What Are the Indicators Used in Developing 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.

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.

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 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.

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.

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

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.

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.