Executive Report on Strategies in American Samoa

How to Strategically Evaluate American Samoa

Perhaps the most efficient way of evaluating American Samoa is to consider key dimensions which themselves are composites of multiple factors. Composite portfolio approaches have long been used by strategic planners. The biggest challenge in this approach is to choose the appropriate factors that are the most relevant to international planning. The two measures of greatest relevance are “latent demand” and “market accessibility”. The figure below summarizes the key dimensions and recommendations of such an approach. Using these two composites, one can prioritize all countries of the world. Countries of high latent demand and high relative accessibility (e.g. easier entry for one firm compared to other firms) are given highest priority. The figure below shows two different scenarios. Accessibility is defined as a firm’s ease of entering or supplying from or to a market (the “supply side”), and latent demand is an indicator of the potential in serving from or to the market (the “demand side”). Framework for Prioritizing Countries

Demand/Market Potential Driven Firm

Relative Accessibility

Accessibility/Supply Averse Firm

Relative Accessibility
In the top figure, the firm is driven by market potential, whereas the bottom figure represents a firm that is driven by costs or by an aversion to difficult markets. This report treats the reader as coming from a “generic firm” approaching the global market - neither a market-driven nor a cost-driven company. Planners must therefore augment this report with their own company-specific factors that might change the priorities. This report provides an overview of factors driving latent demand in American Samoa. Latent demand is largely driven by economic fundamentals.

In Chapter 2, I summarize the economic potential for American Samoa over the next five years for hundreds of industries, categories, and products. The goal of this chapter is to report my findings on the real economic potential, or latent demand, represented by American Samoa when defined as an area of dominant influence. The data presented are the result of various spatial econometric and time-series forecasting models which, for each category presented, are applied to forecast and allocate latent demand across all countries of the world and major distribution centers or centers of dominant influence within each country. This is accomplished knowing that economic fundamentals (e.g. income) generally vary from one country to another within a given country over time. In this chapter, I report the allocation for each category for American Samoa as an area of dominant influence in Oceana and, potentially, the world.

ECONOMIC AND PRODUCT MARKETS IN AMERICAN SAMOA
Introduction & Methodology
Overview & Methodology

In performing various economic analyses for clients, I have occasionally been asked to investigate the market potential for various products and services in American Samoa. The purpose of the studies is to understand the density of demand within American Samoa and the extent to which American Samoa might be used as a point of distribution within Oceana. From an economic perspective, however, American Samoa does not represent a population within rigid geographical boundaries, rather, it represents an area of dominant influence over markets in adjacent areas. This influence varies from one industry to another, but also from one period of time to another.

In what follows, I summarize the economic potential for American Samoa over the next five years for hundreds of industries, categories, and products. The goal of this chapter is to report my findings on the real economic potential, or what an economist calls the latent demand, represented by American Samoa when defined as an area of dominant influence. The reader needs to realize that latent demand may or may not represent real sales. For many items, latent demand is clearly observable in sales, as in the case for food or housing items. Consider, however, the category ""satellite launch vehicles"". Clearly, there are no launch pads in American Samoa used by the space industry to launch satellites. However, the core benefit of the vehicles (e.g. telecommunications, etc.) is ""consumed"" by the area served by American Samoa. Without American Samoa, in other words, the market for satellite launch vehicles would be lower for the population in American Samoa, Oceana, or the world in general. One needs to allocate, therefore, a portion of the worldwide economic demand for launch vehicles to both Oceana and American Samoa.

The data presented are the result of various spatial econometric and time-series forecasting models which, for each category presented, are applied to forecast and allocate latent demand across all countries of the world and major distribution centers or centers of dominant influence within each country. This is accomplished knowing that economic fundamentals (e.g. income) generally vary from one country to another within a given country over time. In this chapter, I report the allocation for each category for American Samoa as an area of dominant influence in Oceana and, potentially, the world.

