Selecting overseas markets and entry modes: two
decision processes or one?
Adam J. Koch
Lecturer, School of Business, Swinburne University of Technology, Melbourne,
Victoria, Australia
Keywords
Market entry, Decision making,
International marketing, Export,
Marketing strategy
Abstract
Contrary to the prevalent theory
approaches that treat market
selection and market entry mode
selection as two related but
essentially separate decisions,
this paper argues that these
should most appropriately be
looked on as two aspects of one
decision process. It proposes that
an exhaustive list of factors that
can influence outcomes of such an
integrated process be developed
and argues that an inclusive
spectrum of analysis would be
able to accommodate all business
contexts and most relevant
business practice. It then
presents a new market and
market entry mode selection
model (MEMS) which conforms to
the proposed inclusive spectrum
of the underlying decision process
analysis.
Marketing Intelligence &
Planning
19/1 [2001] 65±75
# MCB University Press
[ISSN 0263-4503]
Introduction
Selection of overseas markets and entry
modes lies at the very heart of any
international strategy (Douglas et al., 1972;
Goodnow and Hansz, 1972; Kobrin, 1976;
Paliwoda, 1993; Root, 1994; Sarkar and
Cavusgil, 1996; Simpson and Kujawa, 1974;
Wind et al., 1973; Wind and Perlmutter, 1977).
Importance of the relevant analysis, and of
resulting decisions, grows with increasing
dependence of companies on international
business for survival and growth. Similarly,
a growing intensity of competition would call
for an improved quality of the overseas
market and entry mode selection (Cavusgil,
1985; Douglas, 1989; Moyer, 1968).
Market entry strategies include decisions on:
.
the choice of a target product/market;
.
the objectives and goals in the target
market;
.
the choice of an entry mode to penetrate
the market;
.
the marketing plan to penetrate the
market; and
.
the control system to monitor
performance in the target market (Root,
1994, p. 3).
This paper examines the mutual relationship
between two out of five decision categories
mentioned above, namely the choice of a
target market, and the choice of an entry
mode to penetrate the market. It compares
the logic of both choices and then seeks to
demonstrate that these two need to be
regarded as two aspects of the same decision
process. It seeks to achieve this aim through
a new proposed market and entry mode
selection model. MEMS model is designed to
conform with the proposed broad scope of the
relevant decision process analysis (see Doyle
and Gildengil, 1977; Sheth and Lutz, 1973; Hill
et al., 1990; Sarkar and Cavusgil, 1996).
The research register for this journal is available at
http://www.mcbup.com/research_registers
Modeling approaches
The literature of the subject makes
distinction between three broad groupings of
foreign market entry modes: export,
contractual and investment-based (e.g.
Driscoll, 1995). Most classifications of market
entry modes (e.g. Cateora, 1996; Keegan, 1995;
Onkvisit and Shaw, 1993) contain only
generic categories, such as direct or indirect
exporting, franchising, licensing, joint
venturing, partially or wholly owned
overseas subsidiary, management
contracting and contract manufacturing.
Market entry mode selection is a particular
case of the wider decision process category
often referred to in the literature as market
servicing decisions (Barker and Kaynak,
1992; Benito and Welch, 1994; Johanson and
Vahlne, 1992; Welch and Luostarinen, 1988).
In this article, discussion focuses on the
narrower category of market entry mode
selection.
According to Root (1994), three basic
approaches to entry mode selection are
possible:
1 selection in absence of any market entry
strategy, or ``the sales approach''
characterized by, among others, short
time horizons, no systematic selection
criteria, few product adaptations and no
effort to control overseas distribution;
2 selection in accordance with an existing
market entry strategy (i.e. naõÈve or
pragmatic rules (Root, 1994, pp. 159-60));
and
3 selection which considers some strategy
rule(s) and involves systematic
comparisons of alternative modes
available (systematic approach ± see
Pezeshkpur (1979)) (see Figure 1).
In keeping with the proposed logic of the
international market expansion and entry
mode decision, the MEMS model presented
The current issue and full text archive of this journal is available at
http://www.emerald-library.com/ft
[ 65 ]
Adam J. Koch
Selecting overseas markets
and entry modes: two decision
processes or one?
Marketing Intelligence &
Planning
19/1 [2001] 65±75
later in this paper conforms with the above
systematic approach.
Common business theory approaches to
foreign market and market entry mode
selection include:
.
models based on narrow empirical studies
(e.g. Anderson and Gatignon, 1986;
Erramilli and Rao, 1993; Rugman, 1981);
see also literature surveys by Bilkey
(1978), Cavusgil and Li (1992), Goodnow
(1985) and Sarkar and Cavusgil (1996);
.
specific application models (e.g. Ayal and
Zif, 1979; Beamish, 1988; Miesenbock, 1988;
Sheth and Lutz, 1973; Vargas-Carcamo,
1986); and
.
iterative approach to market and market
entry selection decision processes that
involves multiple feedback loops (Root,
1994).
Some of the approaches proposed in the
literature contradict the inclusive logic of the
market and entry mode selection this paper
supports. Examples of these include:
.
market selection and market entry/
market servicing modes discussed and
modeled separately (as evidenced in
Albaum et al. (1989), Cateora (1996) and
Johansson (1997));
.
the relative neglect of managerial
perceptions of external and internal
environments (Aaby and Slater, 1989;
Axinn, 1988; Benito and Welch, 1994;
Kumar et al., 1994); and
.
the relative neglect of information flows
that accompany the market/market entry
mode selection process (Benito et al., 1993).
