B2B Market

Attractiveness Evaluation
How to Size Opportunities
and Reduce Risk

Indre Cesniene
Head of Passport: Industrial Research
Not to be reproduced without permission
B2B MARKET
ATTRACTIVENESS
EVALUATION—HOW TO
SIZE OPPORTUNITIES AND
REDUCE RISK

By Indre Cesniene, Head of Passport: Industrial Research

CONNECT WITH US

© EUROMONITOR INTERNATION A L 2 0 1 4
 CONTENTS

1 INTRODUCTION
B2B market analysis is more complex than B2C, especially for
multinational corporations
Quantitative data analysis tools are more effective than
qualitative research methods for B2B companies

3 WHAT IS A B2B MARKET ATTRACTIVENESS INDEX?

4 BASIC STRUCTURE
Industry measures

6 ADDITIONAL METRICS TO CONSIDER

Country measures
Other measures

8 CASE STUDIES: USING B2B ATTRACTIVENESS INDEXES

Pinpointing market opportunities
Identifying risk

15 CONCLUSION

16 ABOUT EUROMONITOR INTERNATIONAL

17 ABOUT THE AUTHOR

iv © EU R O M O N I TO R I NTERNATI O NAL 2014

 INTRODUCTION

B2B market analysis is more complex

than B2C, especially for multinational
corporations
B2B market analysis is fundamentally different from B2C market analysis
because their customer and sales processes differ.

The B2B sales process is:

•• Longer

•• Of higher average value

•• Based less on emotions and more on rational decision making

•• With a smaller number of potential buyers

All of these traits make each purchase more important for a company selling
into the B2B market. Moreover, B2B customers are quicker to react to changes
such as economic problems. Statistics show that when economic crisis hits,
B2B purchases drop more severely and quickly than personal consumption
expenditures, thus making personal consumption more stable over time and
B2B consumption harder to predict.

International companies selling products such as raw materials, components,

machinery, transportation or other B2B goods/services into a wide number of
industries and geographies need to develop an efficient and systematic market
research framework serving medium to long term company strategy needs.

© EUROMONITOR INTERNATIONA L 201 4 1

In t rod ucti o n

This white paper is developed for companies that are progressive, globally
minded and constantly seeking new opportunities. They review their strategy
every year based on the most recent information, but are unable to find or
devise an effective and transparent high level strategy analysis tool. These
companies are constantly asking questions such as:

•• Which country and industry should we target next?

•• How will our existing B2B clients fare in the future?

•• What B2B clients are exposed to higher risk and/or provide

opportunities?

Quantitative data analysis tools

are more effective than qualitative
research methods for B2B companies
Qualitative research techniques such as interviews or focus groups are not
efficient for answering long-term strategic questions or prioritising global
opportunities due to the high number of countries and industries needed to
be researched. Using quantitative data is far more efficient to answer these
questions.

B2B businesses need to develop a transparent and flexible high level market
research framework to keep a finger on the pulse of clients to effectively
pinpoint opportunities. This white paper offers the B2B Market Attractiveness
Index as a solution, providing the basic structure of key metrics needed by
all businesses. We will also provide an additional list of metrics that might be
significant for particular businesses but not for others. Finally, we will provide
two case studies with real data to illustrate how different companies utilise B2B
Market Attractiveness Indexes.

2 © EU R O M O N I TO R I NTERNATI O NAL 2014

 WHAT IS A B2B MARKET
ATTRACTIVENESS INDEX?

The B2B Market Attractiveness Index is a composite index providing a one

figure rating for each B2B market segment using a predefined formula on a
large set of data. These composite indexes are used for various purposes. In
business circles, the most widely known indexes are the Doing Business Index
developed by World Bank and the Transparency International Corruption
Ratings and the Global Competitiveness Index from the World Economic
Forum. These indexes are based on large sets of data and a predefined
(weighted) average formula and all are used to evaluate country risks and
opportunities.

