International Market Selection – Issues and Methodologies

A Global Marketing Paper

Conducted by Kai F. Mahnert, 03113060

Sarah McGauley, 00359157

Laura McGrath, 00453340

Liz McGrath, 03113094

Conducted for Dr Aidan Daly, Lecturer in Global Marketing, NUI Galway

Date 22nd March 2004

1

TABLE OF CONTENTS

ABSTRACT...................................................................................................................3

INTRODUCTION........................................................................................................3

OBJECTIVES..............................................................................................................5

LIMITATIONS............................................................................................................5

RATIONALE FOR INTERNATIONAL TRADE....................................................6

Objectives of an organisation..................................................................................6

The creation of stakeholder value...........................................................................6

INTERNAL FACTORS IN FOREIGN MARKET SELECTION..........................7

Personnel...................................................................................................................7

Management.............................................................................................................8

Customers.................................................................................................................8

Capital requirements...............................................................................................8

Social assessment......................................................................................................9

Corporate social responsibility...............................................................................9

Time and research..................................................................................................11

METHODOLOGIES.................................................................................................11

Preliminary screening............................................................................................12

In-depth screening..................................................................................................12

Final selection.........................................................................................................13

EXTERNAL FACTORS IN FOREIGN MARKET SELECTION.......................14

Market potential.....................................................................................................14

Market size...........................................................................................................14Market growth......................................................................................................15Competitive intensity............................................................................................15Competitive entry.................................................................................................15Entry barriers.......................................................................................................16

Political environment.............................................................................................16

Political issues for consideration in market selection.........................................17Risk assessment....................................................................................................17

Legal environment.................................................................................................19

Legal systems.......................................................................................................19

Economic environment..........................................................................................20

Economic development.........................................................................................20

Culture....................................................................................................................22

Infrastructure.........................................................................................................23

CONCLUSION...........................................................................................................23

References....................................................................................................................26

2

International Market Selection

Issues and Methodologies

Kai F. Mahnert, Sarah McGauley, Laura McGrath & Liz McGrath

MBS in Marketing, NUI Galway

ABSTRACT

International market selection is one of the most important decisions to be made by

organisations engaging in international trade. Yet, despite its importance, the

approaches taken by many organisations in identifying profitable and servable

markets in the international context are often based on ad hoc decisions and intuition,

rather than a formalised attempt to match the organisation with appropriate foreign

target markets. This paper attempts to clarify some of the issues arising in

international market selection. A rationale for international trade is outlined, followed

by an assessment of firm-related factors that need to be considered before market

selection and market entry can occur. An overview of current methodologies for

market selection based on the literature on international marketing is then given.

Subsequent to the presentation and evaluation of these models, salient elements within

the models are discussed in more detail. The conclusion will provide a short executive

summary to identify the key elements to be considered by management in choosing

international markets.

INTRODUCTION

“Few of us know even simple facts about the geography,

culture, and economics of countries other than our own. Even

fewer people have at their fingertips details that tell whether

their goods will sell in a particular market.”

(Cavusgil, 1985, p. 28)

3

Business in the age of globalisation has both facilitated and necessitated a move

towards the internationalisation of organisations of all sizes (Wood & Robertson,

2000). However, while globalisation is indisputably occurring in a variety of shapes

throughout the world, there is as yet a considerable gap in the literature regarding the

internationalisation of businesses. Consequently, organisations engaging in

international business frequently find themselves utterly unprepared for the

environments they are entering and unaware of the potential risks involved in the

internationalisation move.

This lack of preparation is already evident in the criteria applied to discriminate

international markets against one another in order to select suitable countries for

market entry. Often, countries for international business activity are chosen according

to “soft” factors, i.e. factors such as proximity or personal preference, rather than

“hard” factors such as market size, growth rate or accessibility (Cateora & Ghauri,

2000). Yet, country selection is a step of crucial importance in the internationalisation

process, given the impracticality of entering all 192 nation states due to financial and

resource constraints on the one hand and the multitude of potential risks arising from

poor market selection on the other hand (Alon, 2004).

Current models for market selection are limited and few and far between (Alon,

2004). This is partially due to the heterogeneous nature of international markets in

general as well as the nature of the industry an organisation proposes to pursue

internationally and the various foci an organisation may have on business objectives

(Wood & Robertson, 2000). Furthermore, the application of such models is

surprisingly underutilised. Particularly with respect to small and medium-sized

companies (SMEs), evidence suggests a high degree of perceived complexity of such

models, leading to selection based on intuition and / or qualitative market data only

(Papadopoulos & Denis, 1988). With a view to the prevalence of ethnocentric cultural

views and the implications of the self-reference criterion, such intuition-based

decision may not only impede organisational progress but cause serious harm to a

business (Cateora & Ghauri, 2000; Keegan & Schlegelmilch, 2001).

4

This paper will discuss some of the salient issues and the methodologies employed in

the process of international market selection. The research methodology of the paper

is based on secondary desk research, drawing from the available and relevant

marketing literature on international marketing. The findings of the literature review

will be presented in the paper as they relate to the following research question: what

are the issues and methodologies involved in the selection of internal markets? The

discussion will be followed by a summary and conclusion.