Prominent tendencies in the literature
include also:
.
the dominance of interest in the influence
of the external company environment on
the selection of overseas markets and
market entry modes over the interest in
the analogous role of the company
internal environment (Cavusgil and
Figure 1
Basic approaches to foreign market and market entry mode selection
[ 66 ]
.
.
.
Nevin, 1981; Goodnow and Hansz, 1972;
Pettigrew, 1988);
the dominance of prescriptive approach to
the market/market entry mode selection
process over the descriptive one (Hill et
al., 1990; Root, 1994);
static perspective (single decision
analyzed in isolation) prevails over the
dynamic (sequence-of-decisions)
perspective (see Benito and Welch, 1994;
Root, 1994); and
studies of quantitative aspects of the
market/market entry mode selection
process are more common in the
literature than those that focus on the
qualitative aspects (see Kumar et al., 1994;
Papadopoulos and Denis, 1988).
Literature reviews suggest that
comprehensive, in-depth studies of the
market/market entry mode selection
processes have been rare (BjoÈrkman and
Eklund, 1991). They also demonstrate that the
approach and forms of the MEMS practice
are context-dependent (Dunning, 1980; Hill et
al., 1990; Sarkar and Cavusgil, 1996). Using
empirical evidence obtained from merely a
few countries and industries may prove
insufficient basis on which to seek an
enhancement of market and entry mode
selection (Goodnow and Hansz, 1972;
Katsikeas and Leonidou, 1997).
The decision process model presented later
in this paper is informed by this
comprehensive literature review. It seeks to
enhance the MEMS decision making by
integrating it and by assuming a very broad
spectrum of factors to be involved in the
decision analysis.
Market selection models
Two categories of market selection models
have been proposed in the literature
(Papadopoulos and Denis, 1988): general and
context-specific (applicable to specific
industries, categories of companies and/or
business situations). Examples of contexts
within the latter category of models include
small businesses (Miesenbock, 1988; VargasCarcamo, 1986), multinational companies
(Ayal and Zif, 1979; Doz, 1980; Goodnow and
Hansz, 1976; Sheth and Lutz, 1973), joint
ventures (Agarwal, 1994; Beamish, 1988, 1993)
and international strategic alliances
(Johansson, 1995)[1].
Differences of views on the logic and
structure of the foreign market evaluation
and selection process have been found
insignificant (Table I).
Most models (Cavusgil, 1985; Kumar et al.,
1994; Root, 1994) view market selection process
as composed of three stages: screening,
Adam J. Koch
Selecting overseas markets
and entry modes: two decision
processes or one?
Marketing Intelligence &
Planning
19/1 [2001] 65±75
Table I
Stages of market selection process
Cavusgil (1985)
Johansson (1997)
Kumar (1994)
Root (1994)
Stage 1
Stage 2
Stage 3
Screening
Country identification
Screening
Preliminary screening
Identification
Preliminary screening
Identification
In-depth screening
Selection
In-depth screening
Selection
Final selection
identification (or in-depth screening), and
(final) selection. They suggest that during
screening, macro-level indicators should be
used to eliminate countries that do not meet
the objectives of the firms (Kumar et al., 1994).
Johansson (1997) proposes that market size,
growth rate, basic fit between customer
preferences and the existing product line, and
competitive rivalry be used as criteria at this
stage. Root (1994) notes that country screening
may be conducted either in top-down or
bottom-up fashion. This corresponds with the
distinction between expansive and
contractible patterns of market selection
(Johansson, 1997; Root, 1994).
Identification stage involves eliciting
industry-specific information (market
factors, competition analysis) on which to
base a short-list of potential country
segments. Assessment of industry
attractiveness for each of the short-listed
countries considers objectives and resources
constraints and expansion strategies. Market
size and growth, level of competition, entry
barriers and market segments are
investigated at this stage.
Finally, selection involves studying firmspecific information, such as profitability,
product compatibility with the existing
portfolio, to select the markets to enter. The
methodology of identifying potential foreign
markets proposed there considers three types
of limitations:
1 company objectives;
2 strategies; and
3 resources.
Johansson's (1997) model has a modified
sequence in that it suggests four stages of this
decision process:
1 country identification (based on population,
GNP, growth rates statistics, etc);
2 preliminary screening (examining
political stability, geographic distance
and economic development) to eliminate
some countries and broadly assess costs of
entering the market;
3 in-depth screening (industry and product
market-specific data are collected and
analyzed; market potential estimated and
growth rates forecasted; strengths and
weaknesses of competition, entry
barriers, company resources constraints
revisited); and
Stage 4
Final selection
4 final selection (company objectives are
brought to bear for a match, and forecast
sales revenues and costs are compared to
find the country market which best
leverages the resources available).
Johansson (1997) emphasizes the importance
of a well-articulated reason why the company
wants to be involved in international
business for the quality of the initial
screening. He observes that including such
factors into the model increases the role of
judgment in market selection[2].
Many elements of external, or internal,
environment are proposed to bear
significantly on the conduct and outcomes of
the market and entry mode selection. One of
these is the company's market orientation.
