The following article will guide you to learn about the steps and process required for the selection of international or foreign market.
Contents:
- Identifying Foreign Markets
- Proper Selection of International Markets:
- Steps for Selection of Foreign Markets:
- Criteria for Selecting Target Countries:
- Preferences Available to Indian Exporters:
- Export Promotion Organisations:
International or Foreign Market Selection Process
Process 1 # – Identifying Foreign Markets:
Identification and selection of markets is the first stage in international marketing. Before making an entry in the international market, a firm has to identify those markets in which it can sell its products easily. To take this decision, firm has to analyse the potentials of various foreign markets and their respective marketing environments. Some markets may not be potentially good, and the firm’s objectives and resources may not allow it to operate in some other markets.
Therefore, a proper analysis is necessary for selecting the proper and appropriate foreign market. One market differs from another but still in one respect or the other, they can be grouped in different segments. It is important for the firm entering the world market to segment them in such a way that it is able to effectively meet their requirements. No matter how much attempt is made, the firm will not succeed unless it is marketing right product in the right market.
It costs lot of time and money to find out a suitable foreign market for a product. No firm has unlimited resources. Proper selection of markets would avoid waste of time and effort. One product may be more acceptable in some countries than in others. It would, therefore, be better to concentrate on a few markets than in more markets.
Process 2 # – Proper Selection of International Markets:
There are ample opportunities for export in a number of countries but taking into account the various factors it is not possible for a firm to do business in all the countries. It has to pick out a few possible markets out of the total markets surveyed. A preliminary study may help in avoiding the markets which are obviously impossible or less likely ones in comparison to other.
Criteria for Eliminating the Markets:
The following are some of the points which may serve as the criteria for eliminating the markets from an Indian exporter’s point of view:
(i) The Government of India has banned export to some countries.
(ii) There may be some commodities, the export of which are restricted or prohibited either completely or only to some countries.
(iii) Incompatibility of technical standards may eliminate some markets.
(iv) In some cases cost of product adaptation may be so high that an exporter may not be able to afford it.
(v) Some importing countries may impose quotas on the import of certain specific products from some specific countries. In such cases export is not possible.
(vi) If some countries impose formidable tariff barriers which may make the product too costly in the concerned country, it will not be possible to export such commodities to those countries.
(vii)There may be some non-tariff barriers which may make the export of some products to some countries virtually impossible or difficult.
(viii) In some cases, shipping costs may be too high. Therefore, export in such cases is not possible.
(ix) Where the competition is quite severe it may not be easy to enter the market or it may not be profitable to sell the product in such markets without high costs.
(x) In the case of technically sophisticated products too much promotional expenditure may have to be made and make them difficult to export.
In this way the foreign market selection process usually begins with a screening process that involves gathering relevant information on each country and after screening, eliminating loss making countries. Therefore while selecting foreign market, one must keep in mind the above facts and the following steps must be carefully analysed.
Process 3 # – Steps for Selection of Foreign Markets:
First Step:
First Step of the foreign market selection process is to use macro variables to discriminate between countries having basic opportunities and countries with no or little opportunities. Macro variables of the country describe the total market in terms of social, economic, geographic and political information. For example economic statistics of the country will disclose gross national product, population size, per capita income, personal disposable income etc. Political stability, political relations with the exporting country, geographical distance, climatic conditions etc., also influence the selection of a country.
Second Step:
Second Step of the process focuses on the factors that indicate the potential market size and acceptance of the product. Generally proxy variables are used in this screening process. A proxy variable is a similar or related product that indicates a demand for firm’s product. Other factors such as stage of economic development of the country, taxes, duties etc., are also considered while selecting a country.
Third Step:
Third Step of the selection process focuses on micro level considerations such as competition, cost of entry and profit potential. In other words, in this process main focus is given on profitability.
The Fourth Step:
The fourth and last step of the screening process is an evaluation of potential target markets based on firm’s resources, objectives and strategies.
Process 4 # – Criteria for Selecting Target Countries:
The process of selecting target countries through the screening process requires that the exporter identify the criteria to be used for selecting a country or differentiate one country from the other.
Market research on international marketing has shown that the following main factors are responsible for market selection:
1. Market Size.
2. Political Environment.
3. Social and Cultural Environment.
4. Legal Environment.
1. Market Size:
Market size is an important factor in selecting foreign markets.