The B2B Market Attractiveness Index is used for monitoring B2B clients,
evaluating industry specific risks and opportunities and can include country
measures. It is most useful for companies selling into a wide number of
industries and/or geographies. For example, a company producing electronic
components and selling them in eight geographies such as the US, Canada,
China, UK, Germany, Mexico, Brazil and Turkey, and in five different industries
such as automotive, aerospace, domestic appliances, agricultural machinery and
medical machinery would find the index useful. In this example, the company is
exposed to 40 different B2B markets on which overall company results depend.
A systematic approach should be used to effectively evaluate so many different
markets.

It is worth noting that global B2B corporations face not only country and
industry risks, but also client (company) related risks. Ideally, all three levels
need to be taken into account when evaluating opportunities. Practically,
quantitative information is more abundant at the country and industry level,
while company information is usually less accessible. Thus, including company
information is generally not feasible in terms of the time and money required to
get the needed data. For this reason, the B2B Market Attractiveness Index takes
into account industry and country measures, but omits company variables.

© EUROMONITOR INTERNATIONA L 201 4 3

 BASIC STRUCTURE

Industry measures
The basic B2B Market Attractiveness Index structure consists of five metrics
signalling when there are opportunities and risks associated with a particular
client industry.

Industry output growth – this is an essential piece of information. It is the

sum of all company production engaged within a specific activity. Industry
output growth helps ensure you are doing business with industries that are
growing and expected to grow in the future.

There are two major types of industry output statistics – volume and value. As
a raw material or component manufacturer, you are more interested in your
clients’ output volume. As a support services provider, you should be looking
at production value because your services are not related to the number of
goods produced. However, in practice both measures can be factored into the
attractiveness index for better information. It is also important to get robust
industry output forecasts to include likely future performance in the index.

Stability – this is an important aspect of industry performance, measured as

a coefficient of a variation in the industry’s output. This measure helps identify
clients that are unstable due to sensitivity in economic cycles or other reasons.
Generally, a high coefficient of variation in industry output is considered to be
an unwanted risk.

B2B market potential – defined as the value of client industry expenditure on

your products. For example, if you are an electronic components manufacturer
you want to know how much the automotive industry is spending on electronic
components and whether they are spending more or less each year. This
measure helps you to more precisely evaluate market segment potential.

4 © EU R O M O N I TO R I NTERNATI O NAL 2014

 Basic Stru ctu re

Profitability – defined as profits divided by production value. Healthy

industries have positive profitability rates as they are able to manage costs
effectively. High profitability could also signal higher priced products.

Level of concentration – relates to number of companies in an industry and

their size. If your company is interested in doing business with large clients
only, you should evaluate and monitor whether target industries are becoming
more concentrated or more fragmented. In the latter case, you might be
disadvantaged and have to deal with more companies to sell the same amount
of production.

© EUROMONITOR INTERNATIONA L 201 4 5

 ADDITIONAL METRICS TO
CONSIDER

Country measures
If you are doing business in a number of countries, factoring in country level
measures is essential. However, you do not want to overload your B2B market
attractiveness index with country level data. Only a few key metrics are
neccesary to help evaluate economic and regulatory prospects. If you are selling
into a number of industries in one country, you can look at industry measures
only. For multinational industries, the below short list is presented.

•• Economic prospects – usually measured as forecasted real GDP growth.

•• Stability/country risk – can include a number of measures such as

inflation, tax rates, corruption perception index or business environment
measures. Usually trend is more important than absolute values here.

•• Sensitivity to change in GDP – especially relevant if an economic

downturn is expected. Industries that have lower correlation with
country’s GDP are usually preferred.

Other measures
Depending on the business you are in, you may need to take into account other
measures not mentioned above. Below are two examples of measures. The list is
by no means exhaustive as each business line has specific needs.

