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IMR
24,2
Market selection for international
expansion
Assessing opportunities in emerging markets
208
Received June 2006
Revised November 2006
Accepted December 2006
Sema Sakarya
Department of International Trade, Bogazici University, Istanbul, Turkey, and
Molly Eckman and Karen H. Hyllegard
College of Applied Human Sciences, Colorado State University,
Fort Collins, Colorado, USA
Abstract
Purpose – Traditional market selection analysis relies on purely macroeconomic and political factors
and fails to account for an emerging market’s dynamism and future potential. The objective of this
paper is to present a tool composed of four criteria specific to the preliminary assessment of emerging
markets (EM) as international expansion opportunities.
Design/methodology/approach – Based on the literature pointing out the limitations of
international market selection (IMS) models and the need for a specialized approach, additional
criteria are introduced to assess emerging market potential. Review of prior work on
internationalization, EM and market selection provided the rationale for the selected criteria. Using
secondary data and primary data from a sample of 500, the proposed criteria are applied to the
assessment of an emerging market for US apparel specialty retailers.
Findings – Assessment of the emerging market with the criteria introduced revealed growth and
sourcing opportunities that might otherwise have been overlooked. Case application exposed
strong future market potential, manageable level of cultural distance, supportive and developing
local industry and positive customer receptiveness for foreign products and business. The
findings illustrate the need to improve and supplement assessment criteria of traditional analysis
for EM.
Research limitations/implications – Follow-up studies validating, integrating and determining
the relative importance of the criteria introduced will contribute to the development of an assessment
model for EM.
Practical implications – A useful complementary tool for international marketers.
Originality/value – The paper develops the body of knowledge on IMS by addressing the
shortcomings of traditional analysis and expands the two prior studies on emerging market potential.
Keywords Emerging markets, Globalization, Competitive advantage, Textiles, Turkey,
United States of America
Paper type Research paper
International Marketing Review
Vol. 24 No. 2, 2007
pp. 208-238
q Emerald Group Publishing Limited
0265-1335
DOI 10.1108/02651330710741820
Introduction
Comparative research of emerging market potential is a costly exercise for
international marketers confronted with a multitude of diverse markets for which
there is dearth of available research. Nonetheless, innovative companies are willing to
Partial funding for this research was provided by a Career Enhancement Grant from Colorado
State University.
shoulder the burden of looking at emerging markets (EM) that are commonly
ignored because they offer growth potential through investment and sourcing
opportunities. They often have to be able and willing to cope with issues such as risk of
turbulent change, poorly developed communication and distribution systems, limited
managerial resources and cultural differences (Dunning and Bansal, 1997; Arnold
and Quelch, 1998; Dawson, 2000, 2001). Traditional market selection analysis relies
on purely macroeconomic and political factors at the outset of the analysis and fails
to account for an emerging market’s dynamism and future potential resulting
from rapid change, national attributes that affect specific sectors and market
receptiveness.
To create a market selection framework that does justice to EM and enhances
traditional analysis, we have sought to integrate into the assessment process tools
developed by a variety of scholars. These tools include long-term market potential
assessment from Arnold and Quelch’s (1998) market demand-driven model, Hofstede’s
(1980, 2001) cultural dimensions to measure cultural distance (Kogut and Singh, 1988;
Morosini et al., 1998), Porter’s (1990) competitive analysis of an industrial sector.
Customer receptiveness to the specific foreign industry and products is introduced as a
new dimension. Applied as a case study to assessing Turkey’s potential, the proposed
criteria complement traditional analyses by incorporating product market indicators,
within country heterogeneity and future potential. The assumption of a static
environment is released. The general indicators of risk are sensitized by the
introduction of measure of customer receptiveness. The perceived uncertainty is
partially quantified by a measure of cultural distance.
In addressing the need for a specialized approach to the preliminary assessment of
EM as international expansion opportunities, this paper introduces long-term market
potential, cultural distance, competitive strength of the related industry and customer
receptiveness as four additional criteria for assessing EM as candidates for subsequent
in-dept analysis. It argues that a specialized approach will compensate for the go-no-go
approach that traditional analysis takes. Considered prior to the immediate measures
of macro economic indicators and country risk, the additional criteria will complement
the traditional market selection analyses and provide a more realistic view of EM.
The focus of the paper is on EM as interesting investment opportunities that need to be
looked at more seriously. The scope of the paper is limited to preliminary international
market selection (IMS) analysis for EM based on external factors. Internal factors
relating to the firm, entry mode selection, strategies for retail or manufacturing
internationalization, competitive and functional strategies or management failure and
divestment are beyond its scope.
Review of literature on company internationalization, its implications for
market selection, discussion of the traditional market selection models and EM is
presented in the following sections. Based on the contributions and limitations of
internationalization, market selection/entry and traditional assessment literatures for
market selection, the four criteria for the specialized approach to assessing EM are
introduced. As an example for applying the introduced dimensions, country level,
macro analysis of Turkey is conducted for long-term market potential and cultural
distance criteria. For the competitiveness of the related industry and customer
receptiveness criteria, Turkey was assessed from the view point of US apparel
specialty retailers at the industry and consumer levels.
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Internationalization of the firm and market selection for international
expansion
Early explanations of internationalization were primarily influenced by general
marketing theories and focused on the core competencies of a company and its
opportunities in foreign markets (Penrose, 1959; Prahalad and Hamel, 1990). This
approach argued that companies needed a compensating marketing and technological
advantage to overcome the cost of foreignness (Hymer, 1976; Kindleberger, 1969).