The reactive market orientation (Glaister
and Thwaites, 1993) is associated with a less
premeditated, more ad hoc decision pattern,
with the company filling mostly unsolicited
orders and relying entirely on the initiatives
of foreign buyers or intermediaries. Its
opposite, a proactive market orientation,
produces a predisposition towards a much
more systematic and formalized approach to
overseas market selection. The latter
orientation requires larger amounts of
knowledge and experience as well as ongoing
access to, and systematic in-depth analysis of,
global business information.
Two fundamental patterns in market
selection are expansive and contractible
(Johansson, 1997; Root, 1994). Expansive
pattern is associated with the company
preference of new markets that have the least
psychic distance to those where the company
already operates (Johansson, 1997). In their
international expansion, companies may
choose to focus on some geographic areas
(market concentration), or market their
products/services in as many export markets
as possible (market spreading ± Piercy, 1981).
Companies that have a global business
perspective favour contractible methods of
foreign market selection (Douglas, 1989; Root,
1994; Johansson, 1997). Contractible methods
involve systematic screening of most, if not
all, country markets and detailed evaluation
of more promising markets. Typically,
evaluation would commence with an
overview of general market information and
risk estimation, followed by the analysis of
[ 67 ]
Adam J. Koch
Selecting overseas markets
and entry modes: two decision
processes or one?
Marketing Intelligence &
Planning
19/1 [2001] 65±75
product-specific market trends and
indicators, evaluation of market and sales
potentials and trends, estimation of
anticipated profitability of individual entry
modes and ends with the selection/rejection
decision. The analysis of product-specific
market indicators involves an overview of
product characteristics and of market
accessibility[3].
Market entry mode selection
models
As mentioned earlier, in their market and
entry mode selection companies follow one of
the three general rules:
1 naõÈve (e.g. ``we only export'');
2 pragmatic (e.g. ``low-risk only''); and
3 strategy rule (which ``involves systematic
comparisons of alternative modes to
produce better quality decisions'' (Root,
1994, pp. 159-60; Doyle and Gildengil,
1977)[4].
Categories of factors that influence this
selection comprise (Sarkar and Cavusgil,
1996):
.
product-market factors;
.
firm/foreign venture specific factors;
.
host-market factors; and
.
home-market factors.
More specifically the above includes:
cultural factors;
.
global industry structure;
.
global corporate objectives;
.
relational dimensions of interfirm
collaborations;
.
firm's bargaining power with respect to
foreign governments; and
.
political leverage of the home country
government.
.
Some authors (e.g. Driscoll, 1995) introduce a
separate category of ``factors moderating
mode choice'' (government policies and
regulations, firms size and corporate policy)
and propose that these can influence the
choice of entry mode. In Driscoll's (1995)
model, a company's choice of market entry
mode may also be influenced by firm factors
(firm-specific advantages, experience and
strategic considerations) and environmental
factors (demand and competitive conditions,
political and economic conditions and sociocultural conditions).
Criteria used in these decisions include:
.
degree of control (e.g. Anderson and
Gatignon, 1986; Root, 1994);
.
level of risk and resource commitment
(e.g. Hill et al., 1990); and
.
skill requirements (e.g. Grùnhaug and
Kvitastein, 1993);
.
dissemination risk (e.g. Williamson, 1985);
[ 68 ]
.
.
flexibility (e.g. Anderson and Gatignon,
1986; Klein, 1989; Porter, 1976); and
ownership (e.g. Rugman, 1981).
Significant differences in the approach to
modelling market entry mode selection are
found when comparing, for example, the
transaction cost framework proposed by
Anderson and Gatignon (1986) with the
Nordic approach (Johanson and Vahlne,
1977; Luostarinen and SvaÈrd, 1982; Grùnhaug
and Kvitastein, 1993) which is founded on
experience, knowledge, control and risk
factors. The former examines two important
aspects of the market entry mode decision:
the method of supplying the selected
market(s) and the extent of ownership sought
(Anderson and Gatignon, 1986; Agarwal and
Ramaswami, 1992). It looks at the ability of a
firm to change entry modes quickly and with
minimal costs. This flexibility, it is argued
there, is in an inverse relationship to
resource commitment. In opposition to the
former, the Nordic approach puts emphasis
on strategic significance of learning and
competence. The adherents of this school pay
a great deal of attention to various risks,
uncertainties and decision-maker inhibitions
that accompany these decisions. In their
recent paper, Chi and McGuire (1996) seek to
blend these two approaches by examining the
consequences of integrating the transaction
cost and strategic option perspective.
To integrate various perspectives and thus
increase the content validity of market
selection models, some eclectic frameworks
have been proposed (Hill et al., 1990; Minor et
al., 1991). Hill et al.'s (1990) framework is
based on control, resource commitment and
dissemination risk. Three strategic (extent of
national differences, extent of scale
economies, global concentration), four
environmental (country risk, location
familiarity, demand conditions, volatility of
competition) and two transaction variables
(value of firm-specific know-how and tacit
nature of know-how) are proposed there. Hill
et al. (1990, p. 127) consider their eclectic
framework useful in ``identifying possible
trade-offs between different considerations
and in understanding not only the benefits
but also the potential costs associated with
pursuing a particular entry mode decision''.
They point at problems in identifying
advantages/disadvantages of competing
feasible market entry modes which can make
the task of measuring and comparing these
quite difficult and thus influence, albeit
indirectly, the company choices.