Market Potential Estimation Methodology

Overview
This chapter covers the outlook for products in American Samoa. For the year reported, estimates are given for the latent demand, or potential industry earnings (P.I.E.), for American Samoa (in millions of U.S. dollars). Comparative benchmarks allow the reader to quickly gauge American Samoa vis-à-vis regional and global totals. Using econometric models which project fundamental economic dynamics within each country and across countries, latent demand estimates are created. This chapter does not discuss the specific players in the market serving the latent demand, nor specific details at the product level. The chapter does not consider short-term cyclicalities that might affect realized sales. The chapter, therefore, is strategic in nature, taking an aggregate and long-run view, irrespective of the players or products involved.

This chapter does not report actual sales data, but gives, however, my estimates for the latent demand for products and services in American Samoa. For each category, I also show my estimates of how the P.I.E. grows over time (positive or negative growth). In order to make these estimates, a multi-stage methodology was employed that is often taught in courses on international strategic planning at graduate schools of business.

What Is Latent Demand and the P.I.E.? The concept of latent demand is rather subtle. The term latent typically refers to something that is dormant, not observable, or not yet realized. Demand is the notion of an economic quantity that a target population or market requires under different assumptions of price, quality, and distribution, among other factors. Latent demand, therefore, is commonly defined by economists as the industry earnings of a market when that market becomes accessible and attractive to serve by competing firms. It is a measure, therefore, of potential industry earnings (P.I.E.) or total revenues (not profit) if a market is served in an efficient manner. It is typically expressed as the total revenues potentially extracted by firms. The “market” is defined at a given level in the value chain. There can be latent demand at the retail level, at the wholesale level, the manufacturing level, and the raw materials level (the P.I.E. of higher levels of the value chain being always smaller than the P.I.E. of levels at lower levels of the same value chain, assuming all levels maintain minimum profitability).

The latent demand is not actual or historic sales. Nor is latent demand future sales. In fact, latent demand can be either lower or higher than actual sales if a market is inefficient (i.e., not representative of relatively competitive levels). Inefficiencies arise from a number of factors, including the lack of international openness, cultural barriers to consumption, regulations, and cartel-like behavior on the part of firms. In general, however, latent demand is typically larger than actual sales in a country market. It should be noted that the estimates are “culture blind” and “climate blind”, meaning that sales may in fact be lower than the latent demand due to cultural or exogenous factors, such as religion or climate (e.g. the presence of certain religions can effect the actual sales of certain food and beverage products, in the same way that climatic conditions can affect the actual sales of clothing and/or heating products). The estimates of latent demand do not explicitly control for either these long-run exogenous factors or shot-run exogenous factors that may be present from year to year (e.g. the effects of war, SARS, terrorist activities, civil wars, natural disasters, elections, or similar events).

For reasons discussed later, this chapter does not consider the notion of “unit quantities”, only total latent revenues (i.e., a calculation of price times quantity is never made, though one is implied). The units used in this chapter are U.S. dollars not adjusted for inflation (i.e., the figures incorporate inflationary trends) and not adjusted for future dynamics in exchange rates (i.e., the figures reflect average exchange rates over recent history). If inflation rates or exchange rates vary in a substantial way compared to recent experience, actually sales can also exceed latent demand (when expressed in U.S. dollars, not adjusted for inflation). On the other hand, latent demand can be typically higher than actual sales as there are often distribution inefficiencies that reduce actual sales below the level of latent demand.

As mentioned earlier, this chapter is strategic in nature, taking an aggregate and long-run view, irrespective of the players or products involved. If fact, all the current products or services on the market can cease to exist in their present form (i.e., at a brand, R&D specification, or corporate-image level) and all the players can be replaced by other firms (i.e., via exits, entries, mergers, bankruptcies, etc.), and there will still be an international latent demand at the aggregate level. Product and service offering details, and the actual identity of the players involved, while important for certain issues, are relatively unimportant for estimates of latent demand.