OBJECTIVES

The main objective of the paper is to evaluate the current status quo of the literature

on international market selection. This primary objective consists of two specific sub-

objectives. These are:

To gain a greater understanding of the issues relating to market selection for

an organisation.

To outline the methodologies proposed in the current literature for

international trade.

LIMITATIONS

In conducting this paper, the authors were faced with a number of limitations. The

relative scarcity, reliability and validity of the available literature on international

market selection required the researchers to draw from only a limited amount of

literary sources. Thus, the literary support for some of the research findings may not

be as strong as in other areas of international marketing and trade.

Furthermore, given the nature of the paper as a requirement for a university course in

global marketing at the Masters level, certain time and space constraints limited the

amount of detail the researchers could devote to particular issues in the topic. Further

information on the issues addressed herein can be obtained through a further

examination of the literature listed in the reference section.

5

RATIONALE FOR INTERNATIONAL TRADE

When an organisation is deciding whether to keep their trading on a local level or

whether the organisation should contemplate moving their products and services to

new markets on a geographical level, there are many factors which will influence their

decisions. These decisions can be broken into two distinct areas, namely internal

factors and external factors.

From an internal viewpoint, the organisation will look at various aspects, which will

influence the decision on whether to move into international markets and which of

these markets will be chosen. The issues which arise are as follows:

Objectives of an organisation

The objectives of an organisation determine what an organisation should achieve,

both in the long term and short term. If the objectives of an organisation call for an

increase of 10% in sales or profits, it is from this an organisation may initially seek

out new markets in which to increase their sales (usually occurring if the market is

saturated or the company currently holds the market leader position, as outlined by

Aaker (2001). An organisation may not be able to achieve such objectives in their

current market, which will prompt them into considering new target markets which

may exist in another country, therefore the organisation will consider whether to trade

in an international capacity or not.

The creation of stakeholder value

An important objective set out by an organisation is to increase stakeholder value. The

stakeholders of an organisation are “those individuals or groups who have an interest

in a firm’s internal and external activities” (Keegan & Schlegelmilch, 2001, p. 6).

The stakeholders of an organisation include the employees, management,

shareholders, banks and government. The organisation is obliged to facilitate all

stakeholders’ interests and more importantly; they are obliged to increase the

stakeholder value for them (Keegan & Schlegelmilch, 2001). Profitability therefore, is

a critical means of creating stakeholder value. To increase profitability, in today’s’

6

environment, an organisation must consider the feasibility and possibility of

international trading.

INTERNAL FACTORS IN FOREIGN MARKET SELECTION

Before considering the methodologies of foreign market selection and the related

salient elements in market selection proposed in the literature, a number of internal or

firm-related factors need to be considered. These factors are personnel, management,

customers, capital requirements, social assessment, corporate social responsibility,

and time and research. The factors will be discussed in turn below:

Personnel

This section includes not only that of management but also employees. “An

organisations’ response to global market opportunities depends greatly on

management’s assumptions or beliefs, both conscious and unconscious, about the

nature of the world” (Keegan & Schlegelmilch, 2001, p. 17). The authors outline how

the attitude of personnel will determine how the organisation will compete globally

and this in turn will affect the choice of market in which to compete in. Keegan and

Schlegelmilch (2001) outline the different management orientations there are in the

global area. These include:

Ethnocentric Management of an organisation see the home market as superior, but

see similarities in other markets to their own.

Polycentric Management view each country as unique and outline the differences

associated with each new country.

Regiocentric Both the similarities and differences are viewed of each country in

relation to the world.

Geocentric Management have a worldwide view and can see the differences and

similarities in home and host countries.

An organisations’ orientation will determine how each prospective country is

perceived; it is from this orientation that the views regarding a specific country will be

7

determined, which can in turn lead the modus operandi for the selection of certain

countries.

Management

Madsen and Servais (1997 as cited in Chetty & Campbell-Hunt, 2004) outline how

the management or the owner of the organisation will be an influencing factor in

selecting a specific country for international trading. If the management have specific

knowledge of operating in a global context, their experience and market knowledge

will reduce the fear of international trading in certain countries. Their experience may

also dissuade the organisation of competing in a certain market because of some

feature that market research may neglect to portray. This knowledge will be

invaluable to the organisation in their selection process and will minimise risk and

uncertainty. Chetty and Campbell-Hunt (2004) also argue that present day

management are from a better-educated generation and are less likely to be dissuaded

from international trading and will generally possess a greater experience in global

trading.

Customers

Organisations customers’ may influence the market in which an organisation will

select to compete in. After extensive marketing research carried out by the

organisation, analysis may conclude that the target market reached by the firm may

include a specific domination which, correlates with another country’s’ population.

Moreover, if the customers of the product are international, and from a specific origin,

this too may be a determining factor in the selection of a specific market (Oviatt &

McDougall, 1995 as cited in Chetty and Campbell-Hunt, 2004).