When designing an eclectic framework,
one needs to pay particular attention to
factors that are likely to have, under various
contexts, the strongest influence on market
and entry selection. Root (1994) believes that
Adam J. Koch
Selecting overseas markets
and entry modes: two decision
processes or one?
Marketing Intelligence &
Planning
19/1 [2001] 65±75
four factors: global philosophy and strategy,
internal information transfers, sharing
resources; and decision support often
exercise a critical influence on the entry
mode planning process. Root's multicountry/
multiproduct matrix facilitates the task of
controlling entry strategies for the
corresponding category of companies. Its
criteria include profit contribution, sales,
contribution margins, industry sales and
market share.
Two decision processes or one?
As already pointed out in this paper, market
selection and market entry mode selection
are often discussed separately from one
another. Explicit views that suggest that
these two should be regarded as parts of one
decision process are rare.
The main research question posed in this
paper concerns the relationship between
market selection and entry mode selection. To
find an answer to this question, one needs to
investigate the character and nature of each of
these selections. In so doing, one needs to
refer to a broad range of decision contexts.
The design and outcomes of each market
selection and entry mode selection depend
greatly on the external and internal
environment circumstances. Apparent logic
of the process, or its absence, selection
criteria, process dynamics, amounts and
kinds of information used, environment
perceptions, employee participation levels
are just a few examples of factors which
could, and would, influence the market and
market entry mode choices. Narrow
empirical bases relied on by theory produce
the tendency to underestimate the variety of
approach and methods used in business
when selecting markets and market entry
modes. This variety could be viewed as a byproduct of the diversity of the context in
which these decisions are made.
Not all the market and entry mode
selection practice could be regarded as found
reliable or efficient. Take, for example,
selecting overseas markets without
considering the feasibility and sales potential
impact of various market entry alternatives.
Anecdotal evidence would suggest that such
an approach is not uncommon in
international business (see, for example, the
discussion of naõÈve rule by Root (1994)). A
brief examination of the logic of this process
(Figure 2), and of its capacity to influence
company strategic performance, will suggest
that neglecting to properly examine the
feasibility of various market entry modes
and their impact on brand sales potential is
likely to lead to unacceptable, or at best
suboptimal, decisions.
Every international market expansion and
entry mode selection process begins with the
recognition of the need to expand
internationally. This recognition is based on
an analysis of company objectives. The
circumstances in which the need to expand
may be recognised differ from case to case,
for example, in terms of the particular motive
of the proposed international market
expansion or the source of the initial
stimulus. This first stage is omitted from
most models.
Another, often neglected aspect of the
market and entry mode selection are decision
criteria used in this selection. In some
situations their determination and
application are results of a formal decision
process undertaken by the company. In
others, it will be the discretion of an
individual or a small informal group that will
decide about their selection and
implementation. In both cases, choice of
selection criteria will be influenced by the
corporate culture, existing management
systems and the collective, and individual,
experience.
The next stage, country identification, has
to do with the examination of the available
alternatives. Depending on the amount of
information available, market dynamics,
urgency of the move for the company and the
formalization of the process, this stage may
take anything between a few weeks and
several years.
The main purpose of the preliminary
screening of markets is to bring about an
efficient reduction in the number of
countries in need of an in-depth examination
(Johansson, 1997; Root, 1994). This is
achieved through eliminating all those that
cannot be accessed by the company, or do not
constitute commercially viable options. On
the other hand, the in-depth screening of
markets has the ranking of the remaining
markets against a number of accepted
decision criteria as its prime purpose.
Proper estimation of market opportunities
makes it necessary for the business forms
and ideas (this takes in foreign market entry
modes) to be defined clearly in each case. No
market opportunity may be assessed
accurately enough unless all these elements
of context: areas and countries; goods and
services; business forms and ideas and
barriers are given. An example below will
explicate this in more concrete terms.
Case 1
A car-making company from country A wants
to commence selling its cars in country B.
Owing to much higher production costs in
[ 69 ]
Adam J. Koch
Selecting overseas markets
and entry modes: two decision
processes or one?
Figure 2
The systematic approach to international market expansion and entry mode selection
Marketing Intelligence &
Planning
19/1 [2001] 65±75
country A and substantial cost escalation (the
costs of overseas freight, insurance and custom
duties), country B retail prices in the export
option would be around US$20,000, while the
alternative of manufacturing these in country
B produce retail prices in the vicinity of
US$15,000. Apart from the extra costs involved,
country B applies quotas to car imports,
setting these recently at 50,000 cars per year. At
$20,000, there would probably some 8,000 of
these exported to country B and sold there
within the next 12 months, and then 12,000 sold
in the second year and then, from the third
year the sales would have levelled off at some
15,000 for the next two-to-three years.
On the other hand, an FDI option would
have cost the car-making company some
$70,000,000 and would have seen first cars
leaving the new production line in 24 months
[ 70 ]
only. Achievement of full production and
marketing capacity would have then taken an
extra 18 months. The demand for these cars at
$15,000 is estimated at min. 25,000 for year 3
through 7. Which of the two entry options
should the car maker take? What would this
choice depend on?
Sales potential estimation in foreign
markets provides a basic input to the market
selection process. Yet, a product's sales
potential in any foreign market depends on
the strategy chosen by the company. For
instance, indirect export may often be the
quickest route for the company's products to
a foreign market in that it allows the
utilization of existing contacts and marketing
systems that the intermediary has access to.
