What makes people and companies decide to invest in Ethiopia and what are some of the things that we need to know of other countries before we begin to do business there? Before simply grasping an opportunity,
it is indeed wise to make an assessment of the market opportunities in other countries. When a company decides to expand internationally it should systematically evaluate potential markets to identify the country or group of countries with the best opportunities. Such an assessment usually begins with a screening process that involves gathering relevant information of countries you are interested in and filtering out the less desirable countries. As global market opportunities are many, it is necessary to do the selection in a few steps. With 207 countries in the world, it is not possible anyhow to screen all of them in detail.
Commonly, two mistakes are made in country screening:
(1) Ignoring countries that offer good potential for your products and
(2) Spending too much time investigating countries that are poor prospects.
So, the screening process begins with a quick scan of the most promising market opportunities by using published data, which are available on websites and publications like The Economist Intelligence Unit for example.
The first stage of the selection process uses macro variables to discriminate between countries that represent basic opportunities and countries with little or no opportunities or with excessive risk. Macro variables describe the total market in terms of economic, social, geographic and political information. Such statistics may indicate for instance that a country is too small, as described by its Gross National Product (GNP) in relation to its population. Political instability can also be a factor which will eliminate a country from the list of opportunities.
During the second stage, a look is taken at variables that indicate the potential market size and acceptance of the product or similar products. Proxy variables are often used, which are similar or related products that indicate a demand for your product. For example, if you are in the business of information technology, proxy variables that are worth looking into are the number of computers, telephone lines and mobile phones in use in relation to the population. These variables indicate communication needs and the inclination to use advanced technology. Annual growth rates and total sales of similar or proxy products are good predictors of market size and growth. Other factors that can be used during the second stage include the stage of economic development, taxes and duty requirements.
The third stage of the screening process focuses on micro level considerations such as competition, ease of market entry, cost of entry and profit potential. Micro level factors influence the success or failure of a specific product in a specific market. At this stage, normally only a small number of countries are considered, so it is possible to obtain more detailed, up-to-date information , for instance from Chambers of Commerce and companies that are already operating there. The focus at this stage of the screening process switches from total market size to profitability. For example, based on current and potential competition, how much would you need to invest to gain a particular market share? Given the current asking prices in the market, what margin can you expect? Given the cost of entry and the expected sales, what is the expected profit?
The fourth stage of the screening process is an evaluation and rank ordering of the potential target countries based on the company’s own resources, objectives and strategies. Does the company for example have the finances to entry a market or does the company have a strategy to use an entry in one country to penetrate a neighbouring country or a region at a later stage?
In summary, the screening process looks like this:
1. Macro level research: Economic statistics, political environment, social structure, geographic features.
2. Macro level research: Growth trends for certain products, cultural acceptance, market data, market size, stage of economic development, tariffs.
3. Micro level research: Existing and potential competition, ease of entry, sales projection, costs of entry, probable product acceptance, and potential profit.
4. Target markets: Corporate factors influencing implementation.
The process of selecting countries through a screening process as described above requires that the company identifies criteria to be used to differentiate promising countries from less promising ones.
Four critical factors that affect market selection are market size & growth, political conditions, competition and market similarity. Remember that it pays to be informed. Entering a market without knowing some essential information may present you with ugly surprises later on, while you may have already made investments and commitments.