The assessment of market attractiveness is an area in which companies have historically been deficient. Many foreign market investments have proven unprofitable, and as a result, multinationals are now trimming back their foreign investments. In part, this is due to the fact that reliable information is not always available, but a larger issue is that the decision to enter a foreign market was based on inadequate research and a lot of guesswork. There are two key decisions involved in entry into internationalization: the choice of which market to enter based on its potential, and the timing of entry based on whether it affords first-mover advantage (ôAssessing Market Potential: Estimating Market Size and Timing of Entryö).
Choosing which market to enter is a rocky path fraught with many pitfalls. The first is exaggeration of the size and attractiveness of a market. The second is a tendency to base entry decisions on shareholder or competitor pressure or vision rather than on actual market analysis. Alex Trotman of Ford exemplified this pitfall when he said, ôI canÆt go down in history as the Ford Chairman who missed Chinaö (ôAssessing Market Potential: Estimating Market Size and Timing of Entryö). However, this perspective overlooks the immaturity of the market as well as any other inherent drawbacks it may have. The third pitfall is to rely upon the contacts of senior executives for basing the market selection rather than assessing candidate markets.
To avoid these pitfalls, a sound framework for assessing foreign markets needs to be in place before venturing into internationalization. This sound framework must include useful data, and unfortunately, the data used by many corporations for judging the potential of a market is not truly indicative. Macroeconomic and national demographic data, for example, are usually a poor predictor of market opportunity. Naturally, such data must be considered in weighing the ...