Yet, international business decisions tend to
be assessed over longer terms than their
Adam J. Koch
Selecting overseas markets
and entry modes: two decision
processes or one?
Marketing Intelligence &
Planning
19/1 [2001] 65±75
domestic equivalents, as they involve extra
effort and risks and often take longer to show
their pertinent outcomes.
Indirect export will in most situations
reduce costs and risks associated with
market entry. As marketing systems and
customer relationships are already
established, sales revenue may start flowing
just a few months after the marketing
opportunity first drew the attention of the
exporter. Yet, due to the circumstances and
the market entry mode selected, this business
may never fully tap the overseas market's
true potential. Hindrances may include:
inadequate market coverage, incompatibility
of the existing distribution system with the
particular requirements of the newly
introduced product, incompatibility of the
market objectives between the exporter and
its intermediary, strong competition from
other products in the same distribution
channel, or image dissonance between
companies and/or their products.
On the other hand, establishing own
subsidiary, or a joint venture, can be
expected to take much longer, cost (initially)
more and bring extra risks than indirect
exporting but, on the plus side, could produce
a much better strategic fit between the
marketing system and the market
opportunity. It will also help improve access
to market information and establish closer
market contacts and thus reduce the
company's response time and, generally,
enhance the quality of its respective
decisions.
Case 2
A joint venture using technology and
management experience of a company from
country A and building equipment and
personnel from several companies from
country B is about to be established for the
purpose of residential dwellings construction
in country B.
Since acquisition of land of the required size
by foreigners is not permitted in country B,
joint venture is the quickest way to tap into the
new residential housing market. The
competitive advantage of this business
endeavour would be a short building cycle,
lower than average costs and good average
quality.
How would other forms of market entry,
such as an FDI through establishing a new, or
acquiriing an existing domestic company(-ies)
compare with the joint venture option over the
period of, say, five to seven years.
It follows that establishing one's own
manufacturing/marketing subsidiary or a
joint venture in an overseas market may
often produce larger accrued export sales
revenues and profits over the long term than
the indirect export option. On the other hand,
the latter may often be able to deliver better
short-term cash flow.
Review of the literature has produced a
very scant evidence of the appreciation that
there may well be a number of diverse levels
of overseas market and brand sales potentials
for every market at any point in time. Yet, as
demonstrated later in this paper, both of these
potentials depend on the market entry mode
and other elements of company strategy. The
market potential depends more on the
competitive environment there: in particular,
on the variety of products and strategies
(including market entry modes) present there.
The variation in sales potential depends more
on the competitive advantages of company's
products. One can thus submit that no one
absolute market/sales potential exists at any
time for any given product, regardless of
strategy pursued by the company.
P1. For any given product, market and
period of time, there is a number of
market/sales potentials that
correspond with feasible strategies,
each of them including selection of a
particular entry mode.
The interplay of market selection and entry
mode selection requires a simultaneous
analysis of factors referring to both parts of
the decision to arrive at a reliable estimate of
market brand sales potential. It is critically
important for that potential to constitute a
reliable basis on which to select the best
market/entry mode option. This leads us to
the second proposition which answers the
most central research question posed in this
paper: are market selection and entry mode
selection to be conducted independently from
one another, or are they indeed organic parts
of the same decision process?
P2. Market selection and entry mode
selection are mutually dependent and
thus should be conducted as parts of the
same decision process.
To demonstrate that an overseas market
should be chosen over any of its alternatives
requires a systematic examination of the
feasibility and commercial viability of
various modes of entry into alternative
markets (Figure 3).
Neglecting to evaluate and compare each
individual market's potential in accordance
with this logic is likely to produce a large
margin of error and lead to sub-optimal
international expansion decisions, if not to
outright failures. These will be caused by
either omissions in the analysis of some
market/entry mode combinations (XY space
in Figure 3), or oversight of some valid
decision criteria in the evaluation of
[ 71 ]
Adam J. Koch
Selecting overseas markets
and entry modes: two decision
processes or one?
Marketing Intelligence &
Planning
19/1 [2001] 65±75
generated market/entry mode combinations
(XYZ space in Figure 3).
Preliminary and in-depth screening has the
overriding purpose of finding the best
matches between the established market
opportunities on the one side, and companies
resources, competencies and skills, objectives
and strategies, on the other. This prepares the
ground for the final selection, which is based,
if a systematic approach is followed, on a
combination of selection dimensions and
criteria adopted by the company.
Model
Bearing in mind the findings of the literature
review and the needs of international
business, care was taken to design a MEMS
model in such a way as to ensure that it:
.
includes all factors influencing the market
and market entry mode selection process;
and
.
has a wide applicability.
That has led to including in this model some
process stages that have so far received scant
attention in the literature of the subject.
Inclusion of global corporate objectives and
decision criteria in this model (see Figure 4)
gives proper justice to the roles these major
components of internal organization
environment have on the MEMS process
design, its implementation and decisions
reached in individual situations. The
presence of global corporate objectives in this
model makes it possible to consider, among
Figure 3
Comparison of potentials for various market/entry mode options
others, the influence of various strategic
management approaches (e.g. reactive,
proactive and planning), various stages of
internationalization (see EPRG model) and
specific global strategic objectives on the
MEMS decisions. The inclusion of the other
category, decision criteria, makes it possible
for the influence of various, industry- and
situation-specific, sets of decision criteria to
be examined. In so doing, it also encourages
closer investigation of the various forms of
multicriteria selection of markets and market
entry modes by business.
