Unit II

Lesson 12
International Marketing Intelligence

WHAT INFORMATION IS NEEDED?

We assume that the firm has already decided to go international. Its next decision, then, is
which world markets to enter. Since the firm cannot usually sell to all world markets, it must
find a way of ranking them according to their attractiveness. This requires an investigation of
their market potential and the local competitive situation. Once the firm has identified
desirable target markets, it must decide how to serve those markets-by exporting, licensing,
or local production, for example.

Once a decision has been made to market in a particular country, standard marketing
questions arise, such as product decisions, pricing decisions, or channel decisions. These
decisions can be further broken down until eventually a very specific local issue is reached-
the kind of package and label that should be used for the firm's floor wax in the Philippines,
for example. The information needed to make these decisions is frequently provided by
marketing research.

INFORMATION FOR MARKETING DECISIONS

MARKETING DECISION INTELLIGENCE NEEDED

1. Go international or
remain a domestic marketer Assessment of global market demand and firm’s
potential share in it, in view of local and
international competition and compared to
domestic opportunities.

2. Which markets to enter A ranking of world markets according to market

potential, local competition, and the political
situation.

3. How to enter target markets Size of market, international trade barriers,

transport costs, local competition, government
requirements, and political stability.

4. How to market in target markets For each market: buyer behavior, competitive
practice, distribution channels, promotional
media and practice, company experience there
and in other markets.
THE INFORMATION PROVIDED BY MARKETING RESEARCH

What information should international marketing research provide? Obtaining information

about consumer behavior and product-related information come to mind as typical marketing
research objectives, but the objectives of international marketing research should be broader.

The fact of being in a global market means that the firm must seek information to help it to
understand the country and regional environment, as well as the consumer and the product.
The firm must assess the global competitors that it will face in order to compete better with
them. Only then does information about the industry and the product make sense, and better
research and decisions on the marketing mix can result.

1. Marketing Environment

Research should emphasize gathering information about the country and region of interest
and evaluating comparative information across countries. Both political and economic
information are relevant. The political dimension of information gathering includes data on
the following:

1. Political structure and ideology. What does the political leadership of the country seek?
What roles do major institutions such as business, labor, the educational sector, and religion
play in shaping national goals?

2. National objectives. What are the country's goals for the defense sector, its fiscal,
monetary, and investment policy; and the foreign trade sector? What are its industrial and
technology policies for sunrise or burgeoning industries and its social policy (for example,
how do they affect income distribution and conspicuous consumption)? Is autonomy a goal,
does the nation seek to reduce import dependence, and is developing national champions in
industries considered critical?

3. The economic dimension of information gathering is more familiar. It includes obtaining

data on economic performance, covering indicators such as GNP, per capita income levels
and growth rates, stage of the business cycle, balance of trade and balance of payments,
productivity, labor costs and capital availability, capacity utilization, inflation rates, savings
and investment, employment levels, educational attainment, population demographics, age
distribution, public health, and income distribution. Marketing infrastructure is also of
interest, including the structure of wholesaling and retailing, laws concerning pricing and
promotion, the physical distribution infrastructure, and the extent of development. All of
these help determine the attractiveness of the market, as well as obstacles to entry and
marketing of goods and services as well-as the long-term profit potential.

4. Government regulation is another area for market research, particularly with regard to
product and safety standards, barriers to entry (affecting foreign companies and their
products), and controls over managerial and marketing autonomy. Does the government
implement industrial policies that benefit domestic companies and industries at the expense
of foreign firms?
2. Competition
Assessing foreign competitors involves developing additional levels of understanding since
foreign competitors may have distinct and different objectives that shape their strategy and
tactics. They may also possess hidden resources and strengths that are culture specific and not
apparent to the outside firm. For example, close family and other ties may exist between a
competitor's top management and influential individuals in government and the political
arena. In conducting such assessment, the firm must first investigate the assumptions it holds
about its foreign competitors regarding their objectives and capabilities; then it can assess
potential strategies and make plans in terms of which new markets to enter, what modes of
entry to take, how vulnerable it will be, and the expected strength of reaction by competition
to its moves in that market. Essentially, the firm must be able to anticipate how its foreign
competitors might act or react and to use such information to prepare contingency plans for
quick response as appropriate.

3. Users of the Product

The firm must understand users, both of its product and those of its competitors. A
Paramount consideration is documenting and understanding cultural differences as they affect
customer needs, products demanded, and purchasing behavior. Analysis and market research
can focus on end-user industry categories and, if relevant, on unique characteristics of
consumers. Information to help in segmentation should be gathered, using parameters such as
age, sex, size, income levels, growth rates of consumption, regional differences, purchasing
power, influence over purchasing and purchasing intentions, and the role of credit granting in
purchasing behavior. Another major area of research is product benchmarking or quality
comparisons, which makes objective comparisons of a firm's products and its competitors'
products; this can be used to understand product positioning issues by competitors within an
industry, as well as positioning across countries, customer response to new product
introductions, and the potential for customers' purchasing the firm's own brands instead of
competitors' brands. Finally, research should identify market trends for the medium and long
term, rather than solely providing information .for decision making on immediate marketing
plans and actions.

4. Marketing Mix
As we shall see later, a company can standardize or adapt its product as well as its marketing
mix to different country markets. Hence, it is also necessary to research marketing mix choice
in international markets. The following are areas that should be investigated:

1. Distribution Channels-Their evolution and the firm's comparative performance in

different channels and those of its competitors.

