CHAPTER 3

REACTIVE PROACTIVE

- Exporter acts passively in choosing markets by filling unsolicited order on the part of foreign buyers

- Selection process is informal, unsystematic and purchase oriented

- Exporter acts actively in initiating the selection of foreign markets

- Selection process is systematic and formalized

REACTIVE PROACTIVE

- Approaches used are inquiries from foreign firms either through:

*active buying on their part

*contacts established by indirect media used by

the exporter

- Approaches used are formal and informal approach :

FORMAL *Involve systematic

market research and visiting abroad

INFORMAL *Selects a foreign market

on the basis of discussion with business partner

Cont…- No clear-cut divisions between

reactive and proactive approach- Exporter apply the proactive

strategy to what are considered primary markets

- Exporter apply the reactive strategy to what are considered secondary markets

MARKET SELECTION MARKET SELECTION PROCEDURESPROCEDURES

1. Expansive Method- Select market based on similarities- Minimum adaptation- Approaches:

a. Geographic proximityb. Trade policy proximity

a. Geographic Proximity- Nearest neighbor approach- Similarity in economic, political, sociological and

cultural standing- Less adaptation needed- Targeted market can be treated as base market area- Exp: South Pacific area (Australia, N. Zealand) Asian (Malaysia, Singapore, Thailand)

b. Trade Policy Proximity

- Established a common market and economic union structure- The exporter has essentially a home market situation in all member countries- Tax conditions

2. Contractible Method- Starting with large number of markets- Involves three stages

i. Preliminary screeningii. Countries rankingiii. Determining specific factors

- Geographic segmentation Prohibitive product characteristics Prohibitive market characteristics

- Customer segmentation

MARKET SELECTION MARKET SELECTION STRATEGIESSTRATEGIES

a. Market Concentration Strategy

b. Market Spreading Strategy

a. Market Concentration Strategy

- Slow and gradual rate of growth in number of market served by a company

- Channeling available resources in to a small number of market

- Devoting relatively high levels of marketing effort and resources

- To win significant market share

Market Concentration Strategy

Market A Market B

Marketing resources

b. Market Spreading Strategy

- Fast rate of growth in the number of market served at the early stage of expansion.

- Allocating marketing resources over a large number of markets

- To reduce risks of concentrating resources

- Exploit the economics of flexibility

Market Spreading Strategy

Market A Market B Market C Market D Market E

Marketing resources

Concentration = FEW

Spreading = MANY

RESOURCE ALLOCATIONRESOURCE ALLOCATION- Each market are equal?- Degree of market differences affect

allocation resources of marketing efforts

Number of market = amount of resources

Concentration vs. Spreading

Concentration Spreading Advantages:

- power of specialization, scale, and market penetration;

- greater market knowledge;

- higher degree of control;

- learning of the export process and the experience curve

Advantages:

- flexibility; - less dependence on

particular markets; - lower perception of

risk.

Company Factors

Factors favoring market spreading

Factors favoring market concentration

- High management risk-consciousness;

- Objective of growth through market development;

- Little market knowledge

- Low management risk-consciousness;

- Objective of growth through market penetration;

- Ability to pick ‘best’ markets.

Product FactorsFactors favoring market spreading

Factors favoring market concentration

- Limited specialist uses; - Low volume; - Non-repeat; - Early or late in product

life cycle; - Standard product salable

in many markets

- General uses; - High volume; - Repeat-purchase

product; - Middle of product life

cycle; - Product requires

adaptation in different markets

Marketing FactorsFactors favoring market spreading

Factors favoring market concentration

- Low communication costs for

additional markets; - Low order handling costs

for additional markets - Low physical distribution

costs for additional markets - Standardized

communication in many markets

- High communication costs for additional markets;

- High order handling costs for additional markets

- High physical distribution costs for additional markets

- Communication requires adaptation to different market

Market FactorsFactors favoring market spreading

Factors favoring market concentration

- Small markets-specialized segments

- Unstable markets - Many similar markets- New or declining markets- Low growth rate in each

market- Large markets are very

competitive - Established competitors have

large share of key markets- Low source loyalty

- Large markets-high volume segments

- Stable markets - Limited number of

comparable markets - Mature markets - High growth rate in each

market - Large markets are not

excessively competitive - Key markets are divided

among many competitors - High source loyalty