Determining attractive export markets for air-conditioners and designing an entry strategy for a new entrant

Abstract

The objective of our study was to identify attractive export markets for air-conditioners from the point of view of Amtrex and develop an appropriate entry strategy for one of the selected markets. Through this study we wanted to get a feel of how one goes about selecting export markets for consumer durables, as a product class, and how one identifies "good prospect" export markets. We began by screening out countries based on Climate and Stage of Development with only those countries being considered which had (1)tropical, (2)warm and dry or (3)excessively hot climate and those which were either developing or in-transition, thereby excluding developed countries. The rationale for this was that Amtrex's product was suitable only for tropical climates and it being a small firm could not engage in product development for overseas markets. Secondly, Amtrex did not have the financial muscle to compete in the highly developed markets and so it should look at only the developing and the "in-transition" markets. After this initial screening we were left with 71 countries mainly in the middle East, Africa and South America and the rest from East Europe and South Asia. Next, we took help of two models of market attractiveness identification. We used the Jeannet & Henessey Model to help us give a clue on the indicators that could be used for the purpose and finally a slightly modified Kotler's Model to help us rank countries based on three factors - Market attractiveness, risk and favourability towards imports (from Amtrex's point of view). China came out at the top in the rankings finally obtained and out of the top 15 countries 7 were from the middle East(mainly Arabia). We decided to explore the entry strategy for Arabia because of three reasons: First, Arabia as a whole constitutes 50%1 of the total tropical market for Air-conditioners. Second Arabia as a region is so homogenous that in effect the seven countries constituting Arabia can be treated as one large market. Lastly, since Amtrex is already exporting to some countries in this region we could be wiser by drawing upon the experiences of Amtrex. We concluded from the study that strategically the most important decision one has to take before entering an export market in Arabia is the selection of the distributor. The distributor should be one who handles the top brands being sold in that region/country. Secondly the Arabian market is cost-conscious and simultaneously requires state-of-the-art products. Our product should, therefore, satisfy both these requirements. Lastly, Arabia, which till some years was totally dependent on imports for its air-conditioner requirements, is now setting up manufacturing capacity. This will necessitate the setting up of an assembly or a manufacturing facility in this country by a player who is taking a long term view of this market.