Assessing Foreign Markets
At times during the growth of a business, managers may find the need to stretch the business to international levels. This may be as a result of the stiff competition prevalent within the mother country, or the mere need of a company to take its businesses to the international levels, thereby internationalizing the product(s). During these times of the expansions of the business in a bid to hit or reach foreign markets, substantial commitment of resources and investments in terms of money and time, coupled with pre-planning is key, as the idea of ‘one size fits all solution’ may not apply across all international markets (D’Souza, Derrick E, 1993).
This paper tries to construct and present a framework that may be used to assess the potential of a foreign market, which my company may not be aware of or even conversant with, and which it has not made the step of entering into. This framework shall then be applied to a country of my own company’s interest.
Before a company decides to operationalize its services at an international level, the following framework shall serve as a key guide to the whole idea, and towards making it a reality.
The diagram summarizes the steps
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· Through the internet
· Visiting the actual (potential) market
· Government sources
Research local markets (considering primary & secondary data)
Research as a reality (much pronounced n the developed nations)
Assuming that Heineken, one of the leading brews in the Dutch market is to be introduced into the US market. We shall base on the above factors to establish how this shall be possible.
Information acquisition Information about the new market of interest (USA) shall be searched for from several sources, internet included. A brief knowledge of the culture of the US people shall be required to be understood. Since Heineken is a social drink, we shall have to consider the social habits of the people of the United States, and their customs which shall determine the potential market conditions of the product. One may need to beware of the trade statistics and leads of the country and its surroundings. A close scruitiny of markets studies and country reports about the US, courtesy of the Government sources shall be important here, (one may choose to search for the information by country or by the product). Similarly, I may carry out an organized visit to the US, where I‘ll be able to acquire first hand information about the current state of affairs on the ground about the product(s) I wish to introduce into the said foreign market (in this case, Heineken). Its found out that the US residents (ranging from the youths through the middle-aged adults to the old people) take alcoholic drinks in the evenings, after work and or after schoolwork during social issues – hence, as a result, Heineken posses quite a high chance for its survival (at ceteris Paribas).
Analyzing the foreign market At this stage, three key stages shall be considered in order to come up with US as our best market of concern. It shall be noted that, the US market was arrived at after considering the respective costs, the benefits associated and the risks involved in exploring this market. Also, US were considered the best since it has vast states that shall be relied upon for future expansion of the business.
Selection of /screening of foreign markets
Screening one: We’ll consider the country’s basic need potential. This shall solely involve identifying the locales where the Heineken brew shall be required. Looking at the US, we shall note that the brand shall be equally required to compete amongst other brews in all the federal states, and shall be ferried and supplied to major social places – bars, pubs, restaurants, guest places/houses etc.
We shall also require to investigate the existence of similar goods and products that already exist in the US market. A result of this search reveals the presence of such brews as VAT69, spirits and high quality red and white wines (Oded S., Yadong L., pg 411). However, these companies differ in their relative market shares, distribution and pricing strategies – a point that we hope to bank on. These are a big threat to the introduction of Heineken in the market. Other impeding factors should too be considered. The import situation of the country and its political stability may also change at the time of launching the product (Stephen Y, pg 58).
Screening two: Financial and economic forces such as rate of inflation and the country’s exchange rates are some of the strong factors that contributed to the choice of the market. The Dollar is a bit stronger than the national currency for the Dutch people. It also has a higher exchange rate as compared to any other exchange rate. Either, presence of credit services and the country’s financial volatility makes the US market tick to probe into.
Screening three: Political & Legal factors of the foreign market may at times be quite a hindrance towards penetrating a foreign market. In my case, the political atmosphere in the US was somber and lucid (Jeff M., Roland F., pg 703). This has had no influence on accessing the market. There was also very little barriers to profit repatriation. A recent research explains that this is effected by the Federal Government of the US for it to promote the local products in the country. Existence of high taxation schemes in the country, to a starter like the manufacturers of Heineken brew shall be seen as an impediment. This is because the legal tender of the country is still highly valued and so making transactions using the currency may in the first place prove to be difficult before the business picks up in this particular competitive market (Stephen Y, pg 58). Standardization processes and the aspect of setting up various price control strategies also act as an inhibiting factor in the US market. The US government imposes high tariffs among other trade restrictions and barriers on the goods coming into the country. To counter this, the Heineken manufacturing company shall be forced to pump in more capital at the kick off of the Business. Talking of socio-cultural factors, these have minimal impact on the penetration ability of the intended product.