If you are selling machinery or other types of capital goods with long life spans,
you are primarily interested in investment expenditure by client industries.
The most common measure which can be used is Gross Fixed Capital Formation
(GFCF) by industry. GFCF refers to the net increase in physical assets, or
in other words, investment minus disposals. It does not account for the
depreciation of fixed capital and land purchases.

6 © EU R O M O N I TO R I NTERNATI O NAL 2014

 Addition al Metr ics to Con s i d e r

If you are operating in international transportation services, then foreign

trade flows are important for your business. Foreign trade is one of the most
extensive, accurate and up to date statistics available by product. Value of
imports and exports is more frequently available, but as a transportation
company, you are probably also interested in volume statistics. By using trade
flows, you will be able to identify dominant trade lanes and products that are
being shipped internationally.

The following sections will provide case studies showing how B2B companies
can pinpoint market opportunities and risks.

© EUROMONITOR INTERNATIONA L 201 4 7

 CASE STUDIES: USING B2B
ATTRACTIVENESS INDEXES

Pinpointing market opportunities

A paints and coatings company selling its products in India was primarily working
with construction companies, but needed to diversify its business and start targeting
machinery and transport equipment manufacturers.

The company identified 18 industries in India as potential targets such as agriculture

machinery, construction machinery, shipbuilding, automotive and other industries.
The company wanted to concentrate on the most promising three to four sectors. It
selected the target indutries based on the following criteria:

•• High and growing production value

•• Growing volume production

•• Large companies (+100 employees) should dominate and generate high

average income

•• Expenditure on paints and coatings should be significant and growing

Seven key metrics were selected to incorporate all important criteria and weights
were attributed to signify each metric’s level of importance. Expenditure on paints
and expenditure growth were the most important, thus highest weights were
attributed to these metrics. All industries were ranked by all metrics and a final
Attractiveness ranking was calculated using corresponding weights (see Table 1).
None of the industries was perfect as some were fast growers but dominated by small
companies or were spending relatively less on paints.

Out of 18 industries, four best matched the company’s requirements:

8 © EU R O M O N I TO R I NTERNATI O NAL 2014

 Case Studies: Usin g B2 B Attr activen ess I n d e xe s

Automotive

Pros

•• Largest industry in the selection with more than US$62 billion production value
in 2013

•• Highest number of large companies (1,500) with more than 100 employees

•• Highest per large company production value, totalling US$35 million

•• Highest spend on paints, totalling US$212 million in 2013

Cons

•• Anticipated industry growth is relatively small

•• Expenditure on paints growth is low

Motorcycles & Bicycles

Pros

•• Second largest industry on the list

•• Higher projected growth compared to automotive

•• High number of large companies – 487 spent US$45 million on paints in 2013

Cons

•• Expenditure on paints growth is not very high

•• Average large company revenue is small compared to other shortlisted industries

© EUROMONITOR INTERNATIONA L 201 4 9

C a se Stud i e s : U s i ng B2B At t ract iv enes s Indexes

Agricultural Machinery

Pros

•• Big industry expected to record the highest growth in the future

•• Average revenue of large companies is high at US$32 million

•• Industry exposes high growth in expenditure on paints

Cons

•• Expenditure on paints is relatively small

•• Number of large companies is the smallest in shortlisted industries

Railway Locomotives & Rolling Stock

Pros

•• High expenditure on paints of US$161 million

•• High average of large company revenue at US$35 million

Cons

•• Average expenditure on paints per large company is relatively small

•• Number of large companies is small

10 © EU R O M O N I TO R I NTERNATI O NAL 2014

 Case Studies: Usin g B2 B Attr activen ess I n d e xe s

Market Attractiveness Index for Paints in 18 Indian Industries

PRODUCTION
PRODUCTION VALUE: EXPENDITURE ON: +100 EMPLOYEES COMPANIES:
VOLUME:

Weight 0.1 0.1 0.15 0.2 0.2 0.1 0.15 1

Industry/ Paints Avg.