Capital requirements

The capital requirements of entering a specific market are also another consideration

for an organisation (Alon, 2004). Post market research, the organisation will outline a

cost-benefit analysis on each specific country and more importantly the capital

requirements that will be required for the initial outlay of a global orientation, into

8

this country. The results of which will be clear and help management determine the

market they will select. Some markets the organisation may enter, even if the

potential for profitability is great, as the capital required may be too high for them.

Tylecote (1987) outlines three areas in which an organisation can raise the necessary

capital requirements for such a venture. Firstly, the organisation should analyse

liquidity and the cost of capital. This includes; the time rate of discount, the rates of

interest proposed, and the inflation rates expected. Secondly, Tylecote (1987, p. 52)

proposes for an organisation to look at other avenues, besides borrowing at interest,

such as self-financing out of retained profits, “most attractive method, so long as there

is enough profit left over after satisfying shareholders’ minimum demands for

dividends”. The third avenue for gaining capital is through the stock market in the

form of ordinary share capital. This has long been a major source of finance for

company’s who wish to raise capital. This method is attractive to firms who are

currently successful as “the new shares were issued at the same price as existing

shares” (Tylecote, 1987, p. 53).

Social assessment

Another area in which, management should include in the cost benefit analysis, is the

social impact of the company entering a specific market. Social impact assessment is

rarely given the same time as the economic assessment of a country (Ziller & Phibbs,

2003). The authors outline how an organisation should treat the social assessment as

a tangible determinant and therefore, include it in the cost-benefit analysis. An

example of its use, as outlined by Ziller and Phibbs (2003) would include if the

organisation plans on purchasing a community building in a specific country in which

to operate, what would the social impact of this be and how would this country

respond to the product. The authors outline a practical matrix and guideline of how

the organisation should deal with the area of social assessment.

Corporate social responsibility

The organisation before entering a specific country must also consider the element of

corporate social responsibility (CSR) and how each specific country views the

9

concept. The concept of CSR is still vague and ambiguous and many writers have

attempted definitions, such as Carroll (1979, p.500 as cited in Schwartz and Carroll,

2003, p.501) “the social responsibility of business encompasses the economic, legal,

ethical and discretionary expectations that society has of organisations at a given point

in time”. To clarify this definition, the author has offered a diagram for management

to assess decision regarding corporate social responsibility.

Figure 1: Dimensions of corporate social responsibility

From: Carroll, A. (1979) A three-dimensional conceptual model of corporate performance.

Academy of Management Review, 4(4), pp. 497-505 as cited in Schwartz, M.S. and Carroll, A.

(2003) Corporate social responsibility: a three-domain approach. Business Ethics Quarterly, 13

(4) October, pp. 503 - 531.

Social responsibility also incorporates the environment and the pollution restrictions

(Gidengil, 1977) imposed by each specific government. Management should be

aware of the populations attitude towards such issues, as those countries who are strict

in their environment protection will not tolerate shoddy products and so on.

The organisation should also take care of the nature of product being exported and the

country they are targeting and whether that country is economically developed

enough to receive their product. An instance of this type of exporting disaster can be

seen with reference to Nestle and their exportation of powered baby milk to a third

Economic

Legal

Ethical

Philan-tropic

Be profitable Required

Obey the lawRequired

Be ethical Expected

Be a good corporate citizen Desired

10

world, under-developed country. The result of which, was a global boycott (Garrett,

1987).

Time and research

Time is a valuable commodity in the business environment. The decision on which

country to select for international trading has an effect on the strategic development of

an organisation, yet this decision will be affected by the element of time allotted for

the decision. If management is under pressure to make a decision, then the country,

which seems the easiest to trade in, may be selected, thus giving rise to risky decision-

making (Alon, 2004).

Closely associated with the factor of time is the question regarding market research in

prospective markets. While it may be preferable for an organisation to conduct

secondary and primary research into prospective markets independently, expertise,

accessibility, time and resources may not allow for such an approach (Wood &

Robertson, 2000). Thus, an organisation may need to outsource some research

activities to avail of the expertise of professional research agencies with a given

market.

METHODOLOGIES

Thus far, two categories of market selection models have been proposed in the

literature (Papadopoulos & Denis, 1988). These are general and context-specific, i.e.

applicable to specific industries, categories of companies and / or business situations.

Most models differ only insignificantly in their approach, usually being composed of

three or four sequential stages. Cavusgil (1985) terms these stages (1) preliminary

screening of markets in attractive countries, (2) assessment of industry market

potential and (3) company sales potential analysis, while Kumar, Stam &

Joachimsthaler (1994) refer to (1) screening, (2) identification and (3) selection. Root

(1994 as cited in Koch, 2001, p. 67) offers an alternative terminology of (1)

preliminary screening, (2) in-depth screening and (3) final selection. In a model of

four stages, Keegan & Schlegelmilch (2001) propose a differentiation between

11

restrictions, a first and a second set of selection criteria and the final selection of

potential foreign target markets.