2. Comparative pricing strategies and tactics-The price positioning by all competitors, price
elasticity’s, and customer response to differential pricing behavior.

3. Advertising and promotion-The range of choices available, the differences in the allocation
of promotion expenditures, the delineation of the advertising response function in different
markets, and the comparison of competitor choices in advertising and promotion.

4. Media research-Useful in determining where to advertise in order to reach target

audiences. Major market research firms such as' A C. Nielsen and the Kantar Group (part of
WPP) provide media research and media measurement services.
5. Service quality issues-Relative to positioning by competitors' and customers' reactions to
higher levels of service.
6. Logistic of network capabilities – Delivery and stock out performance and the use of
information systems to improves delivery and customer service. This relatively new area of
marketing concern results from increased emphasis on just-in-time inventory systems and
customer-direct delivery, bypassing retail inventories. Other key research issues are
comparative performance of competitors and customer requirements.

FIRM-SPECIFIC HISTORICAL DATA

Forgotten in marketing research is the role of a firm's internal information system in

providing data for marketing decisions. Marketing research often can be facilitated by setting
up the required database outline and implementing internal data collection; this is particularly
necessary for international markets since much information that could be generated within the
firm is ignored or lost. Useful data could include sales history by product and product line, by
customer and sales force, by distribution channel, within a country and across countries;
analysis of such historic data for trends across countries and regions; derivation and analysis
of contribution by product, product line, customer, and region; and development of market
response functions across countries to permit comparison of past marketing mix decisions
and to suggest future mix decisions that may differ from country to country, within a country,
or across regions.

Once marketing research has been completed, the information that it generates must be
analyzed so that questions about future marketing plans and actions can be answered. Major
questions that are relevant in international marketing fall into two categories: market and
competition decisions and product and marketing mix decisions. In regard to market and
competition, the firm should mainly be concerned with three issues:

1. Understanding how customers rate it in comparison to the competition.

2. Determining its chances to attract customers.

3. Deciding whether to compete or cooperate with the competition.

As to product and marketing mix, the firm should look at several factors:

1. Choosing which products to introduce, which distribution channels to use, and how to
advertise and promote the product.

2. Identifying barriers to attractive markets and finding ways to overcome them.

Marketing research can also playa role in helping formulate global strategy. While strategy
sets a path for how a firm should interact with its customers, competition, and environment,
market research can help by providing information and analyses on environmental trends;
changes in competitive behavior and government regulation; and shifting consumer tastes. In
other words, market research can provide strategic information by focusing on futures
research and scenario development. Market researchers who pride themselves on quantitative
modeling and statistical rigor might disdain this "soft" world, leaving it to mega trend vision
Aries such as Naisbitt. However, market research can resolve strategic planning is such as:
1. Determining the firm's mission, scope, and long-range objectives.

2. Anticipating environmental changes and their effects, and the resulting opportunities and
threats they pose.

3. Understanding the firm's capabilities versus the strengths and weaknesses of competitors.

The above ideas are a far cry from information gathering about consumer responses to new
products, prices, and advertising. Yet just as good information is necessary for tactical
marketing, so, too, is good information needed to develop and assess long-range plans.

Problems in International Marketing Research

Because of its complexity, international marketing may encounter difficulties that are
uncommon in domestic marketing research. One problem is that intelligence must be
gathered for many markets-over 100 countries in some cases-and each country poses a unique
challenge. A second problem is the frequent absence of secondary data (data from published
and third-party sources). A third problem is the frequent difficulty in gathering primary data
(data gathered firsthand through interviews and field research).

1. Problem of Numerous Market

Multiplying the number of countries in a research project multiplies the costs and problems
involved, although not in a linear manner. Because markets are not identical £Tom one
country to another, the research manager must be alert to the various errors that can arise in
replicating a study multinationally. Mayer identifies five kinds of errors to look for in
multinational research:

1. Definition error, caused by the way the problem is defined in each country.

2. Instrument error, which arises from the questionnaire and the interviewer.

3. Frame error, which occurs when sampling frames are available from different sources in
different countries.

4. Selection error, which results from the way the actual sample is selected from the
frame.

5. Non response error, which results when different cultural patterns of non-response are
obtained. For example, in one five-country study, the response rate ranged- from 17 percent
to 41 percent. Further more, in one country, women composed 64 percent of the respondents,
but in another countrymen represented 80 percent of the respondents.

2. Problems with Secondary Data

Secondary data for market analysis are less available and less reliable for many foreign
markets and low per capita income countries tend to have weaker statistical sources than
those with higher per capita income. Secondary sources of information are relatively cheap to
acquire, however, and can help prevent a £inn from making major mistakes in its
international marketing. Major steps in using secondary data include:
1. Determining research objectives.

2. Clarifying what information is needed.

3. Identifying where such secondary information can be found.

4. Deciding whether the information source is reliable (who put out the information and
whether there is a hidden agenda).

5. Assessing the quality of data (accuracy, timeliness, representative ness) and the
compatibility of data from different sources.

6. Interpreting and analyzing the information.

7. Drawing conclusions and then relating them to the marketing problem at hand to see if
conclusions suggest courses of action or backup planned decisions or actions.

The use of probability sampling is necessarily limited where the nature of the relevant
universe cannot be reliably determined. Quota sampling is limited for the same reason, so the
most frequently employed technique is the convenience sample. This is defensible primarily
because of a lack of alternatives.

