Chapter: Planning and Preparation for Export
Topics to be covered: Assessing and Selecting the Product International Market Research International Market Assessment Developing International Business Plan
Assessing and Selecting the Product
There are basically two approaches for the selection of a product for export. Before selecting the one over the other, exporting company must critically understand these two approaches: Systematic Approach: The systematic approach involves selection of a product or service based on overall market demand. An individual entrepreneur often selects a product line or service based on demand and growth trends by observing trade flows. It is, however, important to select products or services based on familiarity and skills. Reactive Approach: The reactive approach involves selecting a product based on immediate market need. The first step would be to contact potential importers to indicate ones interest in supplying the product and to obtain the useful information. The reactive approach has the following disadvantages:
Lack of focus on a given product or market, Absence of long-term relationship with importer
International Market Research
International Market Research (IMR) Helps DecisionMaking: International market research deals with how business organizations engaged in international trade make decisions that lead to the allocation of resources in markets with greatest potential for sales.
Why Conduct International Market Research: The purpose of conducting international market research can be summarized below:
To identify, evaluate, and compare the size and potential of various markets and select the most desirable market(s) for a given product or service. To reassess market changes that may require a change in a companys strategy.
International Market Assessment
International Market Assessment Defined:
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. Usually followed six steps in the international market assessment are:
Preliminary Screening (Basic Need and Potential) Secondary Screening (Financial and Economic Conditions) Third Screening (Political and Legal Forces) Fourth Screening (Sociocultural Forces) Fifth Screening (Competitive Forces) Final Selection (Field Trip)
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 companys products or services in foreign markets. If such need is not satisfied and the research indicates the market opportunities, it is pertinent to consider the markets overall buying power by examining countryspecific factors such as population, GDP, per capita income, distribution of wealth, exports, and imports. Availability of foreign currency, as well as change in duties and trade policies, should also be closely monitored.
Secondary Screening (Financial and Economic Conditions)
Secondary screening involves financial and economic conditions such as trends in inflation, interest rates, exchange rate stability, availability of credit and financing, and the availability of commercial banks than can finance overseas transactions and handle collection, payments, and money transfer. Economic data are also used to measure certain indicators such as:
Market Size: The relative size percentage of total world market. of each market as
Market Intensity: Degree of purchasing power. Growth of the Market: Annual increase in sale.
Third Screening (Political and Legal Forces)
It is important to assess the type of government and its stability. Consideration should also be given to the following legal forces in the countries that affect export/import operations:
Entry barriers Limits on profit remittance and/or ownership Taxes and price controls and protection of intellectual property rights.
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.
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 The level of technology used by the competitors The quality and price of the products and/or services offered by the competitors Estimated market shares of the competitors Other pertinent matters affecting the competition in the market.
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 or trade fairs. 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
Developing an International Business Plan
Business Plan Defined: A business plan involves a process in which an entity puts together a given set of resources (people, capital, materials) to achieve defined goals and objectives over a specific period of time. The Necessity of Business Plan in International Trade: Even though some export-import companies start a business plan after they have reached a certain stage, research findings (Williams and Manzo, 1983) show that planning is needed at all stages of business development from inception to maturity.
Developing an International Business Plan (continued)
Structure of an International Business Plan: The structure of a typical business plan is shown in the given figure.
Some plans also include critical risks/problems and community benefits.
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