Despite dissimilarities in terminology, the models offered by various writers in the

literature are virtually identical in content. They consist of a filter, or funnel approach

to market selection, each stage applying a different set of criteria, until a set of

suitable foreign target markets has been identified. For the purpose of this paper,

Root’s (1994 as cited in Koch, 2001, p. 67) terminology will be employed, with a

view to Keegan & Schlegelmilch’s (2001) notion of various sets of primary and

secondary selection criteria at the in-depth screening stage.

Preliminary screening

The first stage of international market selection, preliminary screening, is concerned

with the identification and elimination of countries with unsuitable trading climates

by applying macro-level indicators giving clues to disparities between organisational

objectives and the features of a given foreign market (Kumar, Stam & Joachimsthaler,

1994; Koch, 2001). Macro-level indicators are numerous and may include market

size, growth rate, existing product line, competitive rivalry, socio-cultural factors and

basic fit with customer preferences (Kumar, Stam & Joachimsthaler, 1994; Koch,

2001).

The purpose of preliminary screening is a reduction in the number of countries to

receive greater attention by way of more detailed analyses (Cavusgil, 1985). Reasons

for the unsuitability of a country may arise, for example, from political instability,

currency considerations (as in the case where currencies can not be traded in the open

market), hostile weather conditions (for example for particular types of clothing or

fresh foods) (Cavusgil, 1985; Kumar, Stam & Joachimsthaler, 1994) or severe

restrictions within the foreign market (Keegan & Schlegelmilch, 2001).

In-depth screening

During the second stage of international market selection, in-depth screening,

information specific to the industry the organisation is operating in is gathered,

12

analysed and evaluated for each of the potential foreign target markets remaining

from stage one (Kumar, Stam & Joachimsthaler, 1994). Industry market potential is

assessed according to one or more sets of criteria previously established by the

organisation. Determining present and future aggregate demand as well as the

consideration of market accessibility, product potential (in terms of customer needs

and desires, competitive offerings, attitudes towards foreign product offerings et

cetera) and local distribution and production (Cavusgil, 1985) are all part of this stage.

Alon (2004) includes the tracking of the origin of hits on the corporate website as a

potential indicator for suitable foreign markets.

Foreign market conditions should align with organisational objectives in order to be

filtered through to the next stage of selection. Indicators of an organisation’s own

potential strength within a foreign market as well as statistics from the foreign market

are useful in this analysis where available (Cavusgil, 1985). Furthermore, outsourcing

a foreign marketing research agency more familiar with the foreign market may be

preferential to conducting an own analysis at this stage (Kumar, Stam &

Joachimsthaler, 1994).

Final selection

Koch (2001, p. 67) proposes three types of limitations in the final selection of foreign

markets:

1. company objectives;

2. strategies; and

3. resources

Westhead et al (2001) note the importance of striking a balance between domestic and

foreign market commitments. Furthermore, the reciprocal effects of the one on the

other should not be under-estimated. Thus, a strong domestic presence is capable of

signalling stability to customers in the foreign market, while the ability to export

increases the legitimacy of a company in the domestic market. However, great take

needs to be taken in order to prevent alienation of either target market through

unbalanced organisational commitments.

13

While these stages appear relatively simple, they incorporate meticulous and time-

and money-consuming research work. The scope of research is variable; for example

Alon (2004) reports only three main factors having been analysed in a case study cited

by the author, whereas Wood & Robertson (2000) offer a list of sixty important

factors to be considered. Generally speaking, the more detailed the preliminary and

in-depth screening analyses are, the more accurate the final international market

selection is going to be. However, constraints in terms of finance and time need to be

recognised and weighed against the proposed degree of international trading activity.

EXTERNAL FACTORS IN FOREIGN MARKET SELECTION

After assessing the rationale for international trade, firm-related factors and the

methodologies proposed in the literature to date, a number of salient elements

associated with these methodologies should be discussed in more detail.

Market potential

Here, the central focus is on whether the export market of interest has the necessary

means to purchase imported products, and whether the needs of the market are being

adequately satisfied (Wood & Robertson, 2000). Generally, studies have shown that

almost all entrants use information relating to market size and growth rate, level of

competition, and trade barriers (Johansson, 1997).

Market size

Market size analysis requires an assessment as to what share of the total market in the

country the firm can reasonably expect to obtain, given domestic and other foreign

competition and affordability of the product. In cases where this demand is not

sufficient to justify risk or costs of entry, the market should be excluded from further

consideration (De Burca, Fletcher & Brown, 2004). A direct measure of market size

can be computed from local production, minus exports, plus imports. An indirect

measure can be derived from he widely available GNP measure, population size,

growth in GNP, and imports of relevant goods (Johansson, 1997).

14

Market growth

Getting the market size measures for different years and computing the growth rates

can obtain growth estimates. When deriving the growth rate in this manner, it is

important that cyclical changes in the economy are accounted for (Johansson, 1997).