Subsequent scholarship focused on the choice of entry mode. Vernon (1966) presented
the product cycle model with a sequential mode of internationalization involving
companies going through stages from export to foreign direct investment. The Nordic
School process model (Johanson and Wiedersheim-Paul, 1975; Johanson and Vahlne,
1977) also employed a sequential entry pattern into successive culturally-close foreign
markets with minimum psychic distance with companies intensifying their
commitments as their experience and knowledge grows. Scholars such as Buckley
and Casson (1998) attempted to determine whether a company should outsource certain
operations once it had decided to enter a foreign market against the backdrop of
location and entry mode. Based on Coase’s (1937) internationalization theory and
Williamson’s (1975) transaction cost theory, transaction cost analysis model suggested
that the need to minimize transaction costs guided the strategic decision. The
interpretation of the network environment and the nature and environment of
interaction of the firm and customers, competitors, suppliers within the network, as
well as their characteristics was suggested to be influential in the decision as to which
markets the firm will enter and the organizational structure for market entry (Turnbull,
1986; Cunningham, 1986). The business strategy approach to internationalization
stressed pragmatism and stated that the foreign expansion decision is contingent on
trade-offs between variables like the nature of the market opportunity, firm’s resources
and managerial philosophy (Reid, 1983; Welford and Prescott, 1994). Subsequent
studies (Dunning and Bansal, 1997; Dunning, 1988) argued that explanations of a
company’s internationalization process should be rooted in economic theory and that
the decisions to internationalize and choice of entry mode were motivated by
culturally-based ownership, location and internalization advantages. Economic theory
was also used to model national attribute configurations that account for efficiency,
competitive advantage in certain industries and clusters, enabling firms to export
efficiency and enhancing their potential for successful internationalization (Porter,
1990, 1998).
The various approaches to the explanation of the internationalization of the firm
provide different emphases on the issue of market selection and entry. Despite
distinctive contributions, most of these theory streams imply that firms expand into
overseas markets at an incremental pace. Initially, their scope is limited and cautious.
According to the Nordic School, market selection is constrained by two interrelated key
concepts: psychic distance and experiential learning (Johanson, 1977; Johanson and
Vahlne, 1977; Kogut and Singh, 1988; Fina and Rugman, 1996). The psychic distance
epitomizes the knowledge and information deficiency that increases the uncertainty of
undertaking overseas business and the costs of coordination. As a result, companies
select foreign markets that exhibit similar economic, cultural, and political systems. The
Nordic School’s stages theory and model of incremental market commitment have been
supported for limited levels of involvement like exporting in the studies of US, Japanese,
Austrian and Turkish firms (Bilkey, 1978; Cavusgil, 1980; Johanson and Vahlne, 1977,
1990). It was not supported, however, by the behaviour of some large firms using mixed
approaches (Turnbull, 1987). The existence of born global firms suggests a new
challenge to traditional theories of internationalization (Knight and Cavusgil, 1996,
2004). The explanatory power of psychic distance decreased due to recent developments
in consulting services, information technology and human resources with international
experience. Recent research indicates that contrary to traditional companies, cultural
distance has no significant impact on the internationalization of e-commerce companies
(Luo et al., 2005). Overall, however, cultural differences and psychic distance remain as
widely cited and well supported influences on IMS (Dow, 2000; Petersen and Pedersen,
1996; Welch and Luostarinen, 1988).
In the eclectic paradigm, market selection and choice of entry mode are treated as
one decision and the emphasis is on entry mode selection. The need for information
about the market is the crucial indicator of market entry mode selection. It is assumed
that the firm will make a rational entry decision based on cost information and analysis
(Dunning, 1988). Firm’s market entry decision will be shaped by the match between its
objectives and the cost of entry mode. The interaction of the firm, customers and
competitors within a market environment guides the market selection decision in the
network approach (Cunningham, 1986). Nature of the market opportunity, firm’s
resources and managerial philosophy affect internationalization in the business
strategy approach, and market selection will result from an evaluation of factors like
market attractiveness, psychic distance, accessibility and informal barriers (Root, 1987;
Turnbull and Ellwood, 1986).
Whitelock (2002) suggests that a model of international market entry incorporating
distinctive contributions and areas of convergence of the internationalization schools
of thought can present a more realistic and comprehensive picture of the entry decision.
The model specifies sets of variables relating to the firm and the market along with the
interpretations and perceptions of decision makers, the level of experiential knowledge
developed and the costs of transaction as determinants of the decision to enter a
non-domestic market and the selection of market entry mode. Resources, orientation
and philosophy are the variables relating to the firm as suggested by the eclectic
paradigm and the business strategy approaches. Psychic distance of the Nordic School,
potential attractiveness, size and growth of market from network and business
strategy schools, and accessibility and competition from the network approach are
variables relating to the market.
Traditional models for international market selection
Increasing dependence of companies on international business and growth and the
intensity of competition makes selection of non-domestic markets one of the most
critical decisions in international strategy (Andersen and Strandskov, 1998). Despite its
importance, however, knowledge about the initial market entry decision is limited
(Ellis, 2000). Literature review suggests that research on the topic remains fragmented,
overshadowed by work on market entry mode selection and that integrated
frameworks and comprehensive studies of market selection process have been rare
(BjöErkman and Eklund, 1991). Few studies attempting to integrate previous work
suggest product-specific market size and growth, availability and cost of factors of
production, level of economic development (Russow and Okoroafo, 1996), and the
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country environment, psychic distance, market-based factors, competition, information
and market knowledge (Whitelock, 2004) as sets of criteria for market selection. Koch
(2001) lists the dominance of interest in the external environment over the role of
company internal environment; the dominance of prescriptive approach over the
descriptive one; static perspective; and focus on quantitative aspects of the process and
neglect of qualitative aspects as prominent tendencies in the market/market entry
mode selection literature.
