What Are the Indicators Used in Developing the Market Potential Index?

by Kurtis Hemmerling; Updated September 26, 2017
Businesses desiring international trade usually analyze the target country with the Market Potential Index

Recent decades have brought a pronounced increase in international trade. Before a business engages in marketing a product to another country, research is needed to ensure the market potential is high for maximum profitability. The Market Potential Index for emerging markets is one valuable tool for firms interested in international trade. There are certain indicators are used with this index.

Market Size

A country's population is an important component of the index.

The first of eight indicators used in the Market Potential Index is the market size. Business website globalEDGE weights this as the most important of the indicators. Urban population numbers and the amount of electricity consumed provides the basis for the market size indicator.

Market Growth Rate

Market growth is a desirable trait that businesses look for when expanding into a new country.

The market growth rate is based on a historical five-year average, along with a one-year current statistic. Growing markets will show increasing demand for products.

Market Intensity

Gross national income divided by population will help reveal market intensity.

Market intensity is figured by blending two statistics. First, an analyst must divide the gross national income by the population figures. Second, the statistician needs to calculate how much of the gross domestic product is being consumed in the private sector.

Market Consumption Capacity

Detailed consumer ratios will show how the relative size of the middle class.

Analysis of the national income and consumption is necessary to ascertain the market consumption capacity. Determining the market share of the middle class factors into the overall Market Potential Index.

Commercial Infrastructure

Communication devices are factored into commercial infrastructure figures.

This statistic is calculated by examining the saturation and availability of common technology and communication devices. Ratios are based on the amount of TVs, telephone lines, personal computers, cell phones, Internet users, paved road density and percentage of people per retail outlet.

Economic Freedom

Economic freedom involves your right to choose products and services.

Economic freedom relates to the degree of citizens' autonomy. Included in this weighted ratio is the degree of political freedom the residents enjoy.

Market Recepitivity

Some areas rely heavily on products imported from across the national border.

Some high-consuming countries rely heavily on imports, while others are able to produce the majority of products within the national borders. Reviewing the amount of imports in relation to the gross domestic product might reveal how willing the country is to try new foreign products.

Country Risk

Each player on the global market faces different amounts of risk.

Euromoney magazine calculates investment risk factor for many countries around the world. Local conditions may simultaneously create a low-risk opportunity in one country while producing a dangerous market in another.

About the Author

Kurtis Hemmerling began his professional writing career in 1998. His work has been published in the Prince George "CNC" and the "Williams Lake Tribune" newspapers, as well as a financial guidebook. Hemmerling also authors investment tutorials for online resources.

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