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This is the second instalment of our advice on country selection. As we said last time when it comes to exporting it is always crucial to have done some homework before committing. The first part of the blog focused on the first two stages of the process of selecting relevant countries for export. If you missed that blog, don’t worry you can read it again here.

This week we will focus on the final three stages of the process. To refresh your mind here is the process again.

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At this point you should have carried out the first two stages and narrowed your target countries somewhat. You are most likely now in talks with EI or CEB’s about your potential to export and they are assisting or giving guidance. What can you do yourself though?

STAGE 3:      Examine the Industry Market Potential

The next stage for you is to examine the Industry Market Potential. In other words the total amount of ‘cake’ on offer by the given countries you have left remaining. When we say you are examining the market potential the reason for this is in order to estimate aggregate demand. So we look at market size as a factor. As mentioned in the previous blog in most developed countries, fairly accurate estimates for many products are available from public or private sources. In emerging markets data may not be available, and even when it is quality may be suspect so beware of this. Your agency should be supportive in this area with resources. You can calculate this using a number of techniques but we will focus on just four simple ones. They are as follows:

• Related Market Size Model
• Analogy Method
• Trade Audit
• Chain Ratio Method

1. Related Market Size

Related markets’ size and related environmental factors can help determine the size of the market you are looking at. You can try finding different statistics on each of your remaining countries and apply them accordingly.

Example:

In 2009, there were more than 1.9 million passenger cars in use in Ireland, up from less than 1.6 million in 2004. In Ireland we have 437 cars per 1,000 – the equivalent EU figure is 463 per 1,000 (2007 figures). If the population rises from 4.2m to 5m between now and 2021 and we reach EU car-ownership norms then we will have at least another 750,000 cars to add to our crammed roads.

2. Analogy Method

The best way of describing this method is where you start by picking a country at the same stage of economic development as the country of interest and for which the market size is known. The method is based on the premise that the relationship between the demand for a product and a particular indicator (e.g. the demand for a related product) is similar in both countries.

Example:

Let’s say Phillips/Sony wants to estimate the market size for DVD Players’ in Russia (r)

For the base country (relative country) we take another Central European country, say Bulgaria (b), for which we know the sales of DVD players. We also choose a proxy variable that correlates highly with the demand for DVD’s e.g. color flat screen TV sales.

In this example, we assume that the ratio of DVD Player ownership to color flat    screen TV ownership is roughly equivalent:

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Since we are interested in the demand for DVD’s in Russia, we can derive an estimate based on the following relationship:

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For this specific example the following information is available (from Euro Monitor 1999):

Fill in those numbers we get:

Estimate VCR Demand Russia

(Sales per ‘000 inhabitants) = ???

17.1(2.9/19.5) = 2.5

However, it is important to note that when using this technique you cannot, as with all techniques, assume it is gospel and that’s it job done. This technique in particular may produce misleading results under certain circumstances as consumption may not be comparable across countries due to cultural disparities, competition or trade barriers may interfere with sales figures and technological advances may allow use of product innovations in a country at an earlier stage of economic development (“leapfrogging” to Blue ray or latest technology).

3. Trade Audit

The trade audit is possibly the easiest to explain as it is simple math. The total market volume per year for a certain country / market can be calculated as:

However for many emerging markets (and even developed countries), such data is missing, outdated, or collected at a very aggregate level so make sure your data is up to date. As recommended Global edge, EI, GMID, Data monitor and CSO.ie are all great sources of this data.

4. Chain Ratio Method

The Chain Ration method is in simple terms an analysis of industrial growth patterns for various countries, to gain insight into relationship between consumption and industrial growth. This method starts with a very rough base-number as an estimate for the market size (e.g. the entire population of a country).

This base estimate is systematically fine-tuned by applying a string (“chain”) of percentages to come up with the most meaningful estimate for total market potential.

Example:

• Consider a firm that makes baby monitors and is considering expanding into China and/or India.
• Firm wishes to focus on urban areas (easier to access)
• As you can see below although China has a higher population and urbanization, India has a greater birth rate per 000’s making it a more valuable market.

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STAGE 4:      Examine Company Potential (I.E-Your Slice of that cake)

After you have examined each country you will now have a better idea of the markets available to you. You should then take the markets and examine the players operating in those markets already and their positions/power. This will give you an idea as to the level of investment and entry mode choice you will require. Say for example our India example above, as I can see the market is valued highly at 7.8m I should enter. Not necessarily. Perhaps Sony, Phillips and Samsung are in there already and already control 90% of the market. How many other small firms are there competing for that 10%?  Will it be worth my investment? It’s all about looking and estimating how much of that market you believe you can gain. Agencies should be able to help you with this and Enterprise-Ireland in particular has Market Advisors all around the globe who can inform you of the market shares and big players in certain markets to help your decision. You can then remove remaining countries that are not attractive.

STAGE 5:      Best Countries Remain

This is the final stage of the IMS process. Here you will have carried out all steps and your pool of countries will be limited. You select the best 2 or 3 depending on business plan to export and proceed with your plans.

Although this article covers a range of techniques we recommend you do not use it solely as your guide to export. For more advice you should speak with Enterprise-Ireland about your potential to export and ensure you have the plan in place and contacts in place abroad. This article should provide some help and education to those considering exporting. It may prove helpful to those wanting to apply for grants as it can show you have done market valuations.

Best of Luck with the exporting!