Globalization and expansion of markets are popular phenomena in the contemporary world. It is important, nowadays, for producers to consider the market potential and the speed of diffusion in international markets but these factors vary greatly across countries. A paper by researchers at the Yale School of Management discusses the cross-national market penetration factors that lead to a significant difference in the international success of a product. In general, diffusion literature purports that not everyone who recognizes a new product purchases it. Adopters are those who have 1) the ability to pay, 2) the willingness to pay and 3) access to the market. When applied to the international scene, these factors assume a complex role. For instance, the ability to pay cannot be determined simply by GNP per capita (in dollars); rather it has to be adjusted for inflation and the differences in prices across countries. A Big Mac costs US$4 in the U.S. and £3 in

Britain. The difference in price of the same product leads to the need for normalization of cost. (Interestingly, this index is called the Big Mac Index). As such, the aforementioned paper suggests the use of Purchasing Power Parity (PPP) adjusted average income per capita to measure a consumers’ relative ability to pay. In addition, the penetration/diffusion potential is affected by the consumer’s willingness to pay which depends on the incremental benefit offered by the new product. The following examples highlight the importance of this parameter: if customers do not have access to terrestrial phone lines (as in many developing countries), they may be willing to more readily adopt a cell phone if it is available. Similarly, since fax machines need installed telephone lines, the diffusion potential of fax machines will be positively related to the per capita installed base of telephones in a country. Finally, access to a product is determined by the openness of a country’s economy. Openness leads to greater competition and increased production and distribution efficiency. As such, products looking for a dynamic market will do well in a country with an open economy.

Another paper on the same issue highlights the social and cultural attributes that play a significant role in cross-country diffusion. Experiments show that in countries with common traditions and language, the average rate of adoption of products is higher compared to that in countries which are not as homogeneous. In the former set of countries, information spreads easily through ‘word-of-mouth’, as a result of which people tend to imitate and consequently, promote the use of a product. Another interesting observation is that the level of innovation is lower in countries with higher percentages of women in the labor force. In particular, products that are considered ‘time-consuming’ find it extremely difficult to find a foothold in such societies. At the same time, the level of imitation in these societies is considerably high. There exist such and more factors that contribute to the success of an innovation in a foreign market. I will explore some of these factors and the mathematical distributions that can be used to model them in my final paper.