Writers Den

For this task, write a
report min 400 words that has the final MPI table (e.g., Step 4 table in the
excel file below). Make sure that you sort the final MPI table by Overall
Ranking. You may find it easier to report the top 10 countries in your first
page along with a short paragraph describing your findings and copy/paste the
full table in the following pages of your document. See attachment to complete
Steps 1-4.

One of the shortcomings
of the MPI presented at the website of MSU-CIBER is that it is not product
specific. A company might for instance want to identify the potential of
markets across the world in regards to their product. Your textbook gives an
example of such a case and how the MPI can be constructed. In the following
example, a more general example is given with explicit steps on how to
construct such an index and its advantages/disadvantages in assessing markets
for firm entry. Your assignment is to replicate the MPI 2009 worksheet for any
other year in the period 2004-2008. For this task, write a report min 400
words that has the final MPI table (e.g., Step 4 table in the excel file
below). Make sure that you sort the final MPI table by Overall Ranking. You may
find it easier to report the top 10 countries in your first page along with a
short paragraph describing your findings and copy/paste the full table in the
following pages of your document.

Step 1:

The first step in
constructing such an index is to select the variables that measure the various
markets’ potential and the sample of countries that you want to include.

In regards to the sample
of countries, the more countries we include in the analysis the more
representative the sample is and the more options to choose from. Therefore, a
sample with more countries is preferred even if we want to focus on emerging
markets since we can always isolate the emerging markets after the analysis is
performed.

In regards to variables
that measure the various markets’ potential, it sometimes is product-specific
(e.g., a pharmaceutical company might want to include some different measures
in the calculation of MPI than a retail company) but most of the measures will
be the same, especially the institutional measures (economic and political
freedom, country risk rating). In this example, we have selected the following
variables for the year 2009:

Dimension	Weight	Measures Used
Market Size	6/25	Urban population (1000s) -20091 Electricity production (million kwh) – 20091
Market Growth Rate	4/25	Growth rate of primary energy use (%) – between years 2005-20091 Real GDP growth rate (Annual %) – 20091
Market Intensity	3/25	GDP per capita using PPP (current US Dollars) – 20091 Urban population (% of total) – 20091
Commercial Infrastructure / Access to Consumer	3/25	Main Telephone lines – 20091 Cellular mobile subscribers (per 100 people) – 20091 Paved road density (km per million people) – 20091 Secure Internet servers (per million people) – 20091
Market Receptivity	3/25	Trade as a percentage of GDP (%) – 20091 Per capita imports from US (US Dollars per capita) – 20092
Free Market Structure	3/25	Economic Freedom Index – 20093 Political Freedom Index – 20094
Country Risk	3/25	Country risk rating – March 20115

1 Source: World Bank, World Development Indicators

2 Source: U.S. Census Bureau Foreign Trade Division, Country Trade Data – 2009

3 Source: Heritage Foundation, The Index of Economic Freedom – 2009

4 Source: Freedom House, Survey of Freedom in the World – 2009

5 Source: Euromoney, Country Risk Survey – March 2011 (earlier data were not
freely available)

Step 2:

After the collection of
the data, each measure needs to be standardized in order to be comparable with
the rest of the measures. A common formula is called the Z score and is
calculated in the following way:

Alt version

Where X denotes a
particular measure (e.g., urban population) and its values represent the value
for each country in the sample.

Step 3:

After each measure has
been standardized, we find the average of all standardized measures within each
dimension for each country. That is, for dimension Market Size, its first value
will be the average of the standardized urban population and standardized
electricity production for country A. Therefore, after this step we have a
column of data for each of the seven dimensions of the MPI index.

Step 4:

The resulting scores
need to be converted to a scale of 1-100 and for this we use the following
formula:

Alt version

Where Y_ij^s is the scaled final value of country j for
the dimension i (i,.., 7 ); Y_ij is the average
score of country j on dimension i; min_i and max_i are the minimum
and maximum values for dimension i, respectively. Finally, we find the weighted
average of all dimensions using the weights presented in the previous table
(based on input from managers).

Now if all the above sounds
really confusing, the following Excel file demonstrates the steps in the
construction of the Market Potential Index. In the worksheet “Raw
Data” you will find the data that are used in the construction of the MPI
for the years 2004 to 2009. In the worksheet “MPI 2009” the steps
required for the construction of the MPI are demonstrated (see formulas in the
first row cells of each table).

Excel file

What are some potential
advantages and disadvantages of the index?

Advantages

It’s construction is
straightforward and it requires only freely available data.

It provides an initial
screening for attractiveness of the foreign market and can be easily modified
to account for product-specific factors using different variables from the
World Development Indicators or other sources.

Disadvantages

Looking at the 2009 MPI,
Luxembourg is in the third position owing to ratings in all dimensions of the
index apart from Market Size. However, market size is an important determinant
in assessing entry. Therefore, while the overall index helps us to split good
vs. bad choices, we also need to look at the individual components of the
index.

It cannot predict
potential future economic or financial distress of the foreign market,
especially if it is calculated for a particular year. For instance, Ireland is
in the 21st place but it recently received a bailout from IMF. Therefore, for
more complete picture several years of observation are needed but more
importantly measures that more accurately capture deterioration of the economy
and financial situation of each country are needed.

What if we don’t have
any input from managers to calculate Weights?

If we don’t have any
information about appropriate weights to use in the calculation of MPI, then we
can follow the textbook’s paradigm and find the average MPI. In other words, in
step 4 of the above example, instead of weighted average we calculate the
ordinary average.