EXPORT MARKET SELECTION: Definition & Strategies

1. EXPORT MARKET SELECTION:Definition & Strategies CHAPTER 3

2. MARKET SELECTION PROCESS REACTIVE PROACTIVE - Exporter acts passivelyin choosing markets by filling unsolicited order on the part of foreign buyers - Selection process is informal, unsystematic and purchase oriented - Exporter acts actively in initiating the selection of foreign markets - Selection process is systematic and formalized

3. REACTIVE PROACTIVE - Approaches used are inquiries from foreign firms either through: *active buying on their part *contacts established by indirect media used by the exporter - Approaches used are formal and informal approach : FORMAL *Involve systematic market research and visiting abroad INFORMAL *Selects a foreign market on the basis of discussion with business partner

4. Cont… - No clear-cut divisions between reactive and proactive approach - Exporter apply the proactive strategy to what are considered primary markets - Exporter apply the reactive strategy to what are considered secondary markets

5. MARKET SELECTION PROCEDURES 1. Expansive Method • Select market based on similarities • Minimum adaptation - Approaches: a. Geographic proximity b. Trade policy proximity

6. a. Geographic Proximity - Nearest neighbor approach - Similarity in economic, political, sociological and cultural standing - Less adaptation needed - Targeted market can be treated as base market area - Exp: South Pacific area (Australia, N. Zealand) Asian (Malaysia, Singapore, Thailand)

7. b. Trade Policy Proximity - Established a common market and economic union structure - The exporter has essentially a home market situation in all member countries - Tax conditions

8. 2. Contractible Method - Starting with large number of markets - Involves three stages • Preliminary screening • Countries ranking • Determining specific factors - Geographic segmentation • Prohibitive product characteristics • Prohibitive market characteristics - Customer segmentation

9. MARKET SELECTION STRATEGIES a. Market Concentration Strategy b. Market Spreading Strategy

10. a. Market Concentration Strategy - Slow and gradual rate of growth in number of market served by a company - Channeling available resources in to a small number of market - Devoting relatively high levels of marketing effort and resources - To win significant market share

11. Market Concentration Strategy Market A Market B Marketing resources

12. b. Market Spreading Strategy - Fast rate of growth in the number of market served at the early stage of expansion. - Allocating marketing resources over a large number of markets - To reduce risks of concentrating resources - Exploit the economics of flexibility

13. Market Spreading Strategy Market A Market B Market C Market D Market E Marketing resources

14. Concentration = FEW Spreading = MANY

15. RESOURCE ALLOCATION - Each market are equal? - Degree of market differences affect allocation resources of marketing efforts Number of market = amount of resources

16. Concentration vs. Spreading Concentration Spreading Advantages: - power of specialization, scale, and market penetration; - greater market knowledge; - higher degree of control; - learning of the export process and the experience curve Advantages: - flexibility; - less dependence on particular markets; - lower perception of risk.

17. Company Factors Factors favoring market spreading Factors favoring market concentration - High management risk-consciousness; - Objective of growth through market development; - Little market knowledge - Low management risk-consciousness; - Objective of growth through market penetration; - Ability to pick ‘best’ markets.

18. Product Factors Factors favoring market spreading Factors favoring market concentration - Limited specialist uses; - Low volume; - Non-repeat; - Early or late in product life cycle; - Standard product salable in many markets - General uses; - High volume; - Repeat-purchase product; - Middle of product life cycle; - Product requires adaptation in different markets

19. Marketing Factors Factors favoring market spreading Factors favoring market concentration - Low communication costs for additional markets; - Low order handling costs for additional markets - Low physical distribution costs for additional markets - Standardized communication in many markets - High communication costs for additional markets; - High order handling costs for additional markets - High physical distribution costs for additional markets - Communication requires adaptation to different market

20. Market Factors Factors favoring market spreading Factors favoring market concentration - Small markets-specialized segments - Unstable markets - Many similar markets - New or declining markets - Low growth rate in each market - Large markets are very competitive - Established competitors have large share of key markets - Low source loyalty - Large markets-high volume segments - Stable markets - Limited number of comparable markets - Mature markets - High growth rate in each market - Large markets are not excessively competitive - Key markets are divided among many competitors - High source loyalty