Comparing Several Markets. When data for several markets are compiled, the researcher may
find that many gaps exist for example; current data on number of automobile registrations
may only be available for a few countries in the group of interest. Data quality may vary and
the estimates may not be reliable. The underlying definitions may not be the same, with some
countries excluding light trucks from automobile registrations while others include them.
Many countries lack specialized firms that develop industry data for specific industries such
as automobiles or air conditioners.

3. Problems with Primary Data

Much of marketing research involves getting information from people about their perceptions
concerning a company's products, brands, prices, or promotion. People differ from country to
country in their income levels, culture, attitudes, and understanding of business issues,
including specific items on surveys and questionnaires. Hence, personal interviews require
skilled interviewers. Telephone surveys may work poorly and give biased results in countries
with low rates of telephone penetration, such as in most of Africa and in countries such as
China and India. The use of mall-intercept techniques to obtain personal interviews may give
erroneous results because malls are not as widespread in many countries even in Europe, and
then subgroup of people visiting a mall may be unrepresentative of the broader audience.
Mail surveys require a developed postal system, good mailing lists, and an educated
population. Accurate and complete street addresses are necessary to give representative
samples for mail questionnaires. If mail and telephone surveys are not practical, the
researcher is left with personal interviewing as an alternative. With a largely rural population
in the poorer countries, the problem then becomes one of physically reaching the people.
Poor roads and lack of regular public transportation may make interviewing them
economically unfeasible. In tropical areas, many roads are impassable during the rainy
season. Surveys may be limited primarily to urban areas.
In addition, the environment may favor distinct research methodologies; such as instruments
with a diversity of questions; the use of physical stimuli, such as the product, an
advertisement, or a jingle;' the control of the data-collection environment; including using
simulations' or, tests of products in use; other criteria such as the perceived anonymity of the
respondent. The sensitivity of the information requested, the experience of personnel
conducting the survey and the quality of the, data desired will also suggest specific research
approaches. Respondents may feel social pressure to respond with answers they perceive to
be "socially correct Speed cost, and Controlling for bias also affect the choice of technique

5. Languages
Language is the initial cultural difference that comes to mind when one thinks of foreign
markets. At the minimum, the language difference poses problems of communication;
solutions to these problems may be expensive. First, the research design and specifications
must be translated twice, first (in the, case of a U.S. firm) from English into the language of
each country where the study is to be conducted, Then, on completion of the study, the results
must be translated back into English. More important than translation expense is the
communication problem, also discussed in Chapter 4. Even business respondents-may have
difficulty if they are asked in their native language about stock turnover or other business
concepts that they are unaccustomed to using.

6. Social Organization
Much of marketing research involves gaining insights into the buyer's decision process. Such
research is predicated on the assumption that the decision makers and influencers have been
identified. In foreign markets, the researcher usually finds that the social organization is
different enough that it is necessary to identify anew the decision makers and influencers.
(This subject, including the varying" roles of women, is discussed in Chapter 4.) Differences
in social organization affect the industrial market as well as the consumer market. The nature
of the decision making structure in foreign companies is possibly different £Tom that in U.S.
companies, due to the greater importance of family business in other countries and a greater
general stress on relationships.

7. Obtaining Responses
Respondents and businesspeople may be reluctant to participate in marketing research for
various reasons. Respondents may suspect the questioner of being a government tax
representative rather than a legitimate market researcher, or they may be reluctant to respond
for fear of giving information to competitors. The idea of business people giving information
to anyone, whether the government or an individual, is not well accepted in many countries.
In addition, one of the researcher's greatest problems is trying to demonstrate the value of the
research to the respondent personally. Unless this can be done, little will be accomplished
with many business respondents.
Consumers, too, may be reluctant to respond to marketing research inquiries.'
This may be in part the result of a general unwillingness to talk to strangers. Foreign
respondents are often more reluctant to discuss personal consumption habits and preferences
than are Americans. In contrast to the reluctant respondent is the cooperative respondent who
feels obliged to give responses that will please the interviewer rather than state true opinions
or feelings. In some cultures this is a form of politeness, but it obviously does not contribute
to effective research.
Reluctant or polite responses are not the only barriers. Occasionally, the respondent is
not able to answer meaningfully. For example, illiteracy is a barrier when written materials
used. This problem can be avoided by using oral interviews. Even when the interview is oral,
however, a communication problem that could be called "technical illiteracy" may arise; that
is, the terms or concepts used might be unfamiliar to respondents even though phrased in
their native language they may not understand the questions and thus be unable to answer. Or
they may answer without understanding giving a useless response.

Quite apart from the terms used; respondents may be unable to cooperate effectively because
they are asked to think in a way foreign to their normal though: patterns. They are being,
asked to react analytically rather than intuitively. What ever the particular cause of the
inability to Spend, it is basically a translation problem. The research designer must be able to
translate not only the words but also the concepts. The cultural gap must be bridged by the
research designer.

8. Researching Hispanic Consumers. International marketing research invariably comes up

against -cultural differences that affect the use and efficacy of standard! Western methods
and may lead to erroneous interpretation of findings because cultural misunderstandings.
Professionals must then turn for help to expert’s who can help bridge cultural gaps. These
issues are addressed in a recent book on doing research on Hispanic populations in the United
States and elsewhere.5 The book first addresses the question of who Hispanics in the United
States are, summarizing demographic census results, describing their various countries of
origin and identifying basic Hispanic values such as the importance of family, the importance
of feeling empathy for others, views of prescribed gender roles, and time orientation.