There are a number if simple ways for estimating likely demand sufficient for a

screening activity. These not only involve assessing current demand but also likely

future demand as well as untapped of unfilled demand, which may exist in a particular

market. Some of the more common techniques are as follows: demand pattern

analysis; international product life cycle; income elasticity measurements; proxy and

multiple factor indices (De Burca, Fletcher & Brown, 2004).

Competitive intensity

The number of competitors in the market, and the relative size distribution of market

shares can measure level of competition. Competition is generally toughest where a

few large domestic companies dominate the market. When existing companies all

have small shares, or when foreign companies have already made successful entry, the

competitors will generally be less concerned about a new entrant (Johansson, 1997).

There are a number of competitive strategies, which might influence selection of

markets. These include entering a market so as to pre-empt the entry of others,

entering a market in which there are already competitors and confronting them, and

entering a market where large competitors do not exist (De Burca, Fletcher & Brown,

2004).

Competitive entry

When the aim of a foreign entry is competitive, the plan can be to attack cash

generating home market for a competitor or another market where a competitor is

dominant. In other cases, the aim is to pre-empt or disrupt a competitor’s entry into a

new market by entering first or increasing the firm’s market support. In either case,

the choice of country is often a given. However, the firm must recognise the resource

implications of fighting these kinds of battles. They may not generate much revenue

and could be costly. The firm has to carefully evaluate whether the gains in other

15

countries over time will justify these excursions (Johansson, 1997). The choice of

country is made differently again, in the cases in which a company goes abroad to

learn from customers and competitors in leading market countries. Then the company

aim is primarily to gain further strengths and expand capability, and tapping market

growth is only a secondary goal, at least in the short run.

Leading markets tend to be large, strong at the high end of the product line, free from

government regulation and protective measures, with strong competitors and

demanding customers. Leading markets are generally found in different countries for

different products. Strong domestic competitors emerge because a country’s location

specific advantages, such as natural resource endowments, technological know how,

and labour skills. Over time, these advantages enable domestic firms to accumulate

experience (Johansson, 1997).

Entry barriers

Entry barriers are present to protect domestic industry or to ensure that companies

entering from foreign markets conform to trade relation’s arrangements with other

countries (Johansson, 1997). These barriers may relate to entry, exit, and the

marketplace. Entry barriers can be both tariff and non-tariff. Such barriers also

include aspects that impinge on the form of international market entry, such as

regulations relating to local content and ownership. Exit barriers may relate to

repatriation of profits, dividends, and capital, taxation issues and technology transfer.

Marketplace barriers can include access to skilled personnel, availability to warehouse

space, transportation, allocation of critical inputs, such as power and water, and

control over prices (De Burca, Fletcher & Brown, 2004).

Political environment

Fundamental to every marketer’s selection and assessment of a foreign market is an

appreciation of the political environment of the country within which he or she intend

to operate (Cateora & Graham, 2002). An examination of target country’s political

orientation and environment is part of the preliminary screening stage of market

selection (Cavusgil, 1985). Any company considering doing business outside of their

16

own country should carefully study the government structure of the target market as

well as examine the numerous issues arising from the political environment.

Interest in politics is the first dimension listed in many frameworks examining export

environments. This is largely due to the fact, foreign firms must endeavour to make

their activities politically acceptable or they may be subjected to politically condoned

harassment (Cateora & Graham, 2002).

Political issues for consideration in market selection

The political climate of a country unearths many decision variables according to

Wood and Robertson (2000). The political strength of leaders within the foreign

country, the stability of government policies, the degree of domestic instability within

the target market, the degree of local labour unrest, the number of trade restrictions on

free and open trade due to political frictions, the foreign governments use of

incentives to encourage private business and the ability of the foreign government to

enforce trade restrictions, are all areas which need to be considered when selecting

potential markets in global business strategies. Government involvements in business

and in communication, the country’s attitude toward foreign business and national

economic and development priorities are further issues worthy of note according to

Cauvisgil (1985). Any firm engaging in international marketing should also be aware

of the importance of sovereignty to national governments and its consequences for

global business (Keegan & Schlegelmilch, 2001).

Risk assessment

Risk assessment is also crucial when selecting target markets as foreign marketers are

faced with high levels of uncertainty, in terms of continuity of government policies,

changing political philosophies (Cateora & Graham, 2002) and government actions

with regard to taxes, dilution of equity control and expropriation (Keegan &

Schlegelmilch, 2001).

There are many ways of assessing risk according to Johansson (1997). According to

this author, risk analysis flows from the first to the fourth level in the table below. If

17

any of the levels uncovers risk, which may be deemed unacceptable, the firm should

immediately reconsider conducting business within the country in question.

Figure 2: Factors of political risk

From: Kobrin, S. J. (1979) Political risk: a review and consideration. Journal of International

Business Studies, 10(1) Spring / Summer, pp. 67-80.

A new type of political risk for marketers to consider is that of international terrorism

activities. Although terrorism’s international reach can make any country seem

unsafe, a prime example being that of the attacks on the world trade centre on

September 11th 2001, terrorism and increasing crime have made some countries and

regions extremely unattractive in terms of global business strategies (Johansson,

1997).