The general and context-specific approaches to foreign market selection view the
process of evaluating the viability of overseas markets as composed of stages like
preliminary screening, identification/in-dept screening and final selection (Koch, 2001;
Johanson, 1997; Cateora, 1995; Kumar et al., 1994; Root, 1994; Cavusgil, 1985). Preliminary
assessment or “screening” identifies potential markets as candidates for subsequent
in-dept analysis (Douglas et al., 1972; Root, 1994). Macro-level indicators are used to
eliminate countries that do not meet the firm’s objectives (Kumar et al., 1994). Market size,
growth rate, fit between customer preferences and the product and competitive rivalry
constitute proposed screening criteria. Identification stage involves assessment of
industry attractiveness and forecasts of costs and revenues for the short-listed countries.
The final selection stage determines the country market which best matches the
company’s objectives and available resource leverages (Johanson, 1997).
For international marketers seeking to expand abroad, the literature provides
primarily two normative market screening models for evaluating and selecting
attractive markets (Papadopoulos and Denis, 1988; Cavusgil et al., 2004). Based on
large amounts of secondary statistical data, they either group countries on the basis of
similarity or differentiate countries on the basis of market potential. Grouping
approaches cluster countries on the similarities of social, economic and political
indicators and do not measure demand levels. The similarities help managers compare
countries and evaluate possible synergies (Liander et al., 1967; Sethi, 1971; Huszagh
et al., 1985; Cavusgil et al., 2004). They seek identification of key variables for country
screening (Bartels, 1963) and of countries with similar levels of industrial development
through cluster and factor analysis, operationalisation of variables; and grouping of
nations in terms of development within regions (Liander et al., 1967; Litvak and
Banting, 1968; Sethi, 1971; Sethi and Curry, 1973; Sheth and Lutz, 1973; Samlı, 1977).
Scholars have criticized grouping approaches for relying exclusively on aggregate,
general country indicators rather than on specific product market indicators. These
critics argue that macro indicators may not reflect market development for a product.
Country rankings within clusters, moreover, may differ depending on whether general
or product specific indicators are used (Douglas, 1971; Papadopoulos, 1983). Ignorance
of a country’s heterogeneity as well as the use of unreliable, outdated secondary data
lacking comparability across countries raises questions. Grouping methods also fail to
take into account similarities among groups of consumers across national boundaries
and possible economies of scale in production, R&D, marketing, and advertising are lost.
Market estimation methods aim to rank countries based on aggregate market
potential and overall attractiveness. Foreign markets are evaluated according to one or
more criteria and selected by the highest score. The criteria may include indicators of
wealth, size, growth, competition and ease of access. Some apply models for indirect
measure of market potential using multiple factor indices derived from economic
development, internal stability and cohesion (Conners, 1960; Dickensheets, 1963;
Liander et al., 1967; Samlı, 1977); as well as regression analysis for the prediction of
demand for specific products (Armstrong, 1970; Lindberg, 1982). Others use trade
statistics to estimate import demand through analysis of markets in terms of size and
growth of imports, market coverage and competition (UNCTAD/GATT, 1968; Centre
Francis du Commerce Exterieur, 1979). Yet others employ model estimation of the
relationship for import demand of industrial products (Alexandrides and Moschis,
1977); or identification of relative changes in import shares by countries (Green and
Allaway, 1985). These market estimation approaches fail to include product specificity
in their indicators and suffer from the assumption of a static environment and
methodological problems stemming from data.
By reducing subjectivity, IMS methods allow for the screening of a large number of
often distant markets. Companies do not adopt these methods commonly because they
fail to account for strategic dimensions of markets and lack product specificity.
Grouping methods enable companies to standardize their offerings and marketing
strategy across markets by providing insight into structural similarities and serving as
tools for segmentation. Ranking methods help identify the best possible market to
enter and countries that deserve attention. Together, these methods narrow the focus to
a small number of potentially attractive markets with meaningful similarities
(Cavusgil et al., 2004).
Two studies by Arnold and Quelch (1998) and Cavusgil (1997) specifically
address the assessment of market potential for EM. Arnold and Quelch (1998) argue
that due to their shortcomings, traditional analyses applied to assessment of EM not
only produce static snapshots that ignore long-term potential of EM, but also produce
undersized GNP figures because they do not take possible gray markets into account.
They suggest that companies identify their own indicators as acceptable surrogates
for judging demand and adopt a more rigorous approach to assessing long-term
market potential, identifying business prospects and predicting potential profits.
They propose a nested model that enables a stage-by-stage process with sequential,
incrementally discriminating phases of assessment to reduce candidate
country-markets. Their model prioritizes long-term market potential rather than
country risk and profit conversion potential. It is based on progressively detailed and
market specific data, starting with limited economic and demographic measures for
future demand, then moving to product/country market data.
Cavusgil’s (1997) indexing approach develops a market potential index for EM with
13 economic, political and social variables that reflect seven dimensions of overall
market attractiveness from a western company’s viewpoint. The index is created from
raw values of these variables by standardizing the items into a scale of 1-100 and
determining each dimension’s relative weight. The seven dimensions are integrated
into an overall market opportunity index to rank the EM based on attractiveness.
The dimensions of market attractiveness and routinely updated EM rankings are
available on line at the GlobalEDGE web site.