While Hispanics may be broadly alike, researchers need to bear in mind differences among
Hispanic subgroups of Cuban, Mexican, Puerto Rican, and Central American origin, and how
these differences affect how they are identified in conducting research. Misidentification and
mislabeling can affect response rate and willingness to participate, reliability, and the
generalizability of studies. Other pertinent issues include how to gain access to survey
participants, how to enhance completion of survey instruments, and how to get beyond
socially desirable responses. Such cultural differences require that standard, culturally
appropriate instruments be adapted. Questionnaire translation is equally important because
often there is no one correct way to translate an English word into Spanish or some other
language, and multiple attempts at validation with different native speakers may be
necessary. .

Another study of Hispanic consumer behavior asserts that immigrant Mexicans have to learn
to consume, and in doing so, combine consumption patterns learned from being Mexican
with consumption patterns learned £Tom American society. Eventual consumption patterns,
therefore, are likely to be a hybrid of Mexican and U.S. consumption vahies.6 As an example,
the study cites the initial unwillingness of Mexicans to buy frozen produce or meat, based on
the custom of buying it fresh and on a daily basis.

The international marketer's job is made easier when concepts and measurement instruments
have been developed and validated across several cultures. While anthropologists have a long
history of instrument adaptation, similar efforts are at a rudimentary stage in marketing. An
example of such a direction is the concept of consumer ethnocentrism and an associated
scale, CETSCALE. Tested and proven to be reliable across four countries, which are one
another's major trading partners, CETSCALE may be expected to be applied to other
countries in the future.
9. Convergence of Consumer Behavior across Countries
Just as one might expect significant divergence among consumers because of cultural and
religious differences, a growing convergence of consumer behavior is occurring across
countries caused by multinational media and the standardized global marketing strategies of
multinationals. For example, a 1995 study from Roper Starch Worldwide suggests that four
broad types of consumers exist-types generable to 1.97 billion consumers worldwide. In the
same vein, a Gallup poll conducted in the major cities of Argentina, Brazil, Chile, Colombia,
and Mexico divides consumers into eight segments across countries, based on questions
about income, education occupation, type of home, and ownership of automobiles and
durable goods.9 The survey excluded low-income workers (about 17percent of the working-
population) and ignored rural markets. Based on its sample of '17,564 people call up divided
Latin American consumers into eight categories:

Emerging professional elite: 14% Progressive upper-middle class: 13%

Traditional elite: 11 % Self-made middle class: 11 %

Skilled middle class: 9% Industrial working class: 14%

Self-skilled lower middle class: 13% Struggling working class: 15%

10. Improvisation
Some improvisation is probably used in all marketing research, but a higher degree is needed
in international markets. Improvisation may be loosely defined as unconventional ways of
getting the desired market information and or finding proxy variables when data are not
available on the primary variables.

One such approach is the use of national consumption statistics, by volume or units, for
various items. Such statistics filter out exchange-rate anomalies that arise in the use of
currency-based economic indicators. Examples of such information include the number, in
units, of radios, televisions, and VCRs used; life expectancy at age one; the number of
hospital beds available and doctors per 100,000 people; consumption of various food items
on a per capita basis; the per capita availability of goods such as telephones, cars, and
motorcycles; the number of airline and train revenue passenger miles sold per year; the
consumption of electricity and steel; and the average number of years of schooling completed
by the population. All such indicators are generally available for a variety of countries and
can be used to group countries and can be correlated with market-size information.

11. New Services to Aid the International Firm

As international business continues to grow, more and more international marketing research
services are available to aid firms. Existing international marketing research organizations are
expanding into more countries with more services, and new organizations are entering the
field. It is not possible to catalog all of these but an example is International Information
Services Ltd. (IIS), a global product pickup service for consumer packaged goods
manufacturers. It has 400 clients in over 30 countries, including Coca-Cola, General Foods, J.
Walter Thompson, and Unilever. Each day supermarkets in 120 countries are "raided" by IIS
shoppers buying products or searching for information needed by clients. They provide
samples of competitive products, client products for monitoring of quality, and/or infor-
mation on competing brands (ingredients, varieties, sizes, prices, etc.).

12. Learning by Doing

If the costs of primary marketing research are too great, another way to evaluate a market is
by becoming an exporter. After a year or two of export experience, the firm will know more
about actual market behavior than could be learned from a preliminary market study. If the
market proves difficult or unprofitable, the firm can withdraw without major losses. If the
market proves attractive, the firm might consider a heavier commitment in the country.

OTHER RESEARCH TECHNIQUES TO USE IN DEVELOPING COUNTRIES

Moyer has suggested four techniques that are relevant for researching small, lower income
markets: analysis of demand patterns, multiple-factor indexes, estimation by analogy, and
regression analysis.

1. Analysis of Demand Patterns

Countries at different levels of per capita income have diverse patterns of consumption and
production. This commonplace observation is illustrated in Figure 7-1.) The importance of
this statement lies in the fact that the researcher can usually get data at this macro level for
most countries. This simple technique, known as the multiple-factor index approach, thus
allows insights into the consumption production profiles of many countries. Though
relatively crude, it gives a clue both to a country's present position and the direction it is
going. This in turn helps the firm identify possibilities for export or local production in that
market.