Screening four: socio-cultural factors present in the country are not quite involved directly with the brewing industry. The youths are left to take care of themselves, and mature up behaving like adults (Stephen Y, pg 58). Although there are social amenities such as good developed schools, morality has greatly dropped in the American society-a characteristic that is common in many of the developed countries.
Language-wise, the brew is expected to be diffused relatively slow, by the fact that the home country communicates in Dutch, whereas most of the citizens of the country are English speaking people (Jeff M., Roland F., pg 703). There is also an amalgamation of culture across all the states, ranging from the red Indians to the Blacks, Asians, and Arabs etc. This creates regional dialects across the country as a whole, a factor that makes it difficult for the Heineken product to be quickly accepted in the market.
Also, religious attitudes and affiliations among other social values that discourage the consumption of alcohol serve as the many factors that are expected to deter the absorption rate of the commodity.
Screening four: Competitive forces shall be ideal to be considered in this aspect, if not first. Once into the market, the Heineken manufacturing company shall be required to establish who are is key competitors in the brewery industries (Jeff M., Roland F., pg 703). A research on this revealed vividly that most liquor consumers in the country go for Wines and spirits. As a result, the introduction of Heineken as a beer into the market is expected to claim quite a considerable position in the industry since there are not so many beer manufacturers in the country.
However, there shall be vast promotion methods to familiarize and publicize the new product into the market. Proper pricing at the start shall be put into consideration, with as much as price reductions and skimming of the market (Oded S., Yadong L., pg 411). Several distribution channels shall be effected to ensure that the whole country is catered for, a move which shall also publicize the commodity.
As such, we’ll consider several market entry/penetration strategies.
Sales representatives working on commission may use the samples of the Heineken product and literature to ensure that they reach out to as many potential buyers as possible. Foreign retailers may buy from the Heineken manufacturer directly as they go to advertise it abroad. Direct sales of the Heineken beer to the consumers may be carried out either online or as an act on a lead from the government source in the country. Either, foreign distributors may purchase the beer from the local exporters of the product, and reselling them at a profit. These too may be relied upon when it comes to the distribution of the product in the foreign market (Oded S., Yadong L., pg 411). However, this is seen as one of the cost effective methods of ensuring that the product goes beyond the walls of the home / mother country. Foreign retailers, upon realizing the importance of the project shall be required to purchase directly from the Heineken manufactures for their brew to be shelved.
Similarly, the correct foreign partner, who serves like a foreign employee should be searched for. This could be mostly an individual or even a company that shall serve to handle the product for the overseas company (Michael R. et al, pgs 13-19). The foreign partner could help in placing an article into the newspaper of the country explaining the existence of the company and what it provides as the products. The responsibilities of such a foreign partner ought to be clear to both parties as they live to create a mutual business relationship. The terms of operation should also be clear too with regard to the expected monthly sales volumes and the commissions to be given out (Jeff M., Roland F., pg 703).
At this level, the company(s) ought to provide leads for the pick up. For instance the government source should be consulted to establish the buyers of the products (Michael R. et al, pgs 13-19). For example, the International Business Opportunities Center may collect all the information in regard to the investments globally and match it with the available businesses. Similarly, through World Chamber Network, WCN a company may be able to get in touch with the other companies offering the same or related products.
Costs catering the expenses payable to the local authorities and the government as a whole. Taxation may be counted here, amongst the costs of creating business partners. Advertisements and business marketing costs may also not be overlooked.
