BY: SH The Market Potential Index is used to compare countries that are in transition and entering the markets. This allows companies to determine if a country has the capacity to market a product successfully. Michigan State University Center for International Business Education and Research implements the study on a yearly basis in order to compare and rank the countries on market potential through eight different dimensions with a scale that ranges from one to one-hundred. It is important to briefly discuss each dimension to better understand how MSU-CIBER came up with the results of the study.
Market size is the first dimension and it is based on the comparison of how many people are in the urban population and how much electricity is used by each citizen. It would be easy to assume that if a person has electricity and the amount consumed is above average then technology would likely be available. If the technology was not available then the basics are there to introduce it to the population under the right circumstances. Market growth rate is based on an average of energy use by the population.Gross Domestic Product growth rate is compared to the energy use and this shows the productivity rate of the country. Productivity leads to more goods and services which spurs economic growth.
This is a fact that will entice investors because of the great potential for growth. Market intensity shows the consumption of the population. The GNP average is also prevalent because such things as wages and the earnings of a corporation is a major factor. The population has to have a way to purchase the goods or there would not be a reason to enter the market.Market consumption capacity compares the average income of a country with the average of what they are consuming. There needs to be a future demand for goods or services in order for a company to survive.
There has to be enough space in the market for competition. Commercial infrastructure is based on the common technology available to a percentage of people in the country. Paved roads, cell phones, laptops, television, and internet usage is an important factor to consider because a company cannot market an item if the opportunity is not there for the buyers to purchase it or use it.Economic freedom is based on political freedom along with the ability to be self-sufficient.
If a government dictates what is bought or sold then that limits the profits for a company looking to expand. A country that can self-govern allows competition which means lower prices on goods. Market receptivity shows the comparison between imports and exports. This will show whether the country would be willing to purchase an item from an overseas company looking to expand into the emerging economy.If the country is not receptive to a foreign company the profitability will not be there no matter how much it is marketed. Country risk is the last MPI indicator and this shows the risk to the investor if it is decided to try to sell goods or services in a particular country.
Economic conditions can change rapidly due to different reasons, but what is bad for one country may be good for another. Commercial infrastructure would be the most important MPI indicator for a laptop computer company.If a country already has common technology available to the people then marketing the product would be the main objective from that point. The costs incurred from entering the market would have a better chance of a quick return and this would certainly make for a happy investor.
The MPI chart of the top emerging markets in 2010 reveals that Hong Kong would be the best choice for a laptop computer company to consider for their next venture. The country ranks very high on commercial infrastructure and economic freedom which means there is potential there to market goods and services.The market size is poor, but with all other dimensions being met, I would have to say this country is just getting on their feet and the market size will grow as different companies enter the arena. There is no sure way to decide what will or will not work, but the MPI chart is a starting point for a company to consider in making a decision.
All eight dimensions are important, but some of the dimensions may be more important to one company as opposed to another. The MPI chart gives a company the chance to determine which factors relate more to their company and to make a good informed decision on whether the country will be profitable.