2. Multiple-Factor Indexes

A multiple-factor index measures market potential indirectly, using as proxies a number of

variables that intuition or statistical analysis reveal to be closely correlated with the potential
market for the product in question. For example, a manufacturer of modular housing may
look at these factors:

• The rate of household formation.

• Population demographics to gauge the percentage of the population in the age bracket
from 20 to 30 years, a prime household forming segment.
• Income-level segments with some minimum per capital household income such as
$2,000 per year being used to gauge purchasing power.

Smoothing out these numbers over several time periods and relating them to historic house
sales and new housing construction may provide useful estimates of potential market size.

3. Estimation by Analogy
For countries with limited data, estimating market potential can be a precarious exercise.
Given the absence of hard data, one technique-estimation by analogy can be helpful in getting
a better feel for market potential in such countries. This estimation is done in two ways: (1)
through cross-section comparisons and (2) through the displacement of a time series in time.

The cross-section comparison approach involves taking the known market size of a product
in one country and relating it to some economic indicator, such as disposable personal
income, to derive a ratio. This ratio (of product consumption to disposable personal income in
our illustration) is then applied to another country where disposable personal income is
known in order to derive the market potential for the product in that country.

The time-series approach estimates the demand in the second country by assuming that it
has the same level of consumption that the first country had at the same level of development
(or per capita income). This technique assumes that product usage moves through a cycle,
with the product being consumed in small quantities (or not at all) when countries are
underdeveloped and in increasing amounts with economic growth. Thus, looking at meat and
egg consumption in Taiwan in the late 60s and early 70s can allow a rough estimation of
demand for meat and eggs in mainland China in the 90s, with Chinese incomes being at about
the levels prevalent in Taiwan in the early 70s.
Both approaches have limitations. The cross-section method assumes a linear consumption
function. Both assume comparable consumption patterns among countries. When these
assumptions are not true, the comparisons are misleading. When more sophisticated
techniques are not feasible, however, estimation by analogy is a useful first step. .

4. Using Long-Term Trend Data to Estimate Market Size

The parcel tanker industry provides an example of how long-term trend data can be used to
estimate market size. Parcel tankers (as distinct from oil tankers) are used to transport bulk
liquids such as chemicals. Freight rates can vary depending on demand and supply. In 1995,
rates were about $60 per ton, compared to around $48 per ton in 1994 Operating leverage is
high in the industry. A $1 increase in the freight rate, for example, can mean an additional
$11 million in operating profit for a major parcel tanker company such as Stolt-Nielsen, a
Norwegian tanker" company that transports, stores, and distributes bulk liquids. Such tankers
are usually chartered for long periods, and as charters end and new charter periods are
negotiated, charter rates can be increased depending on the prevailing demand supply
patterns.

For a company such as Stolt, forecasting demand and supply is important in determining both
what charter rates might be like in the future, as well as whether to order new tankers to be
built. This decision is important because, depending on shipyard backlog, tankers must be
ordered to precise design specifications and then built, with delivery from time of order
stretching out to as long as two years. Several factors go into compiling such data, especially
the forecasts for the near-term future period, 1995 to 2000. Demand figures are derived from
estimating the rate at which worldwide transportation of chemicals is growing, which in turn
is related to GDP growth, particularly in Southeast Asia; demand is growing at 5 to 7 percent
a year. Then, on the supply side, the existing number of tankers available is known, and to
that is added the number of new tankers being built and the rate of scrap page. That is, old,
obsolete tankers nearing the end of their seaworthy days and posing environmental hazards
because of leakage problems will be taken out of service, thus reducing the total supply.

As can be seen, demand will outstrip supply over the next few years by almost one million
metric tons, suggesting that freight rates will rise sharply and that several new tanker orders
will be placed. To the extent that a company such as Stolt Nielsen is armed with such
information earlier than its-competitors, it can charge higher rates and lease its tankers on
spot rates rather than on long-term charters, thus increasing its profits. It can also order new
tankers earlier, thus being able to increase its capacity in a timely fashion, taking advantage
of healthy demand conditions. By placing orders early, it can also be more sure of getting its
tankers delivered on time (a latecomer may find that the shipyards are too busy, that delivery
is far off, and that by the time delivery occurs, demand and supply may once more have
moved into balance, reducing rates once again.)

Based on the demand and supply projections, Stolt-Nielsen has ordered 10 new parcel tankers
for delivery over the next three years. It took delivery of a 37,000ton, alt-stainless-steel
chemical tanker from Danyard in Denmark, and will be getting six more from the same yard,
as well as three others of similar design from a shipyard in France. Stolt might scrap some
older tankers during the same time frame. In addition, the company is expanding into Asia by
establishing special tank container cleaning and repair facilities and developing bulk
chemical storage locations in Japan, Korea, Taiwan, Mainland China, and Singapore. 13 The
researcher should however, keep in mind that as global economic conditions change, such
forecasts need to be updated. For example, during the 1997-913 period, the Asian economies
fell into a recession, and their demand for basic products such as chemicals dropped sharply,
affecting world demand for tankers to transport chemicals. At the same time, shipyards in
countries such as Korea, China, and Japan attempted to preserve jobs by cutting ship prices,
leading to a shift of demand for ships to these countries and creating the possibility of
overbuying currently-in essence "borrowing" from future demand, with the possibility of
limiting future demand.