The two mini-cases presented earlier show
how much the brand sales potential, and
sales dynamics over the long term, may
depend on the choice of market entry mode.
The requirement for these influences to be
systematically examined for each feasible
market/market entry mode combination is
another characteristic feature of the MEMS
model. Finally, the MEMS model stresses the
need to consider the long-term implications
of individual market entries for the success
of the company's global strategy[5].
The advantages of this model would consist
in:
.
its consideration of the entire spectrum of
MEMS decision criteria followed by the
business practice (as against their various
selections suggested in the literature);
.
its insistence on a systematic examination
of all feasible country/market entry mode
combinations (which leads to developing
an anticipated pay-offs matrix n m,
where n represents the number of preselected countries and m the number of
overseas market entry options available
to the industry)[6];
.
its provision for comparisons between
competing feasible market/market entry
mode options to be conducted against a
number of criteria[7];
.
proposing another screening during
which to examine the goodness of the fit
between proposed pre-qualified market/
market entry mode options and the global
strategy followed by the company[8].
Compared with the alternative models,
MEMS:
.
encourages a greater number of MEMS
process influences to be included in the
decision process design and analysis[9];
.
proposes for country/market entry mode
options to be examined systematically;
.
provides an original framework within
which to conduct a multicriteria selection
of country/market entry mode options.
The proposed MEMS model rejects the
proposition that in international expansion
one selects markets first and, only after that
[ 72 ]
Adam J. Koch
Selecting overseas markets
and entry modes: two decision
processes or one?
Marketing Intelligence &
Planning
19/1 [2001] 65±75
selection has been made, one evaluates and
selects market entry modes into these markets.
.
Conclusion
This paper's comprehensive discussion of
factors influencing the MEMS process has
revealed the following:
.
overseas market selection and market
entry selection should be regarded as
parts of the same decision process;
.
MEMS process is influenced by a larger
variety of the external and internal
Figure 4
The eclectic market and entry mode selection (MEMS) model
.
environment factors than commonly
acknowledged by theory;
a systematic approach to this process will
improve the quality of resulting decisions;
and
to increase content validity of its models,
theory needs to integrate findings of
various narrow studies.
In-depth examination of the MEMS process
in various industry contexts should be
carried out more systematically to develop a
sufficient knowledge basis on which to
develop a more detailed specification of
factors for the proposed model. Adoption of a
more inclusive perspective of this process
would help bridge the gap between the
currently dominant narrow theoretical
models and the immense complexity of global
business. It would also provide an effective
and efficient guidance in designing these
processes by individual companies, to suit
their particular contexts.
The following paper by the same author
briefly examines the character of influence
exercised on the MEMS process by a
selection of factor categories, many of which
have so far attracted very scant attention in
the subject's literature. The second paper
completes the explication of the reasons
behind the proposed MEMS approach and, at
the same time, engenders some original
research ideas to be explored in various
business contexts.
Notes
1 Even a brief presentation of all relevant
models would be well beyond the scope of this
article; readers may want to look at some
relevant inventories, e.g. those compiled by
Papadopoulos and Denis (1988) or Sarkar and
Cavusgil (1996).
2 The MEMS model proposed in this paper
follows his suggestion and includes the
expansion motives as one of the factors that
influence this decision process.
3 The MEMS model adopts the logic of
contractible approach as being compatible
with the eclectic framework of that model.
4 The MEMS model in this paper conforms with
the ``strategy rule''.
5 See the ninth stage of this model during which
the goodness of fit between MEMS decisions
and the company's global strategy is
examined.
6 Certainly, a systematic approach can increase
the amount of time and information needed to
arrive at MEMS decision quite considerably
compared to non-systematic approaches; the
trade-off for the proposed approach, however,
is a significantly better exploration of all
feasible MEMS options which in many cases
will lead to selecting a better MEMS option.
[ 73 ]
Adam J. Koch
Selecting overseas markets
and entry modes: two decision
processes or one?
Marketing Intelligence &
Planning
19/1 [2001] 65±75
7 While the latter is not a unique feature of this
model, its importance for the quality of MEMS
decisions is increased by the other model
propositions discussed here.
8 Again, this suggestion is not truly original;
however, its significance should be seen in the
context of other model propositions and their
joint influence on the quality of the MEMS
model based decision process.
9 Thus, at least potentially, improving the
content validity of the discussed process.
References
Aaby, N.E. and Slater, S.F. (1989), ``Managerial
influences on export performance: a review of
the empirical literature 1978-88'', International
Marketing Review, Vol. 6 No. 4, pp. 53-68.
Agarwal, S. (1994), ``Socio-cultural distance and
the choice of joint ventures: a contingency
perspective'', Journal of International
Marketing, Vol. 2 No. 2, pp. 63-80.
Agarwal, S. and Ramaswami, S. (1992), ``Choice of
foreign market entry mode: impact of
ownership, location and internationalization
factors'', Journal of International Business
Studies, Vol. 23 No. 1, pp. 1-27.
Albaum, G., Strandskov, J., Duerr, E. and Dowd,
L. (1989), International Marketing and Export
Management, Addison-Wesley, Wokingham.
Anderson, E. and Gatignon, H. (1986), ``Modes of
foreign entry: a transaction cost analysis and
propositions'', Journal of International
Business Studies, Vol. 17 No. 3, pp. 1-26.