Opportunities in emerging markets
EM offer long-term growth opportunity that no longer exists in saturated and highly
competitive developed markets. Long-term growth in markets such as Argentina,
Brazil, China, Indonesia and Turkey is fuelled by their less competitive markets,
increasing disposable incomes, large populations of young consumers and economic
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liberalization (US Department of Commerce, 1996; Arnold and Quelch, 1998; Reda,
1998; Sowinski, 2000).
Despite the lack of a commonly accepted definition, these high-growth,
high-potential, high-risk markets have been categorized as “emerging markets”
(EM), “emerging financial markets” (EFM) or “big emerging markets” (BEM). Criteria
to classify these markets include level of economic development as expressed by the
average gross domestic product (GDP) per capita, the balance of agrarian and
industrial/commercial activity, the pace of economic development reflected in GDP
growth rate, the system of market governance and the extent and stability of a free
market system.
The International Financial Corporation first applied the term EFM in 1981 to
countries for which they published standardized stock indices. It replaced terms
like “developing countries” and “less developed country” in the 1990s as countries
opted for market liberalization (Bein, 2001). In 1994, the US Government adopted
the policy of export promotion to ten BEM: Argentina, Brazil, China, India,
Indonesia, South Korea, Mexico, Poland, South Africa and Turkey, the world’s
fastest expanding markets that fuelled explosive growth in global trade (Garten,
1996; UNCTAD, 1996). BEM have large populations, resource bases, markets and
are regional powerhouses.
The incentive for a company to establish operations in selected EM is reflected
in their demographics and spending patterns. A majority of the population in
markets such as Malaysia and Mexico is below the age of 18. Chinese children
spend approximately USD 5.7B a year, slightly less than US children’s expenditure
(Rapoport and Martin, 1995). Most consumers in EM are still more than a decade
short of their peak spending years. Beside the large base of young consumers,
these highly populated markets have sizable middle income groups with
purchasing power far beyond the country’s per capita income. The combination
of age and potential spending power enticed international marketers to EM.
The choice or ability to respond to opportunities in EM can determine international
growth and success (Alexander and Myers, 2000; Arnold and Quelch, 1998; Dawson,
2001). While many companies take a wait and see attitude toward EM, Arnold and
Quelch (1998) identify unique advantages associated with early entry such as
establishing relations and influence with local governments, servicing unmet
consumer demand, incurring lower marketing costs, hiring the best candidates from
a potentially small group of qualified/experienced local managers, and reverse learning
resulting from the need for innovative approaches. EM offer potential product
development and international sourcing opportunities (Liu and McGoldrick, 1996).
Favourable factor and demand conditions alongside the existence of internationally
competitive related and supporting industries that enhance investment and sourcing
opportunities in EM are not highlighted by traditional market selection analysis.
Market selection criteria for emerging markets
In approaching EM, firms often erroneously adopt a “less developed countries”
mind-set assuming that EM are at an earlier stage of the same development path
followed by advanced countries. Even though the model of economic development
through industrialization remains valid, developments in the global system regarding
especially the financial, services and trade sectors and the information and
communication technologies has complicated and altered the nature of the process as
exemplified by EM. To capture the complexity and potential of EM, IMS
models utilized need to compensate for the go-no-go approach that traditional
analysis takes by relying primarily on macroeconomic and political risk criteria. The
proposed specialized approach to market assessment introduces the future market
potential of the EM, the cultural distance between the EM and the county of origin,
competitive strength of the specific industry in the EM, and customer receptiveness to
the products of the foreign industry and its country of origin as new dimensions to
complement existing IMS criteria. The approach integrates tools by a number of
researchers and is showcased in the assessment of Turkey’s potential.
The specialized approach differs from the existing market assessment analyses. It is
neither a clustering nor a ranking tool. It includes both qualitative and quantitative
measures to guide the strategic decision of market selection. It is not a substitute for
existing methods but complements them. It is product specific. Instead of reliance on
aggregate, general country indicators, it accounts for a country’s heterogeneity by
assessing the competitive strength of the specific industry. It does not assume a static
environment but captures the dynamism of EM by considering future market potential.
It incorporates an objective measure of cultural distance in the assessment to quantify
the subjective perception of uncertainty. Measurement of customer receptiveness for
the industry and the products of the foreign country sensitize the general indicators of
commercial and political risk. The proposed additional criteria for the specialized
approach to the assessment of EM as international expansion opportunities are
discussed below.
Long-term market potential
Host market potential is one of the most important explanatory factors in country
attractiveness and market selection and constitutes a primary driver in company
expansion into foreign markets (Yoshida, 1987). International trade theories suggest a
strong relationship between potential international business transactions and market
size (Hirsch, 1967). Network and business strategy schools in internationalization
literature recognize market potential as a market related selection criterion
(Cunningham, 1986; Turnbull, 1986; Root, 1987; Welford and Prescott, 1994). The
eclectic paradigm stresses the need for information on the foreign market (Dunning,
1988). Prescriptive sequence models of market selection propose market size and
growth rate as criteria to be used at the screening stage (Johanson, 1997). There is little
consensus, however, on what criteria to use in measuring market potential (Russow
and Okoroafo, 1996). Market potential has been operationalised in terms of market size,
its growth rate and product acceptance in the international marketing literature
(Goodnow and Hansz, 1972; Litvak and Banting, 1968; Buckley and Mathew, 1980;
Douglas and Craig, 1983; Terpstra and Yu, 1988; Gomes-Casseres, 1990; Minor et al.,
1991; Kim and Hwang, 1992; Agarwal and Rarnaswami, 1992; Root, 1994; Browthers,
1995; Russow and Okoroafo, 1996). In traditional market assessment frameworks,
market estimation approaches rank countries based on aggregate market potential and
overall attractiveness. Market size, growth, competition and ease of access, as well as
models of indirect measures, prediction of demand for specific products, estimates of
import demand are used as indicators market potential. Grouping approaches do not
directly measure market size but implicitly assume that aggregate, general country
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indicators will reflect it. Numerous proxy variables (such as population, GNP per
capita, televisions-radios-telephones-cars-trucks-newspapers per 1,000 population,
level of GNP, inflation, energy consumption, steel consumption-cement production per
capita, balance of payment trends, indexes of convertibility of currency and
development of local capital markets) are used as indicators of economic environment
and opportunity (Litvak and Banting, 1968; Sherbini, 1967; Stobaugh, 1969;
Goodnow and Hansz, 1972). The implied or measured levels reflect the country’s
market potential at a point in time and fail to account for the future potential resulting
from accelerating growth pattern of an emerging economy.