As government’s change and new philosophies are undertaken a firm may find that

political risk is somewhat temporary. However it is extremely necessary for a firm in

undertaking internationalisation strategies to consider all manner of political risk and

ensure the all indicators are followed closely to ensure acceptable and successful

market selection.

18

Factors Examples

Level 1: General Instability RevolutionExternal aggression

Level 2: Expropriation NationalisationContract revocation

Level 3: Operations Import restrictionsLocal content rulesTaxes, Export requirements

Level 4: Finance Repatriation restrictionsExchange rates

Legal environment

Companies face a vast amount of problems in their efforts to develop successful

global marketing programs. Just as cultural, political, geographical differences pose as

threats to global firms so too do the varying legal systems of the world and their affect

on business transactions (Cateora & Graham, 2002). A country’s legal environment

can be identified as the rules and principles that nation states regard as binding upon

themselves (Keegan & Schlegelmilch, 2001). The legal environment is an important

variable to consider in international business due to the devastating impacts that court

of law decisions may have upon a company’s globalisation attempts.

Legal systems

The countries of the world can be broadly categorised in terms of four legal systems:

The common law system derived from English law and found in England, the

United States, and the British Commonwealth countries, which include Canada,

Australia and New Zealand and the former British Colonies in Africa and India.

The civil or code law system derived Roman law and found in most European

nations, Japan and non- Islamic and non- Marxist countries.

The Islamic legal system derived from the interpretation of the Koran and

followed by Pakistan, Iran, Saudi Arabia and other Islamic nations.

The Marxist legal system, found in Marxist socialist countries such as Russia, the

republics of the former Soviet Union, Eastern Europe and China, as well as other

Marxist socialist states who rely on economic, political and social policies as the

centre of their legal systems (Keegan & Schlegelmilch, 2001; Cateora & Graham,

2002).

The legal environment of target countries is considered of great importance in terms

of market selection, due to the detrimental impacts court of law decisions related to

issues such as foreign exchange rates, expropriation and intellectual property rights

can have on the foreign investor wood Keegan and Schlegelmilch (2001) highlight

further legal issues significant to market selection in the form of establishment,

jurisdiction, patents, trademarks, licensing, antitrust and bribery.

19

Evidently the global legal setting is very dynamic and complex. It is imperative for

the international marketer to understand the various types of legal systems he/she may

encounter as well as the various threats the company is open to in undertaking global

transactions.

Economic environment

The economic development and performance of a country is a further issue the

international marketer needs to consider in international business. The stage of

economic growth within a country affects numerous facets of firms’ international

strategies. Economic growth affects a countries attitude towards foreign business

activity, the demand for goods and the distribution system found within the country

(Cateora & Graham, 2002).

Economic development

Cateora and Graham (2002) also highlight that economic development presents a

number of challenges to the international firm. A study of the economic climate is

important especially to gain understanding with regard to developing countries and

secondly in respect to market potential and market growth. The existing level of

economic development allows the firm to estimate the degree of market potential as

well as allowing them to prepare for economic shifts and emerging markets.

Wood and Robertson suggest that in evaluating international markets a firm needs to

consider many issues of development and performance. The gross national product

(GNP) and income per capita in the country needs to be examined. The education and

employment levels of the population need to be analysed, as well as inflation rates

and the country’s balance of trade.

Walt Rostow (1971, p.10 as cited in Cateora & Graham, 2002) presented a model for

classifying countries by stage of economic development. Each of the five stages is a

function of the cost of labour, technical capability of the buyers, and the scale of

operations, interest rates and level of product sophistication (Cateora & Graham,

2002). The stages are listed below:

20

Stage 1: The traditional society

Stage 2: The preconditions for take off

Stage 3: The take –off

Stage 4: The drive to maturity

Stage 5: The age of high mass consumption

Rostow’s (Rostow, 1971 as cited in Cateora & Graham, 2002) process explains a

countries growth as you move from one stage to the other and it aids marketers by

indicating “the relationship between economic development and types of products a

country needs and of the sophistication of its industrial infrastructure” (Cateora &

Graham, 2002, p. 241).

Another method of classifying a countries economic development is by the degree of

industrialisation as highlighted by Hollensen (1998). This categorisation groups

countries under three clusters:

Figure 3: Categorisation of countries by degree of industrialisation

Less developed Countries

This includes underdeveloped countries anddeveloping countries, the main feature of which is alow GDP per capita. These countries also have weakinfrastructures and limited amounts of manufacturingactivity.

Newly Industrialised Countries:

These are countries with an emerging industrial base just entering world trade.

Advanced IndustrialisedCountries:

These economies have high per capita incomes and an extensive industrial base. They have a developed infrastructure and are highly industrialised.

Adapted from Hollensen, S. (1998) Global Marketing - a Market-Respective Approach.

Hertfordshire, Prentice Hall.