Axinn, C.N. (1988), ``Export performance: do
managerial perceptions make a difference?'',
International Marketing Review, Vol. 5,
Summer, pp. 61-71.
Ayal, I. and Zif, J. (1979), ``Market expansion
strategies in multinational marketing'',
Journal of Marketing, Vol. 43, Spring, pp. 84-94.
Barker, S. and Kaynak, E. (1992), ``An empirical
investigation of the differences between
initiating and continuing exporters'',
European Journal of Marketing, Vol. 26 No. 3,
pp. 27-36.
Beamish, P.W. (1988), Multinational Joint
Ventures in Developing Countries, Routledge,
London.
Beamish, P.W. (1993), ``The characteristics of joint
ventures in the People's Republic of China'',
Journal of International Marketing, Vol. 1
No. 2, pp. 29-48.
Benito, G.R.G. and Welch, L.S. (1994), ``Foreign
market servicing: beyond choice of entry
mode'', Journal of International Marketing,
Vol. 2 No. 2, pp. 7-28.
Benito, G.R.G., Solberg, C.A. and Welch, L.S. (1993),
``An exploration of the information behavior of
Norwegian exporters'', Journal of Information
Management, Vol. 13, August, pp. 274-86.
Bilkey, W.J. (1978), ``An attempted integration of
the literature on the export behaviour of
firms'', Journal of International Business
Studies, Vol. 9, Spring/Summer, pp. 33-46.
BjoÈrkman, I. and Eklund, M. (1991), ``Entering
foreign markets: an analysis of the market
entry modes used by Finnish direct investors
in Germany'', in Vestergaard, H. (Ed.), An
[ 74 ]
Enlarged Europe in the Global Economy,
Vol. 2, European International Business
Association, Copenhagen.
Cateora, P.R. (1996), International Marketing,
9th ed., Irwin, Chicago, IL.
Cavusgil, S.T. (1985), ``Guidelines for export
market research'', Business Horizons,
November-December, pp. 27-33.
Cavusgil, S.T. and Li, T. (1992), International
Marketing: An Annotated Bibliography,
Bibliography Series, American Marketing
Association, Chicago, IL.
Cavusgil, S.T. and Nevin, J.N. (1981), ``Internal
determinants of export marketing behaviour:
an empirical investigation'', Journal of
Marketing Research, Vol. 18 No. 1, pp. 114-19.
Chi, T. and McGuire, D. (1996), ``Collaborative
ventures and value of learning: integrating
the transaction cost and strategic option
perspectives of the choice of market entry
modes'', Journal of International Business
Studies, Vol. 27 No. 2, pp. 285-307.
Douglas, S.P. (1989), ``Evolution of global
marketing strategy: scale, scope and
synergy'', Columbia Journal of World
Business, Fall, pp. 47-59.
Douglas, S.P., Lemaire, P. and Wind, Y. (1972),
``Selection of global target markets: a
decision-theoretic approach'', Proceedings of
the XXII Esomar Congress, France,
September, pp. 237-51.
Doyle, P. and Gildengil, Z.B. (1977), ``A strategic
approach to international market selection'',
Proceedings of the American Marketing
Association, AMA, Chicago, IL, pp. 230-34.
Doz, Y.L. (1980), ``Strategic management in
multinational companies'', Sloan
Management Review, Winter, pp. 16-27.
Driscoll, A.M. (1995), ``Foreign market entry
methods'', in Paliwoda, S.J. and Ryans, J.K. Jr
(Eds), International Marketing Reader,
Routledge, London.
Driscoll, A.M. and Paliwoda, S.J. (1997),
``Dimensionalizing international market
entry mode choice'', Journal of Marketing
Management, Vol. 13 Nos 1-3, pp. 57-87.
Dunning, J.D. (1980), ``Towards an eclectic theory
of international production'', Journal of
International Business Studies, Spring/
Summer, pp. 9-31.
Erramilli, M.K. and Rao, C.P. (1993), ``Service
firms' international entry mode choice: a
modified transaction-cost analysis approach'',
Journal of Marketing, Vol. 57, July, pp. 19-38.
Glaister, K. and Thwaites, D. (1993), ``Managerial
perception and organizational strategy'',
Journal of General Management, Vol. 13 No. 4,
pp. 15-33.
Goodnow, J.D. (1985), ``Developments in
international mode of entry analysis'',
International Marketing Review, Vol. 2 No. 3,
pp. 17-30.
Goodnow, J.D. and Hansz, J.E. (1972),
``Environmental determinants of overseas
market entry strategies'', Journal of
International Business Studies, Spring, pp. 33-50.
Goodnow, J.D. and Hansz, J.E. (1976), ``The role of
product classification and corporate size in
Adam J. Koch
Selecting overseas markets
and entry modes: two decision
processes or one?
Marketing Intelligence &
Planning
19/1 [2001] 65±75
multinational corporate market entry
strategy'', paper presented at the Annual
Meeting of the Academy of International
Business.
Grùnhaug, K. and Kvitastein, O. (1993),
``Distributional involvement in international
strategic business units'', International
Business Review, Vol. 2 No. 1, pp. 1-14.
Hill, C.W.L., Hwang, P. and Kim, W.C. (1990), ``An
eclectic theory of the choice of international
entry mode'', Strategic Management Journal,
Vol. 11 No. 2, pp. 117-28.