Arnold and Quelch’s (1998) proposal to validate traditional market assessment
frameworks for EM allow for identification of business opportunities by prioritizing
national-markets according to long-term market potential. Profit potential and
market-entry opportunities are further assessed in relation to product or service
adaptation, business partnerships, and distribution strategies. The approach is
market-demand driven rather than risk-oriented. It differentiates between long-term
market potential and potential for short-to-medium-term profit. The dynamic, growing EM
environment is captured by considering future market potential in a stage by stage process.
Future demand is assessed with minimum demographic and economic data available for
all countries as well as data specific to both product and country markets. Arnold and
Quelch (1998, p. 13) provide the following formula for assessing long-term EM potential:
Q ¼ ðP þ NPÞ £ ðDevGDP 2 AdjGDPÞ
where Q, total market potential; P, national population; NP, new population, i.e. population
growth in the planning period; DevGDP, average per capita GDP in developed markets;
and AdjGDP, GDP in measured country market adjusted to purchasing power parity level.
By relating national population to the difference between GDP per capita averages
in developed markets and an EM, the formula approximates future market size.
Given the static environment assumption, long-term growth opportunities offered by
EM as the world’s fastest expanding markets are not exposed by traditional analysis.
Incorporating long-term market potential as an additional criterion in the preliminary
screening process compensates for this shortcoming.
Cultural distance
A key issue in internationalization is the need to adapt to cultural characteristics
(Koopman, 2000). Hofstede’s (1980, 2001) work-related values-based framework for
national culture has been applied in international business studies (Bodur and Madsen,
1993; Reynolds, 1999; Yeniyurt and Townsend, 2003). The framework presents
differences among nations along five dimensions of culture: power distance,
uncertainty avoidance, individualism/collectivism, masculinity/femininity and time
orientation. Hofstede’s model has high external validity and significant correlations
with economic, social and geographic indicators. The dimensions of national culture
have been found to be valid, reliable and stable (Bond, 1988; Kogut and Singh, 1988).
Critics on the framework’s empirical validity question whether Hofstede’s
methodology and sample justify generalising the research findings (Triandis, 1982;
Shackleton and Ali, 1990; Sondergaard, 1994; Schwartz, 1994; Yoo and Donthu, 1998).
Nonetheless, it remains the most comprehensive framework of national cultural
values and source for national indices (Kogut and Singh, 1988; Sondergaard, 1994;
McSweeney, 2002; Baskerville and Hofstede, 2003).
Researchers have used Hofstede’s indices to generate cultural distance scores to
reflect relative cultural similarities and differences among countries (Kogut and Singh,
1988; Morosini et al., 1998). The institutional environment that shapes a company’s
competitive advantage is embedded in national culture (Barney, 1986). Critical routines
and repertoires of companies in different countries vary significantly depending on the
national cultural distance between them (Shane, 1993; McGrath et al., 1992; Kreacic and
Marsh, 1986; Hofstede, 1980). Cultural distance involves differences in a country’s legal
system, incentives, administrative practices and working styles that increase an
international company’s cost of integration (Hofstede, 1980). It has been identified as a
key factor in explaining foreign market attractiveness, expansion patterns, adaptation
of marketing and retailing strategies, modes of entry and organizational performance
(Kogut and Singh, 1988; Li and Guisinger, 1991; Morosini, 1994; Barkema and
Pennings, 1996; O’Grady and Lane, 1996; Evans et al., 2000; Evans and Mavondo,
2002). By relating culture to the cost of coordinating economic activities, researchers
have investigated the effect of cultural distance on entry mode strategies (Buckley and
Mathew, 1980; Agarwal, 1994; Browthers, 1995; Minor et al., 1991; Anderson and
Coughlan, 1987; Gomes-Casseres, 1990; Terpstra and Yu, 1988). Kogut and Singh
(1988) have provided empirical evidence that cultural attitudes towards uncertainty
avoidance affect choice between green field ventures and acquisitions.
The sequence models of internationalization imply that companies select markets
similar and physically close to their domestic market as they are easier to learn and
understand (Johanson and Vahlne, 1977; Nordstrom and Vahlne, 1994). Cultural
differences in distant and unfamiliar markets on the other hand, disturb the flow of
information and present barriers to a firm’s learning about and understanding of the
foreign environment, leading to perception of uncertainty (Vahlne and
Wiedersheim-Paul, 1977; Nordstrom and Vahlne, 1994; O’Grady and Lane, 1996).