Opportunity cost on the other hand, shall refer to the opportunities or the chances wasted by choosing to invest in the US economy as compared to any other upcoming economy such as the Chinese economy or the Indian economy (Jeff M., Roland F., pg 703). Here in the US economy, its quite evident that the product may take long before it picks up as compared to the decision made to join the Chinese or Indian economies. The manufactures of Heineken as a brew shall be required to wait for the product to pick up in the market due to the stiff competition, language barriers, socio-cultural factors and strict taxation imposed on the imports as earlier seen in the previous discussions.
However, with time, we expect to have considerable profits from sales and the profits from the market. The opportunity to achieve synergy with other operations, the ability to access to new technologies, competitive advantage and lower prices for the acquisition and manufacturing of the products are just but some of the benefits that shall accrue from the whole idea of taking this business to the US economy (Michael R. et al, pgs 13-19).
Risks may vary however with regard to the fluctuating exchange rate of the US Dollar across the major currencies of the world. Additional operating costs are also expected to pose a big risk to the existence of the business in this new economy. Any continued losses arising from the inaccurate assessments of the market potential shall out rightly put the business at the risk of threat and finally collapsing.
In the final bit of the whole processes, the manufacturers of Heineken beer, shall be required to carry out the real selection of the market concerned. In this, the managers shall be required to personally make a trip to the US as a country, and in particular focus on the states of their interest. Among the best ways to feel out the target market off interest (in this case, the US) is to ensure that the interested company attends shows on trade and most of the events that are specific to the brewery industries in the US. This equips the foreign company with the relevant information concerning the current state of affairs as concerning the industry (Jeff M., Roland F., pg 703). It also adds information as regarding the pertinent aspects in the industry, and which the company had not thought of; or which the company was not aware of. Visiting the market in person enables the investing company to meet potential buyers and enable the management to inquire on all that should be known regarding competition, distribution modes and models and channels and also the local rules that may not be conversant.
Personal visits to the country shall also ensure that the investor makes a research on the local markets, this time round using secondary materials and primary data and not merely relying on the internet as seen earlier (Michael R. et al, pgs 13-19). Secondary data may be acquired from the documentaries of the United Nations, IMF and even the WTO records in the country. Running an interview on the same concerning the cultural and technical problems exhibited in the society shall serve to provide first hand information of Primary Data, and which may provide a glimpse of the expected society. The concepts of carrying out a personal visit to the country of interest in some cases bring out the research as a reality-a factor that is much common in developed countries like the US. Otherwise, the developing countries have less of it.
It should also be noted that an individual is advised to join other existing businesses and government seminars on trade missions, as they purpose to travel to foreign markets. By the fact that these missions are guided or even sponsored by the government, the mere aspect of individual companies visiting them, gives them an added clout and lots of credibility.
At this stage all the necessary factors should have been considered and the management should be having a few potential countries from which they can choose to penetrate their market.
Going global could be challenging especially to companies that are not prepared to undertake the challenge. Experts advise that the decision to operationalize product and or service delivery to the international level is the time when a company’s principal domestic market is strong. This is so because; the whole idea of getting international in terms of service or product delivery shall be a trial and error game that needs a lot of financial back up. With a considerable profit margin in place, at least the existing business may serve to boost the newly anticipated business at international level. Hence, as a result, the management needs to confirm presence of some key factors in the principal business in the domestic market; which should be carefully borne in mind if such a firm successfully needs to increase market share, revenues and profits at an international level.
Stephen Young International market entry and development: strategies and management Harvester Wheatsheaf, 1989 pgs 58-305
Michael R. Czinkota, Bob Donath, Ilkka A. Ronkainen Mastering global markets: strategies for today’s trade globalist Thomson/Southwestern, 2003 pg 13-19
D’Souza, Derrick E, (1993) All business “Venturing into foreign markets: the case of the small service firm”.<http://www.allbusiness.com > Accessed: 05/07/2009
Jeff Madura, Roland Fox, International Financial Management Cengage Learning EMEA, 2007 pg 703-758
Oded Shenkar, Yadong Luo, International business, University of California, 2003 pgs 411-513