CAGR 2013 CAGR CAGR Number Total
Measure Rank Rank Rank 2013 Rank Rank Rank Turnover Rank
2012–20 US$ mn 2010–13 2010–13 of Rank
& Rank US$ mn US$ mn

Automotive 12.5 14 62,290 1 7.6 3 212 1 5.3 14 1,526 1 35 1 1

Motorcycles
15.3 9 25,075 2 5.9 5 45 3 10.1 9 487 3 26 7 2
& Bicycles

Agricultural
19.7 1 14,906 3 3.9 8 2 11 14.2 3 232 8 32 3 3
Machinery

Railway
Locomotives
16.2 6 10,940 5 4.7 6 161 2 8.5 12 272 7 35 2 4
And Rolling
Stock

Pumps &
15.7 8 13,371 4 -0.1 14 9 6 10.6 8 683 2 16 14 5
Compressors

Construction
17.0 5 5,916 9 9.0 2 1 15 11.8 6 216 9 19 12 6
Machinery

Machinery
For Textile 18.8 2 4,028 13 3.0 9 2 12 12.0 5 103 13 21 10 7
Production

Bearings &
Driving 14.5 11 6,588 8 6.0 4 1 13 9.9 10 286 6 17 13 8
Elements

Shipbuilding 10.6 15 3,483 14 -0.7 15 2 10 23.6 1 94 14 27 6 9

Machine-
9.2 17 9,634 6 2.3 12 25 4 5.8 13 176 10 24 8 10
Tools

Engines
17.9 3 1,280 15 2.9 10 1 16 11.4 7 41 15 28 4 11
& Turbines

Lifting
17.5 4 4,211 12 2.9 11 3 9 8.7 11 138 11 19 11 12
Equipment

Machinery
For Rubber
15.8 7 9,544 7 4.4 7 8 7 3.9 17 400 4 13 16 13
& Plastics
Production

Metallurgy
15.1 10 881 16 -23.5 18 0 17 13.6 4 15 17 28 5 14
Machinery

Food
Processing 12.9 12 4,324 11 -2.2 16 11 5 4.5 15 129 12 14 15 15
Machinery

Aircrafts 9.8 16 575 18 0.3 13 0 18 15.2 2 24 16 23 9 16

Furnaces 12.7 13 663 17 18.6 1 1 14 4.2 16 12 18 9 17 17

Cooling &
Ventilation 6.3 18 5,331 10 -3.4 17 6 8 -2.6 18 370 5 9 18 18
Equipment

© EUROMONITOR INTERNATIONA L 201 4 11

C a se Stud i e s : U s i ng B2B At t ract iv enes s Indexes

Identifying risk
A global cosmetics company division overseeing development of professional
brands mainly sold to beauty salons, spas and solariums wanted to evaluate
future risk of its main markets. The company analyses and tracks around 100
of its markets, but for illustration purposes, we cover its nine main developed
markets – US, Japan, Germany, France, UK, Spain, South Korea, Canada and
Italy. Two industries in each country will be analysed – beauty salons and spas
and solariums.

The goal in building an Attractiveness Index for this company was to

understand where in developed countries the risk is the highest. Evaluating
potential risks helps draw reasonable and motivated sales targets in different
geographies. Also, as all developed markets currently struggle to sustain above
minimal growth, the company is looking into the optimisation of resources by
either allocating more resources to win market share from competitors in its
least attractive markets or reallocating resources to more promising markets.

The company identified key client industry measures playing an important role
for its business:

•• Future growth

•• Profitability

•• Expenditure on cosmetics

•• Expenditure on cosmetics growth

As industries across a number of countries are analysed, country risk is also

essential. Thus, the company identified key country level measures that need to
be taken into account:

•• Real GDP future growth

•• Population future growth

•• Personal consumption future growth

Seven metrics were used and additional subtotals for country level and industry
level were provided. Country risk was less important for the company thus
overall 0.3 weight was attributed for this part while industry risk captured the
remaining 0.7.