The perceived uncertainty shapes the psychic distance – “the sum of factors
preventing flow of information from and to the market” (Johanson and Vahlne, 1977,
p. 24). It is argued that rather than the presence of external environmental factors, the
way they are perceived determine the degree of psychic distance. Cultural distance
construct, however, is an objective measure of cultural factors presenting barriers to
firms learning and understanding of the foreign market. Even though some researchers
treat it synonymous with psychic distance, cultural distance measure is based on
predetermined indices of cultural dimensions. It can be interpreted as an objective and
partial measure of psychic distance.
Kogut and Singh (1988) suggest that explanations of market entry need to be
qualified by factors stemming from institutional and cultural contexts. They define
national cultural distance as “the degree of difference in cultural norms between
countries” (Kogut and Singh, 1988, p. 422) and suggest a composite index based on
deviations from Hofstede’s (1980) national culture scores to estimate cultural distance.
Kogut and Singh’s formula, or an adapted version, have been widely used as a measure
of cultural distance (Agarwal, 1994; Barkema and Pennings, 1996; Benito and
Gripsrud, 1992; Fletcher and Bohn, 1998; Gomez-Mejia and Palich, 1997; Kale, 1991;
Morosini et al., 1998; Padmanabhan and Cho, 1996).
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Using Kogut and Singh’s formula, Morosini et al. (1998, p. 144) developed a
multidimensional measure to estimate the cultural distance between countries:
vffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffi
u 4
uX
CDj ¼ t
ðI ij1 2 I ij2 Þ2
i¼1
218
where CDj, cultural distance for the jth country; j, country; I, cultural dimension;
Iij1, Hofstede’s score on ith cultural dimension and country one ( j1); and Iij2, Hofstede’s
score on ith cultural dimension and country two ( j2).
The composite index is an objective measure and an effective indicator of cultural
distance. Problems of common method variance and retrospective evaluation are
avoided by using the existing country scores (Morosini et al., 1998). Although the
importance and impact of culture on IMS has been explicitly recognized through
the psychic distance construct in internationalization literature, neither the traditional
models nor the normative market selection process models incorporate it as a
significant dimension into the screening process. In deciding about specific countries,
however, business decision makers attribute greater importance to geo-cultural
distance factors than to other variables (Goodnow and Hansz, 1972). Along with
cultural differences in language, business practices, market structures, legal and
political systems and level of development, high growth and structural changes in EM
lead to the perception of high level of uncertainty and psychic distance. Companies
from developed economic systems take a wait and see attitude toward EM as
psychically distant developing economies. The degree of psychic distance accorded to
a specific country, however, is subjective, based on perceptions rather than objective
and comparable measures. Most measures of the construct are based on respondents’
perceptions of the differences and similarities between the home and foreign market
(Evans and Mavondo, 2002). There is high probability of stereotyping and generalizing
a level of psychic distance to all EM without consideration of individual country
circumstances. A measure of cultural distance is introduced as a second criterion in the
specialized approach for assessing EM. This additional criterion serves as an objective
and partial measure of psychic distance. The amount of uncertainty accorded to
the measured level of cultural distance by the decision makers will still be subjective
depending on the attitudes towards risk and uncertainty avoidance. This subjectivity,
however, will reflect equally to the cultural distance scores of all the countries assessed
and is expected to normalize the possible bias against EM.
Competitive strength of the industry
Some countries excel in certain industries. Porter (1990) tries to explain why particular
nations are good home basis for specific industries by identifying national attributes
that contribute to or detract from the creation of competitive advantage. He determines
factor and demand conditions, related and supporting industries, firm strategy,
structure and rivalry as attributes that form the national diamond which is under the
influence of two exogenous factors: the government and chance. Configuration of these
attributes in the national diamond creates competitive advantage for certain industries
in a country. Porter argues that a nation’s industry achieves competitive advantage if
the mix of attributes available to the industry facilitates the pursuit of a generic
strategy and if the nation has selective factor disadvantages motivating firms to
develop new materials or forms of mechanization. Similarly, international trade and
investment theories relate factor conditions – an attribute in the national diamond, to
the competitiveness of certain industries. They note that existing differences in
national factor endowments affect the factor costs and form bases for comparative
advantage if nations take advantage of specialization (Kindleberger, 1973).
Some entry mode selection studies have examined competition and industry
concentration from the perspective of global interdependence in oligopolistic industries
where actions in one market impact other markets and high control entry modes are
desirable (Kim and Hwang, 1992; Anderson and Coughlan, 1987). Within the
internationalization schools of thought, the Nordic School and the eclectic paradigms
do not explicitly mention the impact of competition on market selection. The network
approach acknowledges the importance of competitive relations as a market
related factor in market selection (Turnbull, 1986). Information on competitive rivalry
and competition analysis are suggested among the criteria for the screening and
identification stages of the normative selection models (Johanson, 1997). Traditional
models of market selection analysis on the other hand, are not product market/industry
specific and do not incorporate the analysis of competition.
Competitiveness of the specific industry in the EM considered for international
expansion is proposed as a third additional criterion in the specialized approach.
The analysis of the national diamond for the related industry helps to overcome some
limitations of the traditional analysis which assumes that countries are homogeneous
and the development levels of industries are implicit in and reflected by aggregate,
general country indicators. EM may have favourable attribute configurations for some
industries regarding factor and demand conditions as well as internationally
competitive related and supporting industries that may provide international sourcing
and vertical integration opportunities. The dimension provides information on the
specific product market/industry and compensates for the homogeneity assumption
and the lack of product specificity shortcomings of traditional market selection
analysis.