5. Regression Analysis
Regression analysis provides a quantitative technique to sharpen estimates derived by the
estimation-by-analogy method just discussed. Cross-section studies using regression analysis
benefit from existing predictable demand patterns for many products in countries at different
stages of growth. The researcher studies the relationship between gross economic indicators
and demand for a specific product for countries with both kinds of data. The relationship
derived can then be transferred to those countries that have only the gross economic data but
not the product-consumption data.

The equation used here was the simple regression y = a + bx, where y is the amount of
product in use per thousand of population and x is per capita GNP.

GNP would result, on the average, in an increase of 10 automobiles, 10 refrigerators, 9

washing machines, 7 TV sets, and 27 radios per 1,000 populations. Construction of such a
table relevant to the products of a specific firm can be very useful. The model can use
additional independent variables beyond GNP per capita. For example, airlines forecast air
traffic growth with two factors, per capita GNP growth and the yield in cents per mile
("yield" is the air fare for a route divided into the distance, or number of miles on that route).
Over long periods, this regression model has proved reasonably accurate, with air traffic
growing as incomes grow and dropping as fares rise.
There are limitations to using regression, however. For example, as a product
approaches saturation levels, the rate of consumption declines, requiring a different equation
to explain the relationship. Nevertheless, regression analysis can provide useful insights.

6. Comparative Analysis

Comparative analysis is an attempt to organize information and experience to maximize their

usefulness. In international marketing, this means that the company gathers and organizes its
intelligence from all its global operations to see what new insights can be gained.
 Grouping or classifying objects is an important step in understanding markets.
Competing products can be grouped together to understand the different segments that are
being targeted. Consumers can be grouped to assess customer segments. And countries can
be grouped to determine which markets are similar to 1 one another. In this way, a generic
strategy can be prepared for the countries belonging to a group rather than approaching each
country individually. Moreover, groups of countries can be compared in evaluating market
performance. One of the difficulties of comparative market performance assessment is that
markets are different so the comparison may be unfair. Performing comparisons only on
countries that are similar enough to belong to a group mitigates this problem.

7. Cluster Analysis
The approaches used to develop a short list of potential markets include comparative analysis
of countries using macroeconomic and consumption data. Cluster analysis is a favored
technique of identifying similar markets. The goal here is to ensure that the countries with the
greatest potential make it to the short list for further investigation.

The mathematical techniques of cluster analysis were used by Sethi to develop seven distinct
groups of countries. To develop these distinct groups, Sethi first used four sets of variables
for each of the countries to be analyzed:

1. Production and transportation variables, measured by items such as air passenger and
cargo traffic, electricity usage, number of large cities, and population.

2. Consumption variables, based on income and GNP per capita, the number of cars,
televisions, hospital beds, radios, and telephones per capita, and educational levels of the
population.

3. Trade data, derived from import and export figures.

4. Health and education variables, using data such as life expectancy, school enrollment, and
doctors per capita.

Once "scores" for these four variables are developed for each country, the countries
themselves are grouped into seven distinct groups. The implication is that if similarity of
countries within the groups is sufficiently strong that similar marketing strategies can be used
for all countries within a group.

Similar cluster analysis techniques are used by Economist Intelligence Unit (EIU) to group
markets based on the opportunities they offer. EIUs indexes cover market size, market
growth rates, and market intensity (which measures the relative concentration of wealth and
purchasing power in those countries). For example, the market-size index is derived from
data on population, consumption statistics, steel consumption, cement and electricity
production, and ownership of telephones, cars, and televisions. Note the similarity of the
variables used at EIU to those used by Sethi in his analysis.

Clustering Countries by Product Diffusion Patterns

A problem with clustering countries on the basis of macroeconomic variables is that the
resulting segments may not be helpful to international marketers because acceptance and
diffusion of new products may vary within the proposed segments. An alternative is to
segment countries based on how similar they are in the rate at which new products are
adopted (the product diffusion rate). If such segments could be derived, managers could use
information from the lead market, about variables such as growth in market size, when sales
reach a peak, to make inferences on the same variables for lagging markets. This allows a
country to belong to more than one segment at the same time. For example, the United States
could be in the leading market segment for a product such as advanced personal computers,
while lagging in the use of products such as smart cards or high-speed trains.

Macroeconomic data such as the standard of living are, of course, important in explaining the
readiness of a country market to accept innovation; in addition, a diffusion-based
segmentation approach uses data about factors such as lifestyle (use of phones per capita, for
example), and cosmopolitanism (tourist expenditures and receipts). A recent research study
looked at the relationship between such country-level variables and sales growth over a 14-
year period for three consumer durables---color TV sets, VCRs, and CD players-for 12
advanced industrial nations from Europe, as well as Japan and the United States.

The study showed that segments based on product adoption rates did not agree with segments
derived from broad macroeconomic data alone, suggesting that countries that look similar
from a broad macroeconomic perspective may differ in the rate at which they are willing to
adopt and buy new products. Cultural factors such as language and religion, which were not
specifically included in the study, may play an important role in explaining differences in the
product diffusion rate. In addition, other recent studies have noted the importance of culture,
mobility, and sex roles as important factors in explaining differences in product adoption
rates.

8. Screening Potential International Markets

Another marketing research screening technique useful to derive a short list of key country
markets is described here, as applied to the market for kidney dialysis equipment. 18 The first
step is to determine which countries can afford such medical equipment. The high cost of
kidney dialysis equipment and necessary supplies and personnel limits the market to wealthy
countries. Hence, a first screen might be based on the wealth of a country, measured by the
following:

1. A total GDP of over $15 billion.

2. GDP per capita of at least $1,500.

This screen alone reduces the number of potential markets to 28 countries outside North
America.