Various factors influence market size and growth. Some important factors are as under:
I. Economic Factors:
(i) Total Gross National Product
(ii) Per capita income
(iii) Income growth rate
(iv) Income and wealth distribution
(v) Personal disposable income
(vi) Import size of the country and growth rate of import
(vii) Export-Import policy and other Trade Policies of the country
(viii) Export restrictions and incentives
(ix) Balance of payment
(x) Trade agreements with other countries, and
(xi) Competition in the market and competitor’s market share.
II. Population Factors:
(i) Total population
(ii) Population growth rate
(iii) Distribution of population
(a) rural-urban wise
(b) Age-wise
(c) Sex-wise
(d) Income-wise
(e) Literacy-wise, and
(f) Religion-wise.
(iv) Work habits and occupations.
(v) Consumer mobility, geographically and within social class structure.
(vi) Population density.
III. Geographical Factors:
(i) Size of country.
(ii) Climate.
(iii) Topographical characteristics.
2. Political Environment:
The impact of an importing country’s political environment on market selection is obvious. The exporter must consider the political influences as they affect consumers, present and potential customers or suppliers, international trade policies and the economy as regards business cycles, monetary stability, and taxation system etc. It means the government policies and their effects on the national economy should also be carefully analysed.
Some indicators of political risks are as under:
(i) Probability of nationalization,
(ii) Government intervention and restrictions,
(iii) Limits on foreign ownership,
(iv) Restrictions on capital and profit movements, and
(v) Number of riots.
3. Social and Cultural Environment:
A culture, to some extent, determines its members’ needs and expectations. Understanding of socio-cultural conditions of the country is very important since, ultimately, it is the consumer who is to be served by the firm. Therefore, the impact of social and cultural environment on market selection is very important.
The following are the main elements of culture:
(i) Material Culture—Technology, technique and physical things
(ii) Language
(iii) Education, and
(iv) Religion, beliefs and attitudes.
4. Legal Environment:
In different countries not only are the rules for business different, but the ways they are applied also vary? This variation presents very difficult environment for international marketing, therefore it is necessary to understand legal complexities before determining a selection of foreign market.
Process 5 # – Preferences Available to Indian Exporters:
Export promotion is an important method of encouraging economic growth and correcting the imbalance of trade. Export promotion means export encouragement in which old and new exporters are encouraged to increase exports. They are provided with cash help for this purpose. Bank loans are given. The import of some capital goods, necessary machinery and other raw material is allowed in lieu of exports. Concessions are given on train and marine fare to export goods.
Moreover, exporters and export organisations are given tax relief. Economists are of the opinion that export promotion is the only way to make India self-reliant, making balance of trade favourable, earning foreign exchange and industrial development. Foreign exchange can be earned only though exports.
Therefore, it is the government’s duty to give more importance to export promotion. The success of five year plans depends upon exports. It corrects the imbalance of trade and completes progressive projects. Since independence India’s balance of trade has always been unfavourable.
Therefore, there is a constant need for export promotion. The various projects of the country depend upon export growth because the machinery, equipments and chemicals required for these projects are imported. Export promotion is necessary in order to reduce the burden of foreign loans. It is also used for selling new products made in India.
The various types of preferences available to Indian exporters are as follows:
1. The Generalised System of Preferences or GSP:
Under the generalised system of preferences, the developed countries allow the imports from developing countries like India either duty free or at concessional rates. It has naturally helped India’s exports to such countries. GSP makes the imports cheap in comparison to products coming from countries which are not entitled to GSP.
To take advantage of GSP, an exporter must know- (i) whether his product is covered by GSP, (ii) the preference margin enjoyed by his product, (iii) quotas for the import in that country, and (iv) procedural formation on this point may be gathered from the Indian Institute of Foreign Trade, Trade Development Authority, the Ministry of Commerce and Export Promotion Councils.
2. Exchange of Preferences among Developing Countries:
16 developing countries, including India, have been exchanging preferences among themselves under 1972 agreements. These countries are Brazil, Chile, South Korea, Spain, Mexico, Pakistan, Philippines, Tunisia, Turkey, Uruguay, Yugoslavia, Israel, Egypt, Paraguay, Bangladesh and India. India is also a member of ESCAP. ESCAP members are extending preferences to each other on 93 products. The exporter must be aware of the products covered in the list of those 93 products.
