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27
c h a p t e r
2
Assessing
Market
Potential:
Estimating
Market Size and
Timing of Entry
A
lthough the Internet boom grabbed all the headlines for
speculative excess and managerial misjudgment in the
1990s, there was another decision-making arena in which
western executives seriously underperformed—market
assessment and entry decisions, particularly with regard to
large emerging markets such as China. In a retrospective
commentary on what it describes as an “infatuation”
The
Economist
commented, “Few companies are stupid, but
many have behaved stupidly in China.”
1
Similarly, Harvard
economist Pankaj Ghemawat reflects that “companies routinely
exaggerate the attractiveness of foreign markets.”
2
Not
only have many foreign market investments proven unprofitable,
but many multinationals are now trimming back their
foreign investments. For many, this is an unprecedented
retrenchment in the previously uninterrupted internationalization
of their business.
How can such sophisticated companies make such a fundamental
error as misreading the size of a large market? It
must be acknowledged, of course, that the first phase of the
1. “Infatuation’s End,”
The Economist
, September 25, 1999.
2. Pankaj Ghemawat, “Distance Still Matters: The Hard Reality of Global
Expansion,”
Harvard Business Review
(September 2001): 3–11.
28 T h e M i r a g e o f G l o b a l M a r k e t s
process of internationalization—the decision to enter a foreign
market—is perhaps the most challenging of all. To assess the
potential and dynamics of a market from outside (often in the
absence of reliable market rese ...