Next, the markets must have specialized hospitals and doctors who can competently
administer dialysis treatment. In addition, the treatment is expensive and requires a certain
level of government support and subsidy, or the market for private patients alone would be
too small to justify attempts at market penetration. Thus, a second screen would include other
criteria:

1. No more than 200 people per hospital bed.

2. No more than 1,000 people per doctor.

3: Government health care expenditures of at least $100 million.

4. Government health care expenditures of at least $20 per capita.

This calculation then results in a set of 19 countries as potential markets.

A third screen analyzes the markets in terms of the current market for dialysis
equipment Two factors are used:

1. At least 1,000 deaths per year, due to kidney-related causes. A lower number might
indicate that the market for dialysis equipment is already being well served by competition:

2. At least 40 percent growth in the number of patients being treated with dialysis
equipment.

This results in just three markets being considered: Italy, Greece, and Spain.

A fourth screen consists of carefully evaluating the three countries in terms of existing
competition, political risk, and other factors. Management subjectivity can enter here because
some managerial judgment is required in evaluating the strength of competition and political
risk. Management may well decide to enter more than one of the three markets identified thus
far. It may also go back to the third screening step and reduce the required rate of growth to,
say, 30 percent, in 1 order to add some additional potential markets.

Once a short list of potential markets has been made up, individual markets must be studied
more carefully. At this point, information can be obtained from the Department of
Commerce's Comparison Shopping Service (CSS). A CSS survey covers a product in a
particular country market, indicating the product's overall marketability, chief competitors,
comparative prices, customary entry, distribution, and promotion practices, trade barriers, and
the degree to which the company's product competes. About 50 key countries are covered by
this low-cost and timely service

9. Gap analysis

The goal of gap analysis is to analyze the difference ("gap") between estimated total market
potential and a company's sales. The gap can be divided into four categories:

1. Usage gap. The usage gap refers to total industry sales being less than the estimated total
market potential. Such gaps may have their explanation either in estimation errors or in
unpredictable changes in consumer tastes and behavior, such as, for example, eggs being less
in demand than expected. In the United States, such a usage gap would probably be traced to
health-related concerns.

2.Competitive gap. Competitive gap refers to existing market share compared with expected
market share; analysis is needed to indicate why market share shifts have taken place and
what is needed to regain market share from competitors.

3. Product-line gap. Product-line gap arises because a company does not have a full product
line compared to its competitors; thus, it loses sales. All examples might be in the computer
industry, where a part of the product line is small, portable laptop computers. To the extent
that Dell was late in marketing or did not have a laptop computer available, its market share
was less than it would have been if it had fielded a full product line. . Toshiba faced the
opposite problem, offering only laptops in the U.S. market and losing corporate sales because
the clients wanted to buy both laptops and PC servers and desktops from the same company.

4. Distribution gap. A company with a distribution gap is failing to target part of the market
because of a lack of distribution facilities or agents. Closing such a gap would require that the
firm extend distribution and product availability to cover all regions and segments of the
market.

10. Input-Output Tables

Input-output tables, provide an analytical tool of great value in studying demand in foreign
markets. They are becoming increasingly available, for many more countries, particularly for
the advanced industrialized nations and: the newly industrializing countries such as Brazil,
Taiwan, and India. They are useful both for industrial product analysis and for the analysis of
market demand for intermediate components and materials. Input-output tables give specific
attention to how production functions vary among nations and thus allow the researcher to
adjust market forecasts to account for such country differences.

MARKETING RESEARCH MODELS

1. Modeling Consumer Behavior

Why U.S. Buyers Buy Japanese Cars

Market research professionals often seek to model consumer behavior in the international
marketplace. One model attempts to explain why U.S. households buy
Japanese cars. Developed by Dardis and Soberon-Ferrer, it hypothesizes that buying Japanese
cars is affected by household characteristics that, in turn, determine the weight given to
different product attributes, leading eventually to the decision to buy or not buy a Japanese
car. Specifically, the variables used to profile household characteristics include income, age,
sex, marital status, race, education of the head of the household, geographic location within
the United States, and a variable labeled "the origin of disposed stock," meaning, whether a
previous car sold (if any) was of Japanese or other origin (i.e., whether that household had
previously owned a Japanese car).

In a similar fashion, product attributes modeled included variables that primarily capture
automobile quality: cost of repair, frequency of repair, operating efficiency (miles per
gallon), weight (a means of gauging comfort and safety), the depreciation rate (a reflection of
the resale value of the car), and finally, the purchase price of the car, which is held constant
to isolate the effect of the quality variables.

It is important to marketers to develop a model on which to base their data collection and
analysis efforts. The model can be modified to include additional variables such as social
class, religion, and occupation. The bottom line is that an explicit model allows a directed
research effort to gather and analyze data, which permits validation and modification of the
model. For example, the Dardis and Soberon-Ferrer model showed that lowering the
depreciation rate of the car by percent a year increased the probability of buying a Japanese
car from 22 to 26 percent. Similarly, lowering the fuel economy (miles per gallon) by 10
percent dropped the probability of buying a Japanese car from 22 percent to 14 percent.
The implications for marketing strategy are clear. For a U.S. company trying to catch up to
the perception of Japanese cars, several methods exist to lower the probability that a
household will buy a Japanese car: Rather than rely on vague appeals to buy American,
companies should improve U.S. cars so that they depreciate slower, cost less to own and
operate, and require repair less frequently. Significantly, the proposed model, when applied to
past car-purchasing decisions, was able to correctly predict whether households would buy a
Japanese or non- Japanese car 96 percent of the time.