Customer receptiveness
Consumer attitudes toward foreign goods and services, and their perceptions of
country of origin and of foreign business are important factors when assessing the
potential of markets. Although researchers have carefully examined structural
changes in the environments of selected EM such as Poland, China and Brazil (Kwan
et al., 2003; Alexander and de Lira e Silva, 2002; Dawson, 2001; Goldman, 2001), there
are few empirical investigations into other EM. As the number of younger,
higher-income consumers with increasing demand for goods and services living in EM
continues to grow, these markets become increasingly attractive and the need to assess
the receptiveness of these consumers to foreign brands and business becomes
important.
Customers’ receptiveness to foreign products and business for a specific industry, as
well as its country of origin is not considered in traditional frameworks for market
selection. It may, however, have important implications for the marketer in assessing
and sensitizing the standard, easily accessible commercial risk indicators used.
A similar dimension – market receptivity is included in Cavusgil’s (1997) overall
market opportunity index for EM. It is measured as the average annual growth rate of
Market selection
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expansion
219
IMR
24,2
220
imports from the USA over the past five years (60 per cent weight) and per capita
imports from the USA (40 per cent weight). The market receptivity of the index,
however, pertains to trade figures only and does not provide micro level input on
customers. It also lacks product specificity as aggregate import figures only are
considered. Along with measures like political stability and competitiveness of the
product, attitude toward foreign products – a partial measure of the customers’
receptiveness has been considered among the indicators of the business environment
affecting export performance (Bodur, 1994). Within the stages models of market
selection, only Johanson (1997) proposes the basic fit between the customer preferences
and the existing product among the criteria for the preliminary screening stage.
A positive measure of customer receptiveness to the specific foreign industry and its
country of origin may be instrumental in neutralizing the high risk and psychic
distance perceived for the EM.
Customer receptiveness is introduced as an additional criterion in the specialized
approach to the assessment of EM. In this study, host country customers’ views on the
impact of the specific foreign business activity on economic and social development,
their acceptance of its products/brands, as well as their perceptions of its offers with
respect to local and other foreign businesses in the same industry are used as measures
for customer receptiveness to the foreign industry.
Case application: US apparel retailers and Turkey
The four criteria that make our assessment specific to EM are applied below to the case
of Turkey. Secondary and primary data are used for the analysis. Country level, macro
analysis of Turkey and selected EM is conducted for the first two criteria: long-term
market potential and cultural distance. For the competitiveness of the related industry
and customer receptiveness dimensions, Turkey was assessed from the view point of
US apparel specialty retailers at the industry and consumer levels.
Turkey’s long-term market potential analyzed using Arnold and Quelch’s (1998)
formula and taking the average per capita GDP in developed G8 countries excluding
Russia, demonstrates impressive future market potentials for the EM. Long-term
emerging market potentials for the years 2010 and 2020 are presented in Table I.
The table shows that total market potential is strongest in China and India followed by
Indonesia, Brazil, Mexico, and then Turkey. Scrutiny of the data, however, reveals that
Mexico, Brazil, and Turkey have stronger GDPs and that their consumers have greater
purchasing power than those in China, India, and Indonesia (Kolodko, 2003).
Table II presents the calculated cultural distance scores between the USA and 12 EM
including Turkey. The scores indicate relative differences and similarities in culture
between the USA and EM, with lower cultural distance scores indicating greater
similarities in culture. Hofstede’s indices suggest that Turkish and US societies differ
considerably. With the exception of South Africa, however, relative cultural distance
between the USA and Turkey is no greater than those between the USA and most other
EM. The cultural distance score of Turkey from USA is 73, one point lower than a
developed market like Japan. Calculated by the same method, Japan has a cultural
distance score of 74, much higher than some EM like South Africa (28), India (57),
Argentina (61) and Poland (63), but she has attracted significant US direct investment.
These measures suggest that cultural differences between the USA and Turkey are
likely to be no more challenging than those in other EM and some developed markets.
11,200
7,600
5,000
28,700
2,900
3,200
9,000
11,000
10,700
17,700
23,400
6,700
18,100
21,700
24,300
600
26,400
26,100
20,300
18,300
18,600
11,600
5,900
22,600
38,740.8
182,032.6
1,286,975.5
7,394.2
1,049,700.1
234,893.5
104,907.9
38,622.7
42,768.7
48,289.0
22,603.0
68,109.5
42,200
200,019
1,428,781
7,828
1,225,550
247,045
117,812
40,466
54,091
51,826
24,066
81,177
AdjGDP/capita DevGDP-AdjGDP/
Population
Population
2003
capita
2003 (thousand) 2010 (thousand)
763,820
4,340,412.3
34,719,378.3
4,696.8
32,354,520
6,447,874.5
2,391,583.6
740,527.8
1,006,092.6
601,181.6
141,989.4
1,834,600.2
Market potential 2010
(Q1) (million USD)
47,546
232,130
1,609,796
8,820
1,464,902
286,706
136,726
42,535
65,937
56,125
26,062
97,031
Population
2020 (thousand)
860,582.6
5,037,221.0
39,118,042.8
5,292.0
38,673,412.8
7,483,026.6
2,775,537.8
778,390.5
1,226,428.2
651,050.0
153,765.8
2,192,900.6
Market potential 2020
(Q2) (million USD)
Sources: Per capita gross domestic product (GDP) Figures (adjusted for purchasing power parity) obtained from the World Fact Book (2004); projected
population figures obtained from Keegan (2002); and Q1 and Q2 calculated using long-term market potential formula established by Arnold and Quelch
(1998)
Argentina
Brazil
China
Hong Kong
India
Indonesia
Mexico
Poland
S. Africa
S. Korea
Taiwan
Turkey
EM
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for international
expansion
221
Table I.
