Determinants of market selection

The market selection is normally based on two sets of factors namely the firm related factors and the market-related factors.

Firm related factors refer to such factors as the objectives, resources, product mix, and international orientation etc. of the firm.

Firm related factors:

A firm whose export objective is only to sell out a marginal surplus will select a foreign market suited to serve this purpose. Another firm with the same product, which wants to export a very large quantity, forming a very significant share of its total output may have different considerations than the first firm in market selection. In the case of the second firm, as the total quantity involved is large and as it forms a significant share of its total output, market diversification would be important to minimize the risk. If we think of a third firm which also wants to export the same product as the first two firms but which wants to export several other products also, the market(s) which it selects may perhaps be different from what the first two firms have chosen; it would give more importance to the total exports of all its products than that of any single product. Further the market selection may be influenced by other objectives like growth. When business growth is an important objective, growth potential of the market will be an important criterion for selection.

The planned business strategy may also influence the market selection. For example, a market considered the most important from the point of view of exporting need not necessarily the one that would be selected for locating production base or a sales office. A company that has plans for large expansion of foreign business may choose a market, to start with, which can serve as a hub of international business.

The market selection is also influenced by the international orientation of the company.
Another very important determinant is the company resources comprising financial, human, technological and managerial factors. The dynamism and philosophy of the top management and the internal power relations may also influence the market selection decision.

Market related factors:

There are a number of market related factors which need to be carefully evaluated for market selection. The market related factors may be broadly grouped into general factors and specific factors. General factors are factors general the market as a whole where as the specific factors are factors which are specific to the industry concerned.

General factors:

Economic factors: Include factors like economic stability, GDP growth trends income distribution, per capita income, sectored distribution of GDP and trends, nature of and trends in foreign trade and Balance of Payments, indebtedness, etc.

Economic Policy includes industrial policy, foreign investment policy, commercial policy, monetary policy, fiscal policy and other economic policies.

Business Regulations: Regulations of business like industrial licensing, restrictions on growth, takeovers, mergers etc., restrictions on foreign remittances, repatriations etc; tax laws; import restrictions and local content stipulations; export obligations and so on

Currency Stability: of the national currency is another very important consideration in the market selection.

Political factors: Character of the political system including the nature and behavior of the ruling party/ parties and opposition party/parties, the government system etc. and political stability are among the most important determinants of market selection.

Ethnic Factors: Ethnic factors like ethnic characteristics, including ethnic differences, and their implications for the business, ethnic harmony etc. should also be analyzed.

Infrastructure: Infrastructural facilities seriously affect business. For example, power shortage could cause considerable production losses. Shipping and other communication bottlenecks could cause lot of delays and loss of business, in addition to high costs.

Bureaucracy and procedures: The nature and behavior of the bureaucracy and the procedural system or styles are also important factors to be considered.

Market Hub: The ability of a market to act as a hub, a base from where the company can operate in a contiguous region or countries, is a very important factor in the market selection of a company with plans for expansion of international business. South Africa, for example could be such a hub for the entire sub-Saharan Africa.

A large number of Indian companies have opened offices in Singapore to use it as a hub to trade with the booming markets of South-East Asia and the Pacific. Singapore is attractive for Indian companies because of its infrastructure, tax incentives and the large Indian population. A company which sets up its operational head quarters (OHQ) in Singapore has to pay only 10% as corporate tax against the normal 30%.

Indian industrialists feel that Sweden could be used as a base for exporting to third countries, especially the Baltic states. They also feel that the Swedish industrialists could use India as a sourcing ground to manufacture goods for export to the Asia- Pacific.