12 © EU R O M O N I TO R I NTERNATI O NAL 2014

 Case Studies: Usin g B2 B Attr activen ess I n d e xe s

All industries were ranked according to their level of risk (see Table 2). The
higher the risk, the lower the ranking, meaning the least attractive industry is
rated 20 and the most attractive industry is rated 1.

The key takeaways were as follows:

•• Spas and Solariums on average recorded lower purchases and slower

growth in purchases of cosmetics throughout all countries.

•• Germany is the least attractive country for business growth as

expenditure on cosmetics is low and declining and forecasted population
and real GDP growth are small.

•• Italy, Japan and Spain have the least favourable country evaluations as
economy and population growth is projected to be slow or even negative.
Additionally, industry risk is high as revenue growth for beauty salons
and spas and solariums is small and profits are declining.

•• The USA, South Korea and France are the most stable and promising
markets, as they are expected to pose relatively high growth due to
positive economy and population trends as well as growing expenditure
on cosmetics.

© EUROMONITOR INTERNATIONA L 201 4 13

 C a se Stud i e s : U s i ng B2B At t ract iv enes s Indexes

Market Risk Index for Cosmetics in Selected Markets

Weight 0.1 0.1 0.1 0.3 0.2 0.15 0.15 0.2 0.7 1.0

Exp. on
R Personal R R Country Ind. R Profit R R Exp. on R
Real GDP Pop. Cosmet- Ind. Risk
A cons. A A Risk Revenue A Margin A A Cosmet- A Total
Country CAGR CAGR ics 2013, Subtotal
N CAGR N N Subtotal CAGR N CAGR N N ics CAGR N Rank
2012–20 2012–20 US$ Rank
K 2012–20 K K Rank 2012–17 K 2010–13 K K 2010–13 K
million

