At the same time, Starbucks introduced a coffee culture to tea lovers in China. Starbucks is encouraged by the fact that one-third of all Chinese households keep a jar of instant coffee on hand. Starbucks is trying to make coffee the drink of choice for the average 18- to 45-year-old Chinese consumer. “Per capita consumption of coffee in China is very small,” admitted Howard Behar, president of Starbucks Coffee International. “But what you have is a tremendous amount of people, so the market will grow.”
Starbucks founder and CEO, Howard Schultz, says that an integral component of Starbucks’ strategy is its image as a fair-trading multinational, which it acquired by promoting its “fair trade” coffee. As you read this chapter, consider how companies research, analyze, and select the international markets they will enter.1
Companies traditionally become involved in international business by choosing to enter familiar, nearby countries first. Managers feel comfortable entering nearby markets because they likely have already interacted with the people of those cultures and have at least some understanding of them. Companies in Canada, Mexico, and the United States often gain their initial international experiences in one another’s markets. Likewise, businesses in Asia often seek out opportunities in one another’s markets before pursuing investment opportunities outside the region.
Yet companies today find themselves bridging the gaps presented by space and culture far more often than in the past. For one thing, technological advances in communication and transportation continue to open markets around the globe. Some companies can realistically consider nearly every location on earth as either a potential market or as a site for business operations. The expansion of regional markets (such as the European Union) also causes companies to analyze opportunities farther from home. Businesses locate production facilities within regional markets because producing in one of a region’s countries provides duty-free access to every consumer in the trade bloc.
The rapidly changing global marketplace forces companies to view business strategies from a global perspective. Businesses today formulate production, marketing, and other strategies as components of integrated plans. For example, to provide a continuous flow of timely information into the production process, more and more firms locate research and development (R&D) facilities near their production sites abroad. Managers also find themselves screening and analyzing locations as potential markets and as potential sites for operations simultaneously. When Mercedes (www.mercedes.com) introduced the M-class sport utility vehicle to the U.S. market, executives also decided to build the vehicle there. The company did not merely estimate the size of the potential market for the vehicle, but simultaneously selected a suitable production site.
This chapter presents a systematic screening process for both markets and sites. After describing important cultural, political, legal, and economic forces affecting the screening process, we explain the difficulties of conducting international research. We then explore the central sources of existing market data and the prime methods for conducting international research firsthand.
Screening Potential Markets and Sites
Two important issues concern managers during the market- and site-screening process. First, they want to keep search costs as low as possible. Second, they want to examine every potential market and every possible location. To accomplish these two goals, managers can segment the screening of markets and sites into the following four-step process (see Figure 12.1):
1. Identify basic appeal
2. Assess the national business environment
3. Measure market or site potential
4. Select the market or site
This screening process involves spending more time, money, and effort on the markets and sites that remain in the later stages of screening. Expensive feasibility studies (conducted later in the process) are performed on a few markets and sites that hold the greatest promise. This approach creates a screening process that is cost effective yet does not overlook potential locations. Let’s now discuss each of the four steps above in detail.
Step 1: Identify Basic Appeal
We have already seen that companies go international either to increase sales (and thus profits) or to access resources. The first step in identifying potential markets is to assess the basic demand for a product. Similarly, the first step in selecting a site for a facility to undertake production, R&D, or some other activity is to explore the availability of the resources required.
FIGURE 12.1 Screening Process for Potential Markets and Sites
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