2. Household Buying Behavior

A Study from Saudi Arabia

For many products, buying decisions are made jointly, by households, by husbands and
wives, and in some cases, by children. Products such as houses, automobiles, furniture, and
consumer durables such as refrigerators and stoves would fall in this category. Understanding
whether households in different countries approach major purchasing decisions differently is
critical in making international marketing decisions about product positioning, advertising
appeals, direct-mail and telemarketing campaigns, and building loyalty. Marketers are
interested in who makes the buying decisions in a family, and the relative influence during
critical steps such as whether to buy, when to buy, where to buy, and how much to pay.
Several competing theories exist to explain family purchasing behavior:

1. Culture-defined behaviors, whereby cultural norms prescribe which spouse has more
power in influencing purchase decisions.

2. Resource contribution-based power, whereby the spouse who contributes more

resources (e.g., income, status, education, etc.) is more powerful in influencing
decisions.

3. Relative involvement, whereby the spouse who has the greater interest and involvement in
a product or service will have more influence over its purchase. Countries and societies can
be categorized26 as: (1) patriarchies; (2) modified patriarchies, consisting of modernizing
nations that were patriarchies in the recent past; (3) transitional egalitarian, with movement
toward equality of influence within the family, and greater weight being given to education,
occupation, and income; and (4) egalitarian, with strong norms about equality of husbands
and wives and power sharing. Household purchasing behavior can be expected to differ
across these different kinds of societies.

A study on family purchasing behavior in Saudi Arabia showed how role behaviors of
husbands and wives can significantly differ across countries.27 Limited to a sample of 249
upscale, married Saudi women, the study is interesting as a study of family purchasing
behavior in a developing country. It found that (1) husbands dominate consumer decision
making in Saudi Arabia, as is the case in many developing countries; (2) husbands are
dominant in deciding on buying a car and on "where to buy," except in the case of women's
clothing; (3) in many cases, Saudi wives who work and/or are more educated, have more
influence over purchasing decisions. Overall, husbands dominate purchase decisions in what
is a predominantly patriarchal Saudi society.
 3. Country-of-Origin Effects

An important variable affecting consumer purchase in international marketing is the country

of origin (CO). There are many products where the CO is important to consumers, such as
perfumes, cars, high-fashion clothes, consumer electronics, and software; for all these
products country-specific stereotypes exist, with certain; countries being associated positively
with certain products. Examples are French perfumes and German cars. For such products,
knowing the CO affects how consumers evaluate a product. In many cases, the country of
manufacture {COM) also relevant (e.g., in India, consumers often want to look inside TV sets
to see where components have been manufactured).

Once consumers are aware of CO, their familiarity with the brand, level of involvement in the
purchase decision, and existing preference for domestic products become relevant, as do
product-, and market; level influences, such as the type of product and brand image. In
industrial product buying, "rational" purchasing might be more prevalent, and thus greater
credence might be given to country-of-manufacture effects; product attributes might be
relevant, such as quality, performance, design, aesthetics, price, and prestige,' powerful brand
image may be associated with a company and may overcome origin of manufacture area. The
reputation of the dealer or intermediary may muffle or enhance CO or COM effect, and truth-
in-Labeling requirements as well as demand conditions can mediate the effect of CO.

Environmental influences also come into play, including the existence of global markets
(when CO may become less important); level of economic development of the countries from
which products come; and political, social, and cultural influences favoring certain nations.
Together these influences result in a country-stereotyping effect and ultimately affect the
purchase decision.

What does this mean for the firm? CO and COM effects have implications for standardization
of marketing programs (whether to source from one or more locations, how to adapt), for
positioning the product, selecting the image in advertising, and even plant location decisions,
all other things being equal. Together, these disparate decisions affect overall brand
profitability.

4. Religiosity and Consumer Behavior

Cultures differ in many ways, with a central difference being religion. It is natural to ask
whether religion affects consumer behavior. For example, are devoutly religious people
different from more secular people when it comes to enjoying shopping and buying a large
variety of material goods? What sorts of advertising appeals are more likely to resonate with
a religious person? In order to answer such questions, one first has to define religiosity and
then attempt to relate it to different aspects of marketing and consumer behavior. Table 7-8
summarizes these ideas.

A recent study attempted to trace the effects of religiosity on consumption behavior for a
sample of Japanese and U.S. consumers. The study found that consumer shopping behavior
did not seem significantly different between devout and casually religious Japanese
individuals. However, in the United States, devout Protestants were "more economic," buying
products on sale, shopping in stores with lower prices, being open to buying foreign-made
goods, believing that there was little relation between price and quality, tending to not believe
advertising claims while preferring subtle and informative advertisements. Differences also
existed at the national level, with Japanese shoppers preferring to buy domestically made
products, visiting many stores to find the right brand, enjoying shopping, and preferring
stores with better service. As an exploratory study, with a total sample of fewer than 250
drawn from just two cities, Tokyo and Washington, D.C., and with none of the respondents
having progressed beyond a high school education, we cannot generalize from this study. It is
useful in suggesting directions for international marketing research, particularly when
marketing to countries with distinct religious systems such as India, the Middle East, Japan,
and China.