3. Import Promotion Centres in Some Countries:
Some countries have established import promotion centres for imports from developing countries and to provide assistance to their exporters. A directory of such import promotion centres (IPC) has been compiled by the International Trade Centre UNCTAD/GATT and can be obtained from them. The countries where such centres have been established are Australia, Austria, Belgium, Canada, Denmark, Finland, France, Germany, Hungary, Israel, Italy, Japan, New Zealand, Norway, Poland, Sweden, Switzerland, Russia and U.K. etc.
4. Other Advantages:
An Indian exporter should also examine whether India has got any particular advantage in the market. Such advantages may be- (a) proximity, (b) trade dominated by persons of Indian origin, (c) existence of shipping facilities, (d) political relations, if they are not good, business may get setback even if the terms offered are more attractive, and (e) existence of rupee payment agreements.
Thus, after carrying out market surveys, some markets where entry is impossible or difficult, should be rejected and in other cases where some additional preferences are available, those markets should be favourably considered.
Sources of Information Available to Exporters:
There are many sources of information available to Indian exporters to help them.
Such sources are as follows:
(i) Export Promotion Councils, Commodity Boards, the Trade Development Authority, and various chambers of commerce.
(ii) Libraries maintained by foreign embassies in India provide a number of references to assist exporters.
(iii) United Nations publish detailed international trade statistics which can help the exporters in locating the market for their products.
(iv) Commercial banks and the Export Credit Guarantee Corporation of India can provide information about the foreign exchange and payment conditions in different countries and also the credit ratings and risks.
(v) Export-Import Bank can provide information about assistance provided by the bank to Indian exporters and foreign importers of Indian goods.
(vi) Reserve Bank of India publishes the Reserve Bank of India Bulletin incorporating the policies regarding exchange control regulations and other credit information.
Process 6 # – Export Promotion Organisations:
Export promotion organisation of each country tries to promote the export of their country. In India also Export Promotion Councils (EPC), Export Development Authorities, Commodity Boards, India Trade Promotion Organization (ITPO), Exim Bank and others offer great help in easing Indian product sales abroad. They provide information by advertisements, sale promotion programmes and public relations. They do not do this to help a particular firm.
Their object is to promote Indian products abroad. Main objects of export promotion bodies are—(i) To be aware of chances of Indian product export, (ii) To impress foreigners about Indian industrial development and technical capacities, (iii) To improve impressions about quality of Indian goods.
Following suggestions need to be considered for encouraging India’s export:
1. The government should set up a control room in the trade ministry in order to encourage exporters. This control room’s job will be to increase the facilities of exports and to solve the problems faced in export. It should work towards streamlining exports.
2. It is necessary to increase exports that the government sets up training institutes. Export training should be popularised in the country. India Trade Promotion Organisation should make special efforts. It should arrange for foreign trade courses to be taught in various universities. Gandhi
3. The government should arrange for the production of goods that are in demand abroad. Proper plans should be prepared for export of goods. Export goods should be produced continuously. The goods that are in demand in the domestic market should be exported only when the domestic demand is fulfilled. These goods should be of high quality and should be priced competitively.
4. The government should give priority to the export sector. It should publicise as to what is in demand abroad. The country’s doctors, technicians etc., should be encouraged to work abroad on the basis of business agreements. Artists and entertainers should be encouraged to perform abroad. Foreign tourism should be given facilities on priority basis.
5. Government trade has an important place in increasing exports. But in our country it has not proved to be very effective and profitable. It is necessary that government sector adopts a private sector like approach towards exports. For exports to increase it is important the government does bilateral trade agreements with other countries. It is necessary to make foreign trade successful.
6. Indian industrialists should set up joint operations in India and the government should do so abroad. This will have a favourable effect on our exports. Moreover foreign industrialists should be encouraged to set up more and more export oriented units in India. Multinational companies can be very effective in this regard. Indian industrial houses should also try to get foreign help.
7. It is necessary for the government to provide necessary information to the public on exports. The people should know what to export. Country- wise export research should be done. Studies should be done about the possibilities of exports. People should know about the facilities that the government gives to exporters.