Issues of production strength are also important in foreign market selection (Wood &

Robertson, 2000). The foreign country must be examined in terms of its wealth in

natural resources and extent of which these can be developed. The diversity of

21

products produced and imported into the country are also important areas for the firm

to note as well as consumption related issues such as per capita ownership of goods,

food consumption, industrial goods consumption and energy consumption.

The economic environment is an important issue for international marketers to

examine in choosing markets in which to expand their business. Economic

considerations are also part of the pre-screening stage and are an important measure

of a country’s attractiveness.

Culture

A second aspect to be considered when selecting a market is that of culture. Firms

exporting for the first time generally select foreign markets that have some market

and cultural similarity with the firms domestic market (Erramilli, 1991). In some

instances markets are selected because they are seen as ‘psychologically close’ to the

domestic market (Papadopoulos & Denis, 1988; Dow, 2000).

Culture is integral to the marketing concept, which is based on satisfaction of wants

and needs of potential buyers. Not only does culture condition these wants and needs,

but it also impacts on the way messages concerning the ability of the product or

service to satisfy the needs and wants, are received and interpreted (De Burca,

Fletcher & Brown, 2004). This is even more so in international markets, where

cultures differ markedly from one international market to another (Wood &

Robertson, 2000). Culture pervades all elements of the marketing mix-product,

pricing, promotion, and distribution- and the acceptability of each of these elements

will be judged in the context of the culture that they are targeting.

Cultural sensitivity involves being aware of the nuances of the different culture, being

empathetic with it, and viewing it objectively rather than subjectively. It begins with

an acceptance that other cultures in themselves are not right or wrong, and one culture

is not inferior to another, but, rather, is different. Being culturally sensitive will

reduce disharmony, alleviate aggravation, improve communications, and pave the

way for long-term international business relationships (De Burca, Fletcher & Brown,

2004). In order to understand customers in the international market, it is necessary to

22

be aware of their cultural heritage. Appreciating the intricacies of the culture is

imperative in order to be effective in the foreign market. There are a number of key

cultural concepts that assist in clarifying cultures in broad terms and these are

reflected in the way culture manifests itself in an international business setting.

Included in these are time, space, language, familiarity and consumption patterns. The

way in which culture is communicated can be both verbal and non-verbal, and

operating in a different culture will require some degree of adaptation. Cross-cultural

comparisons, be they on a global or bilateral basis, highlight patterns of cultural

difference and their implications for management.

Global marketers who understand and recognise the meaning and substance of

cultures other than their own and the associated behaviours in those cultures will have

a significant global advantage. It is essential for global marketers to avoid a cultural

bias, or the self reference criterion (SRC), when dealing with business operations in

more than one culture (Jeannet & Hennessy, 2004).

Infrastructure

Issues to be considered here include the extent and nature of the export market’s

physical distribution infrastructure. Reasonable logistics links should exist both

between the domestic and international market and within the international market.

The impact of the cost of logistics on the ability to both compete and satisfy demand

also needs to be considered. Also relevant in selecting a market is whether these links

are reliable and timely, - that delivery can be relied upon; that the time taken for

goods to reach the destination does not adversely impact on the ability to compete;

and that the goods arrive in an acceptable condition (De Burca, Fletcher & Brown,

2004). Further, consideration should also be given to the geography and climatic

conditions that may affect the business enterprise in the export market (Wood &

Robertson, 2000).

CONCLUSION

Market selection is complicated by changes in the international business environment.

These changes involving the formation of regional trade groupings, the creation of

23

strategic alliances between firms and exponential spread of information technology

are resulting in a breaking down of barriers between countries and the need to view

the world as a global entity rather than as a series of national markets. As a

consequence the most appropriate international markets to have become more difficult

to enter (De Burca, Fletcher & Brown, 2004).

Underpinning the selection of markets to enter should be a strategic orientation that

treats market entry selection as part of the firm’s overall strategy, linked both to its

resource base and a distinctive competence on the one hand and its position in relation

to competitors on the other. Selecting an international market can impact on the other

activities of the firm. This is because the outcome may influence the profitability of

the firm in its domestic as well as in its other international markets. Not only will this

impact be on overall profits but it might also have an impact in other areas such as its

global reputation (De Burca, Fletcher & Brown, 2004).

All the literature points toward two different types of data needs: macro information,

providing mostly knowledge about different environments; and micro information,

providing details about markets, activities within those markets, and the changes

taking place in them (Czinkota, 1991). Furthermore, a firm needs to be aware of its

internal capabilities, competencies and restrictions in order to select appropriate

foreign target markets.

The methodologies proposed in the literature for the selection of foreign target

markets are similar in their approach. Three main stages of preliminary screening, in-

depth screening and final selection have been identified and discussed. The salient

elements within these screening processes have likewise been identified and

discussed.

To conclude on a last, important note, the final selection of the country to enter should

not be made until personal visits have been made to the country and direct experience

has been acquired by management. There is no substitute for on-the-spot information

and the hands-on feeling of a new market (Johansson, 1997).

