HOW DOES SCANNING WORK?

Managers use scanning techniques to examine and compare countries on broad indicators of
opportunities and risks. So without scanning, a company may overlook opportunities and risks,
and examine too many or too few possibilities.

SCANNING VS DETAILED ANALYSIS

Scanning is the process by which managers examine many countries broadly and then narrow
them down to the most promising ones. That is, they compare country information that is readily
available, inexpensive, and fairly comparable—usually without having to incur traveling
expenses. They analyze publicly available information, such as from the Internet, and
communicate with experienced people.

Detailed Analysis once managers narrow their consideration to the most promising countries,
they need to compare the feasibility and desirability of each. At this point, unless they are
satisfied enough to outsource all their production and sales, they almost always need to go on
location to analyze and collect more specific information.

IMPORTANT INFORMATION IN SCANNING

Managers should consider country conditions that could significantly affect their company’s
success or failure.

OPPORTUNITIES: SALES EXPANSION

Expansion of sales is probably the most important factor motivating companies to engage in
international business because of the assumption that more sales will lead to more profits.

Companies must consider variables other than income and population when estimating potential
demand for their products in different countries.

EXAMINING ECONOMIC & DEMOGRAPHIC VARIABLES

 Obsolescence and Leapfrogging of products

Leapfrogging a rapid change made by a company or any kind of organization to a higher level
of development.
Consumers in developing economies do not necessarily follow the same patterns as those in
higher-income countries.

 Prices
If prices of essential products are high, consumers may spend more on them than what would
be expected based on per capita GDP and thus have less to spend on discretionary purchases.

 Income Elasticity
 A common tool for predicting total market potential is to divide the percentage of change in
product demand by the percentage of change in income in given country. The more demand
shifts in relation to income changes, the more elastic it is.

 Substitution
Consumers in a given country may more conveniently substitute certain products or services
than those in other countries.

 Income Inequality
Where income inequality is high, the per capita GDP figures are less meaningful. Many
people have little to spend, while many others have substantial spending money.

 Cultural factors and taste

Countries with similar per capita GDPs may have different preferences for products and
services because of values or tastes. The same is true for consumer sub-segments within
countries.

 Existence of trading blocs

Although a country may have a small population and GDP, its presence in a regional trading
bloc gives its output access to a much larger market.

Given all these factors, managers cannot project potential demand perfectly. However, by
considering factors that may influence the sale of their products, they can make workable
estimates that help them narrow detailed studies to a reasonable number.

Elastic is a term used in economics to describe a change in the behavior of buyers and sellers in response to a
change in price for a good or service.

Elasticity refers to the degree to which individuals, consumers or producers change their demand or the amount
supplied in response to price or income changes.