I needed to calculate a market potential for my job. I started investigating and searching some index or some way to quantify it and I found out an Index made by Mr.S. Tamer Cavusgil (Fuller E. Callaway Professorial Chair and Executive Director - Center for International Business Education - Georgia State University).
Maybe some small or medium company trying to export do not have capacity to get and work with all the information required but it could be a good approch and very useful for the market research and also to settle the exports strategy.
This is the article about Measuring the potential of emerging markets : an indexing approach
Targeting foreign markets? The Overall Market Opportunity Index can help reveal both attractive and undesirable features of each country.
A number of worldwide trends are making a group of economies prime targets for Western companies--the so-called emerging markets. As industrialized countries continue to mature, these markets have become increasingly more attractive and promising as a market for technology and goods as well as a pool for offshore sourcing. Ongoing economic liberalization, more markets open to international competition, and rising consumer expectations are some of the reasons these nations require special attention by Western companies.
Just what constitutes an emerging market? Essentially, these are high-growth developing countries that represent attractive business opportunities for Western firms. The U.S. Department of Commerce lists 18 "Big Emerging Markets": China, Hong Kong, Taiwan (the Chinese Economic Area), Indonesia, Malaysia, the Philippines, Singapore, Thailand, Brunei (ASEAN), Vietnam, India, South Korea, Argentina, Mexico, Brazil, Poland, Turkey, and South Africa. The Economist adds Chile, Venezuela, Greece, Israel, Portugal, the Czech Republic, Hungary, and Russia.
The emerging markets (EMs) share remarkable features in terms of economic potential. Some are large geographically. Demographically they have a young labor force. They are attractive for both selling and sourcing, enjoy outstanding growth rates and prospects for market expansion, and have undertaken significant economic reforms. In addition, many EMs are a major political influence in their region as well as a regional economic driver.
The economic potential of EMs is already well established. As a group, they comprise more than half the world population and account for a large share of global output. They offer promising opportunities for trade as their need increases for capital equipment, machinery, power transmission equipment, transportation equipment, and high-technology products.
EMs pose special challenges for Western firms. Many have an inadequate commercial infrastructure, such as banking and transportation. Distribution channels are usually underdeveloped and inefficient. Western firms often have difficulty identifying qualified, competent intermediaries. The government sector is often the primary economic actor. In many cases, a state-owned enterprise is slow in decision making, and large national debt has produced an inflationary economy--a situation with which many Western managers are unfamiliar. Moreover, environmental awareness is rising in EMs, and ethical issues are under increasing scrutiny.
Despite these challenges, no growth-minded company can overlook the potential EMs hold out. What strategies are appropriate for capitalizing on this potential? Three issues must be considered: (1) market potential estimation and access; (2) market entry; and (3) market establishment. Although each step in foreign market expansion is critical, the initial assessment of opportunities is especially important. Various techniques can be used, such as gathering background information (desk research), evaluating unsolicited inquiries from foreign customers, and monitoring competitor activity.
A formal and systematic analysis of aggregate market potential can be particularly fruitful; such is the focus of this article. Verifying market potential and quantifying opportunity in a foreign market can be vital to a firm's success. Sufficient consideration must also be given to qualifying market opportunity. Managerial guidelines for the three phases of a foreign marketing strategy are offered in Figure 1.
Figure 1 Guidelines For Doing Business In Emerging Markets
PHASE 1: Market Potential Assessment and Access
* Engage in formal market potential analysis
* Gather market intelligence
* Employ early monitoring and be a "first mover"
* Tie into informal networks of influence
* Offer financing as well as technical expertise and solutions
* Explore government incentives and procurement
PHASE 2: Market Entry
* Choose qualified partners carefully; build their capabilities
* Invest in long-term relationships
* Be culturally sensitive
* Consider adapting product features, selling approach, etc.
* Be prepared to deal with inadequate commercial infrastructure
PHASE 3: Market Establishment
* Adjust to operating in a high inflation/debt environment, leading to commercial and currency risk
* Learn to deal with labor force productivity and motivation issues
* Be prepared to deal with government bureaucracy and regulations
* Look for opportunities in sourcing
* Expand networks and alliances
The Study
The study reported here develops and illustrates a methodology for quantifying and ranking the market potential of 25 countries identified as EMs by the Economist. (Taiwan was excluded because of insufficient data.) An index was developed to measure market potential in EMs. First, 13 economic, political, and social variables were chosen to characterize a market's attractiveness from the viewpoint of Western management. These 13 variables represent the seven fundamental dimensions to consider when determining the overall attractiveness of a market (shown in Figure 2). Next, an index was created from the raw values of the 13 variables by standardizing the items and putting them into a scale of 1 to 100 by a formula. (Standardization is a statistical procedure enabling us to directly compare variables with very different distributions. The original data are first transformed into standardized data, or z-scores, before country comparisons are attempted.) Third, the relative importance of each dimension was determined by interviewing a small number of international business professionals and educators (a Delphi process). The result was the relative weights shown in the second column of Figure 2. Finally, the seven dimensions were combined into the Overall Market Opportunity Index (OMOI) by using the corresponding weights. To avoid the effects of variance of each dimension on the final index, the figures used to calculate the 1-100 scales for each dimension were again standardized; the weights were then applied to the z-scores and conversion into a 1-100 scale established the OMOI.
Figure 2 Dimension And Measures Of Foreign Market Potential
Dimensions Weight
Market Size 4/20
Market Growth Rate 3/20
Market Intensity 3/20
Market Consumption Capacity 2/20
Commercial Infrastructure 2/20
Economic Freedom 2/20
Market Receptivity 4/20
Dimensions Measures
Market Size * Total population
Market Growth Rate * Average annual growth rate of industry
Market Intensity PPP estimates of GNP
per capita (50% weight)
* Private consumption expenditure per capita (50% weight)
Market Consumption Capacity * Size of the middle class
Commercial Infrastructure * Telephone mainlines per capita (20% weight)
* Paved road density (20% weight)
* Trucks and buses per capita (20% weight)
* Population per retail outlet (20% weight)
* Percentage of homes with color TV (20% weight)
Economic Freedom * The Economic Freedom Index (Johnson and Sheehy 1995),
which measures
trade policy, taxation policy, government
consumption of economic output, monetary and
banking policy, capital flows and foreign investment,
wage and price controls, property rights, regulatory climate, and black market activity
Market Receptivity * Average annual growth rate of imports from the U S. over the past 5years (60% weight)
* Per capita imports from the U.S. (40% weight)