24

REFERENCES

Aaker, D. A. (2001) Strategic Market Management. 6th ed. New Jersey, John Wiley & Sons, Inc.

Alon, I. (2004) International market selection for a small enterprise: a case study in international entrepreneurship. S.A.M. Advanced Management Journal, 69(1), pp. 25-33.

Carroll, A. (1979) A three-dimensional conceptual model of corporate performance. Academy of Management Review, 4(4), pp. 497-505 as cited in Schwartz, M.S. and Carroll, A. (2003) Corporate social responsibility: a three-domain approach. Business Ethics Quarterly, 13 (4) October, pp. 503 - 531.

Cateora, P. R. & Ghauri, P. N. (2000) International Marketing. European Edition. Maidenhead, McGraw-Hill Publishing Company.

Cateora, P. R. & Graham, J. L. (2002) International Marketing. 11th ed. New York, McGraw Hill Companies.

Cavusgil, S. T. (1985) Guidelines for export market research. Business Horizons, 28(6) November-December, pp. 27-33.

Chetty, C. & Campbell-Hunt, C. (2004) A strategic approach to internationalisation: a traditional versus a "born-global" approach. Journal of International Marketing, 12(1), pp. 57-79.

Czinkota, M. R. (1991) International information needs for US competitiveness. Business Horizons, November / December, pp. 86-91.

De Burca, S., Fletcher, R. & Brown, L. (2004) International Marketing - An SME Perspective. London, Prentice Hall.

Dow, D. (2000) A not on psychological distance and export market selection. Journal of International Marketing, 8(1), pp. 51-64.

Erramilli, M. K. (1991) The experience factor in foreign market entry behaviour of service firms. Journal of International Business Studies, 22, pp. 479-501.

Garrett, D. E. (1987) The effectiveness of marketing policy boycotts: environmental opposition to marketing. Journal of Marketing, 51(2) April, pp. 46-57.

Gidengil, B. Z. (1977) The social responsibility of business: what marketing executives think. European Journal of Marketing, 11(1), pp. 72-86.

Hollensen, S. (1998) Global Marketing - a Market-Respective Approach. Hertfordshire, Prentice Hall.

25

Jeannet, J. P. & Hennessy, H. D. (2004) Global Marketing Strategies. 6th ed. Boston, Houghton Mifflin Company.

Johansson, J. K. (1997) Global Marketing: Foreign Entry, Local Marketing and Global Management. New York, Times Mirror Books.

Keegan, W. J. & Schlegelmilch, B. B. (2001) Global Marketing Management - A European Perspective. Harlow, Pearson Education Limited.

Koch, A. J. (2001) Selecting overseas markets and entry modes: two decision processes or one? Marketing Intelligence & Planning, 19(1), pp. 65-75.

Kumar, V., Stam, A. & Joachimsthaler, E. A. (1994) An interactive multicriteria approach to identifying potential foreign markets. Journal of International Marketing, 2(1), pp. 29-52.

Lee, T. J. (2002) Leading the way with the company brand. Strategic Communication Management, 6(4) June/July, pp. 9.

Madsen, T. K. & Servais, P. (1997) The internationalisation of born globals: an evolutionary process? International Business Review, 6(6), pp. 561-583 as cited in Chetty, C. and Campbell-Hunt, C. (2004) A strategic approach to internationalisation: a traditional versus a "born-global" approach. Journal of International Marketing, 12 (1), pp. 57 - 79.

Oviatt, B. M. & McDougall, P. P. (1995) Global start-ups: entrepreneurs on a worldwide stage. Academy of Management Executive, 9(2), pp. 30-44 as cited in Chetty, C. and Campbell-Hunt, C. (2004) A strategic approach to internationalisation: a traditional versus a "born-global" approach. Journal of International Marketing, 12 (1), pp. 57 - 79.

Papadopoulos, N. & Denis, J.-E. (1988) Inventory, taxonomy and assessment of methods for international market selection. International Marketing Review, 5(3) Autumn, pp. 38-51.

Root, F. R. (1994) Entry Strategies for International Markets. San Francisco, Lexington Books as cited in Koch, A. J. (2001) Selecting overseas markets and entry modes: two decision processes or one? Marketing Intelligence & Planning, 19(1), pp. 65-75.

Rostow, W. W. (1971) The stages of economic growth. 2nd ed. London, Cambridge University Press.

Tylecote, A. (1987) Time horizons of management decisions: causes and effects. Journal of Economic Studies, 14(4), pp. 51-65.

Westhead, P., Wright, M., Ucbasaran, D. & Martin, F. (2001) International market selection strategies of manufacturing and services firms. Entrepreneurship & Regional Development, 13(1) January-March, pp. 17-46.

26

Wood, V. R. & Robertson, K. J. (2000) Evaluating international markets. International Marketing Review, 17(1), pp. 34-55.

Ziller, A. & Phibbs, P. (2003) Integrating social impacts into cost-benefit analysis: a participative method. Impact Assessment and Project Appraisal, 21(2) June, pp. 141-147.

27