Germany 1.2 11 4.5 7 -0.1 15 13 2 17 -0.5 8 24 19 -2.6 20 20 20

Italy 0.3 19 3.5 13 0.2 13 15 3 15 -0.3 6 64 17 0.3 15 18 19

Japan 1.2 11 -0.8 19 -0.3 17 19 -3 20 -2.6 18 317 5 5.6 4 15 18

Germany 1.2 11 4.5 7 -0.1 15 13 4 10 -0.6 11 110 13 -1.0 18 17 17

Spain 1.0 17 3.9 11 -0.3 17 15 8 1 -8.4 20 9 20 2.1 11 16 16

Australia 2.9 3 1.8 17 1.7 1 7 3 16 -1.9 16 26 18 1.5 12 19 15

Japan 1.2 11 -0.8 19 -0.3 17 19 -3 19 -2.7 19 1,400 2 7.7 1 10 14

Canada 2.1 7 3.5 13 1.0 3 9 2 18 1.2 2 272 6 0.3 15 14 13

Spain 1.0 17 3.9 11 -0.3 17 15 5 7 -1.6 15 159 11 2.3 10 11 12

Canada 2.1 7 3.5 13 1.0 3 9 3 14 0.9 3 232 9 0.5 14 12 11

UK 1.8 9 5.7 3 0.6 7 5 5 9 -1.1 14 115 12 2.4 9 13 10

Italy 0.3 19 3.5 13 0.2 13 15 5 8 0.6 4 250 8 1.2 13 6 9

Australia 2.9 3 1.8 17 1.7 1 7 4 12 -2.2 17 338 3 2.9 8 9 8

France 1.1 15 4.6 5 0.5 9 11 6 5 -0.4 7 258 7 -0.2 17 7 7

UK 1.8 9 5.7 3 0.6 7 5 8 3 3.1 1 78 16 -2.1 19 8 6

France 1.1 15 4.6 5 0.5 9 11 7 4 -0.9 12 103 14 3.7 6 5 5

South
3.2 1 6.9 1 0.4 11 1 6 6 -0.9 13 177 10 4.6 5 4 4
Korea

USA 2.5 5 4.5 7 0.7 5 3 4 13 -0.6 10 322 4 6.7 3 3 3

South
3.2 1 6.9 1 0.4 11 1 8 2 -0.2 5 101 15 3.2 7 2 2
Korea

USA 2.5 5 4.5 7 0.7 5 3 4 11 -0.5 9 2,387 1 7.4 2 1 1

Industry
Spas & Solariums Beauty Salons

14 © EU R O M O N I TO R I NTERNATI O NAL 2014

 CONCLUSION

B2B market analysis is more complex that B2C market analysis, as B2B
companies deal with a smaller number of potential clients that are considerably
more rational and the buying process is generally longer and of higher average
value. Moreover B2B clients are quicker to react to changes, resulting in higher
volatility of B2B purchases compared to personal consumption. Thus risk and
opportunity related to a particular B2B client is higher.

Quantitative analysis tools prove to be more efficient in analysing B2B market

potential and risk for large globally oriented companies doing business with
companies in various industries. An efficient and systematic market research
framework serving medium to long term company strategy needs is required to
make sure risks are identified and opportunities spotted.

This whitepaper offers the B2B Market Attractiveness Index as a solution for
companies seeking transparent and flexible high level B2B market research
tools. There is no one structure that fits all companies. Rather the index needs
to be well calibrated and metrics need to be carefully chosen for a specific
company as our two case studies show.

Industry measures are usually the most important in B2B market analysis,
including the evaluation of client industry potential, profitability, stability and
concentration. Additionally, country metrics should be employed by companies
doing business globally and seeking to incorporate country risk/opportunity
into the framework.

Once the framework is developed, it immediately provides a list of

opportunities and/or risk sources. A B2B Market Attractiveness Evaluation will
help your company answer which B2B markets to should target next and what
current clients are exposing your company to risks. Thus, analysis results can be
directly translated into action.

© EUROMONITOR INTERNATIONA L 201 4 15

 ABOUT EUROMONITOR
INTERNATIONAL

Established in 1972, Euromonitor International is the world leader in strategy

research for consumer markets. Comprehensive international coverage and
leading edge innovation make our products an essential resource for companies
locally and worldwide.

Our global market research database, Passport, provides statistics, analysis,

reports, surveys and breaking news on industries, countries and consumers
worldwide. Passport connects market research to your company goals and
annual planning, analysing market context, competitor insight and future
trends impacting businesses globally. And with 90% of our clients renewing
every year, companies around the world rely on Passport to develop and expand
business opportunities, answer critical tactical questions and influence strategic
decision making.

This paper was written using data and analysis from Euromonitor’s Passport:
Industrial database. Passport: Industrial provides a complete overview of
the B2B marketplace, allowing you to size and monitor your buyers, evaluate
firmographics and understand industry attractiveness, risk and potential
within one accessible database. The system allows you to bring a product or
service from conception to sale in its final markets worldwide.

To learn more about Passport and Passport: Industrial, read product reviews
now or request a live demonstration.

16 © EU R O M O N I TO R I NTERNATI O NAL 2014

 ABOUT THE AUTHOR

Indre Cesniene, Head of Passport: Industrial

Research, Euromonitor International
Indre is a head of Euromonitor International’s
Passport: Industrial research database since
2009. In her current role, she manages a team of
industry, data and company analysts that follow
177 industries in the largest 18 global economies.
Indre specialises in B2B industry analysis, industry
classifications, industry data collection and
standardisation. With her team she produces opinion
pieces, industry reports, podcasts and videos on
leading trends in all key B2B industries such as
agriculture, electronics, metals, machinery, transport equipment, energy, utilities
and others.

Indre started her carrier as Associate Researcher in BICEPS (The Baltic

International Centre for Economic Policy Studies) in 2007. In 2009, she joined
Euromonitor as an Industry Analyst. Indre was promoted to Project Manager and
after six months took full responsibility of the Passport: Industrial research unit.

© EUROMONITOR INTERNATIONA L 201 4 17