trade, as well as investment and other economic and financial information.
1. Preliminary Screening (Basic Need and Potential)
The first step in market assessment is the process of establishing whether there is a basic need for the company’s products or services in foreign markets. Basic need potential is often determined by environmental conditions such as climate, topography, or natural resources. In situations in which it is difficult to determine potential need, firms can resort to foreign trade and investment data to establish whether the product and/or service has been previously imported, its volume, its dollar value, and the exporting countries.
After establishing basic need potential, it is important to determine whether the need for the product or service has been satisfied. Needs may be met by local production or imports. If there are plans for local production by competitors, imports may cease or be subject to high tariffs or other barriers. Market opportunities still exist for competitive firms if a growing demand for the product cannot be fully met by local production insofar as governments do not apply trade restrictions in favor of local producers or imports from certain countries. If the research indicates that market opportunities exist, it is pertinent to consider the market’s overall buying power by examining country-specific factors such as population, gross domestic product, per capital income, distribution of wealth, and exports and imports. While considering these factors, one should note that (1) per capita income might not be a good measure of buying power unless the country has a large middle class and no profound regional disparities, and (2) imports do not always indicate market potential. Availability of foreign currency, as well as change in duties and trade policies, should be monitored to ensure that they are conducive to the growth of imports in the country.
2. Secondary Screening (Financial and Economic Conditions)
Secondary screening involves the evaluation of financial and economic conditions such as trends in inflation, interest rates, exchange rate stability, and availability of credit and financing. Countries with high inflation rates (as well as controlled and low interest rates) should be carefully considered because they may limit the volume of imports by restricting the availability of foreign exchange. There is also a need to verify the availability of commercial banks that can finance overseas transactions and handle collections, payments, and money transfers.
Economic data are also used to measure certain indicators such as market size (relative size of each market as percentage of total world market), market intensity (degree of purchasing power), and growth of the market (annual increase in sales). Countries with advanced economies, such as the United States and Germany, account for a large percentage of the world market for automobiles, computers, and televisions. Their high per capita incomes reflect the attractiveness of the market and the degree of purchasing power. Such information will help in selecting countries with rapidly growing markets and high concentrations of purchasing power.
3. Third Screening (Political and Legal Forces)
It is important to assess the type government (democratic/nondemocratic) and its stability. Countries with democratic governments tend to be politically stable, favor open trade polices, and are less likely to resort to measures that restrict imports or impede companies’ abilities to take certain actions. Political instability may also lead to damage to property and/ or disruption of supplies or sales, as a result of wars, insurrections, takeover of property, and/or change of rules. Consideration should also be given to legal forces in these countries that affect export/import operations. These include the following:
- Entry barriers: Product restrictions, high import tariffs, restrictive quotas, import licenses, special taxes on imports, product labeling, and other restrictive trade laws
- Limits on profit remittances and/or ownership: Imposition of strict limits on capital outflows in foreign currencies, restrictions on or delays in remittance of profits, and ownership requirements to establish a business
- Taxes and price controls and protection of intellectual property rights: The existence of high taxes, price controls, and lack of adequate protection for intellectual property rights.
4. Fourth Screening (Sociocultural Forces)
This involves consideration of sociocultural forces such as customs, religion, and values that may have an adverse effect on the purchase or consumption of certain products. Examples include sales of pork and its derivatives or alcohol in Muslim countries.
5. Fifth Screening (Competitive Forces)
It is important to appraise the level and quality of competition in potential markets. The exporter has to identify companies competing in the markets and the level of their technology, the quality and price of the products and/or services, and their estimated market shares, as well as other pertinent matters.
6. Final Selection (Field Trip)
This stage involves a visit to the markets that appear to be promising in light of the market assessment technique. Such visits could be in the form of trade missions (a group of business and government officials who visit a market in search of business opportunities) or trade fairs (a public display of products and services by firms of several countries to prospective customers). The purpose of such visit is to:
- Corroborate the facts gathered during the various stages of market assessment
- Supplement currently available information by doing research in the local market, including face-to-face interviews with potential consumers, distributors, agents, and government officials.
This will facilitate final selection of the most desirable markets as well as the development of a marketing plan, product modification, pricing, promotion, and distribution.
Source: Seyoum Belay (2014), Export-import theory, practices, and procedures, Routledge; 3rd edition.