Magazine article Management Review

Striving for First-Rate Markets in Third-World Nations

Magazine article Management Review

Striving for First-Rate Markets in Third-World Nations

Article excerpt

When U.S. college students are asked to characterize less-developed countries, they describe debtor nations plagued by rapid population growth, high illiteracy rates, rampant inflation, low per capita income and political instability. This unfavorable stereotype, well publicized in textbooks, is amply reinforced by the mass media. While such generalizations may get a student through Economics 101, they are of little use to a U.S. manager weighing strategic decisions such as entry or no entry." Consequently, too many managers select the second option.

It's not as if corporate America is in the habit of casting wide international nets. According to the U.S. Commerce Department, 92 percent of U.S. firms do business only in the United States. The lack of interest in less-developed countries, then, is symptomatic of how U.S. companies avoid doing business in any foreign country.

But stereotyping makes matters worse by leading manager to overlook less-developed countries that do not fit the popular image. Many Americans, for example, are unaware that oil-rich Saudi Arabia, recent Olympic host South Korea and the militarily mighty Soviet Union are all, from a market perspective, less-developed countries. Numbering about 150, these nations comprise a varied group that defies accurate generalization. Such diversity contrasts with the world's 20 or so industrialized countries, which are much more similar to each other by almost any market measure, including GNP per capita,

This resemblance, known as market similarity, suggests a third explanation of why U.S. firms pass over less-developed countries. Market similarity means that firms seek to do business in countries that bear likenesses to their home markets. Studies of new product introductions by U.S. firms validate the similarity concept: Market selection closely follows market similarity.

For all their dissimilarity to domestic markets, less-developed countries may still prove inviting. One reason is their potential for immediate added sales. if production volume increases, incremental sales from abroad may result in lower unit costs and higher profits for the firm.

An example is the Claude Laval Corp., a Fresno, Calif., firm that produced industrial separators and filters for the domestic market. Nagging seasonal and cyclical sales patterns stymied management's efforts to stabilize the firm's workforce and manage inventories. After irregularly receiving unsolicited inquiries from several less-developed countries, the firm decided to pursue overseas sales more actively. Today, sales volatility problems have been minimized. Claude Laval Corp. currently generates 40 percent of its sales volume abroad. The overseas business is highly profitable, with Saudi Arabia a leading customer.

Long-term opportunities can be nurtured in less-developed countries. Today, Nike Inc. produces and sells only a small portion of its global output in China; but when the firm refers to China as the "two billion feet market," it clearly has the future in mind. In coming decades, many less-developed countries will experience industrial revolutions. Contemporary models and techniques can help these nations advance rapidly. Increased development will create innumerable opportunities for globe-watching U.S. firms ready to provide goods and services to these emerging customers.

At the same time, greater competitive pressures will force U.S. firms to re-evaluate traditional strategies and give thoughtful consideration to new outlets. Firms facing a maturing home market will turn to less-developed countries. Our old trading partners and rivals-Japan, West Germany and Canada-will face similar circumstances in their home markets. (By many different measures, such as number of offices throughout China or average office staff size, japan already leads the U.S. in the Chinese market.)

Meanwhile, some fast-growing, less-developed countries are already initiating business dialogues with those that lag behind. …

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