Johanson, J. and Vahlne, J.-E. (1977), ``The
internationalization process of the firm ± a
model of knowledge development and
increasing foreign market commitments'',
Journal of International Business Studies,
Spring-Summer, pp. 23-32.
Johanson, J. and Vahlne, J.-E. (1992),
``Management of foreign market entry'',
Scandinavian International Business Review,
Vol. 1 No. 3.
Johansson, J.K. (1995), ``International alliances:
why now?'', Journal of the Academy of
Marketing Science, Vol. 23 No. 3, pp. 301-04.
Johansson, J.K. (1997), Global Marketing, Foreign
Entry, Local Marketing and Global
Management, McGraw-Hill, Chicago, IL.
Katsikeas, C.S. and Leonidou, L.C. (1997), ``Export
market expansion strategy: differences
between market concentration and market
spreading'', in Doyle, I. and Lowe, R. (Eds),
International Marketing Strategy,
International Thomson Business Press,
London.
Keegan, W.J. (1995), Global Marketing
Management, 5th ed. Prentice-Hall,
Englewood Cliffs, NJ.
Klein, S. (1989), ``A transaction cost explanation of
vertical control in international markets'',
Journal of the Academy of Marketing Science,
Vol. 17 No. 3, pp. 253-60.
Kobrin, S.J. (1976), ``The environmental
determinants of foreign direct investment: an
ex-post empirical analysis'', Journal of
International Business Studies, Fall, pp. 29-42.
Kumar, V., Stam, A. and Joachimsthaler, E.A.
(1994), ``An interactive multicriteria approach
to identifying foreign markets'', Journal of
International Marketing, Vol. 2 No. 1, pp. 29-52.
Luostarinen, R. and SvaÈrd, M. (1982), Yritysten
HenkiloÈstoÈn KansainvaÈlistaÈmistarve'',
(Personnel Needs in Internationalizing Firms),
FIBO Publications, 19, VientikoulutussaÈaÈtoÈ,
Helsinki.
Miesenbock, K.J. (1988) ``Small business and
exporting: a literature review'', International
Small Business Journal, Vol. 6 No. 2, pp. 42-61.
Minor, M., Yu, W.-Y. and Choi, M.-K. (1991), ``A
proposition-based approach to international
entry strategy contingencies'', Journal of
Global Marketing, Vol. 4 No. 3, pp. 69-87.
Moyer, R. (1968), ``International market analysis'',
Journal of Marketing Research, Vol. 5,
November, pp. 353-60.
Onkvisit, S. and Shaw, J.J. (1993), International
Marketing: Analysis and Strategy, 2nd ed.,
Macmillan, New York, NY.
Paliwoda, S. (1993), International Marketing,
2nd ed., Butterworth-Heinemann, Oxford.
Papadopoulos, N. and Denis, J.-E. (1988),
``Inventory, taxonomy and assessment of
methods for international market selection'',
International Marketing Review, Autumn,
pp. 38-51.
Pettigrew, A.M. (1988), ``Introduction: researching
strategic change'', in Pettigrew, A.M. (Ed.),
The Management of Strategic Change, Basil
Blackwell, Oxford, pp. 1-13.
Pezeshkpur, C. (1979), ``Systematic approach to
finding export opportunities'', Harvard
Business Review, September-October, pp. 182-96.
Piercy, N.F. (1981), ``British export market
selection and pricing'', Industrial Marketing
Management, Vol. 10, pp. 287-97.
Porter, M.E. (1976), Interbrand Choice, Strategy
and Bilateral Market Power, Harvard
University Press, Cambridge, MA.
Root, F.R. (1994), Entry Strategies for
International Markets, Lexington Books,
San Francisco, CA.
Rugman, A.M. (1981), Inside the Multinationals:
The Economics of Internal Markets, Columbia
University Press, New York, NY.
Sarkar, M. and Cavusgil, S.T. (1996), ``Trends in
international business thought and
literature: a review of international market
entry mode research: integration and
synthesis'', The International Executive,
Vol. 2, pp. 825-47.
Sheth, J.N. and Lutz, R.J. (1973), ``A multivariate
model of multinational business expansion'',
in Sethi, S.P. and Sheth, J.N. (Eds),
Multinational Business Operations. Marketing
Management, Vol. 3, Goodyear, CA, pp. 96-103.
Simpson, C.L. Jr and Kujawa, D. (1974), ``The
export decision process: an empirical
enquiry'', Journal of International Business
Studies, Spring, pp. 107-17.
Vargas-Carcamo, A.H. (1986), ``Export market
selection process by small and medium-sized
midwest export manufacturers of industrial
goods'', unpublished Doctoral dissertation,
Ohio State University.
Welch, L.S. and Luostarinen, R. (1988),
``Internationalization: evolution of a concept'',
Journal of General Management, Vol. 14 No. 2,
pp. 34-55.
Williamson, O.E. (1985), The Economic Institutions
of Capitalism: Firms, Markets, Relational
Contracting, The Free Press, New York, NY.
Wind, Y. and Perlmutter, H.V. (1977), ``On the
identification of frontier issues in
multinational marketing'', Columbia Journal
of World Business, Winter, pp. 131-9.
Wind, Y., Douglas, S.P. and Perlmutter, H.V.
(1973), ``Guidelines for developing
international marketing strategies'', Journal
of Marketing, April, pp. 14-23.
[ 75 ]