Long-term market
potentials for 12 EM
IMR
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222
Table II.
Dimensions of culture
and cultural distance
scores for 12 EM
EM/US
Argentina
Brazil
China
Hong Kong
India
Indonesia
Mexico
Poland
S. Africa
S. Korea
Taiwan
Turkey
USA
Power
distance
Uncertainty
avoidance
Individualism
49
69
80
68
77
78
81
68
49
60
58
66
40
86
76
30
29
40
48
82
93
49
85
69
85
46
46
38
20
25
48
14
30
60
65
18
17
37
91
Masculinity/
Time
Cultural distance
femininity orientation
from USA
56
49
66
57
56
46
69
64
63
39
45
45
62
NA
65
118
96
61
NA
NA
32
NA
75
87
NA
29
61
69
83
74
57
87
82
63
28
88
81
73
Notes: NA – data not available; in order to generate comparable cultural distance scores for all
markets, time orientation was not included in the calculations; lower cultural distance scores indicate
greater similarities to US culture
Sources: Dimensions of culture indices were obtained from Hofstede (2001); and cultural distance
scores were calculated using formula by Morosini et al. (1998)
In terms of competitive strength of the industry, Turkey has been a good home for the
textile and apparel industry which has driven industrialization since the foundation of
the republic. The country has a rich tradition in textile design and production and is an
emerging centre for apparel production (International Labour Office, 2000). The
government provided policies and incentives in line with the export-oriented
development strategy initiated in the 1980s. Some 15-20 per cent of the workforce is
employed in textiles and apparel production, which accounts for 34-40 per cent of total
exports, Turkey’s largest export category, primarily to the European Union and the
USA. As the seventh largest exporter of apparel accounting for 3.5 per cent of global
exports, Turkey has one of the world’s fastest growing apparel exporting sectors,
making it a reliable local source for the production of private label apparel goods
(General Secretariat of ITAEA, 2004; Ellis, 2003; Ercan, 2002; Maher, 2001; Tan, 2001;
Liu and McGoldrick, 1996).
Research acknowledges Turkey’s competitive advantage in the production of
textiles and apparel (Öz, 1999, 2004; Tan, 2001; Togan, 1996; Oral and Özkan, 1986).
Analysis in the Competitive Advantage of Turkey Textile and Apparel Industry
Report (2003) reached similar conclusions for the Turkish textile and apparel industry.
In Porter’s (1994) view, the basis of competitive advantage has shifted from efficiencies
like low input costs to the ability to innovate and upgrade technology. The high
export-orientated and mature Turkish textile and apparel industry is facing pressures
to upgrade. The sources of competitive advantage stem from favourable basic factor
conditions. Turkey is among the world’s top ten cotton producers where wage rates
undercut those in developed countries. But the cost of capital is high and financing is a
major problem, especially for small- and medium-sized local firms. In terms of firm
strategy and rivalry, most SME work as subcontractors to larger local companies
engaged in international trade and to international ones that source from Turkey.
Demand for high quality inputs in the sector force most of the related and supporting
industries to be internationally competitive. Application of Porter’s (1990) framework
to leather clothes industry concluded that it owes its competitiveness to rivalry in
related and supporting industries (Öz, 1999). The strategic path that most firms follow
is to be sustainable local production sources (low-cost subcontractors) to firms in
developed markets and global brands. Some firms, however, have developed or are
trying to develop international brands of their own. Turkey’s international success
hinges on a shift from low-cost production to a differentiation strategy that emphasizes
niche marketing, local brands, and high quality production.
The textile and apparel industry’s competitive strength lies in marketing, technology,
quick delivery, geographical proximity to Europe, advanced communication and
transportation infrastructure, raw materials, intermediary goods like yarns, woven
fabrics, and wide range of finished apparel goods. Turkey’s disadvantages compared to
its main competitors are inadequate capital; high energy and increasing labour costs;
high corporate taxes; and weak country image (Competitive Advantage of Turkey
Textile and Apparel Industry Report, 2003). Compared to China and India, Turkey is at a
disadvantage in terms of production costs and compared to Italy in terms of design,
marketing, productivity, and delivery time. Labour costs in Turkey are slightly higher
than in some Asian apparel producing countries, but considerably lower than in many
European countries and the USA (International Labour Office, 2000).
Retailing industry in Turkey on the other hand, has been going through structural
change as of the 1980s. Both European and US retailers entered the Turkish market at
an increasing intensity since the 1990s. Development of the Turkish retail scene has
been in step with change in Europe and the USA. Structural change in Europe since the
mid-1980s is characterized by steady growth in consumer affluence, widespread
adoption of communication technologies, the opening of Central Europe, creation of the
single European market, and increased international retail activity, including the
growing presence of non-European retailers (Dawson, 2001). The rise of large retailers
and decline of small retailers fuelled concentration. Companies externalized
logistics and internalized product development while consumer demand and
business processes and structures diversified. To achieve strategic growth, US
retailers expanded internationally and played a pioneering role in international
sourcing by capitalizing on the competencies gained in their competitive and highly
dynamic domestic market. Nonetheless, compared to their counterparts in other
mature retail markets, they were slow in responding to international opportunities
(Vida, 2000). Experience in Europe with many US apparel specialty retailers running
into trouble (Reda, 1998) has taught US companies that apparel retailing is subject to
local influences. Narrowing opportunities in developed markets, however, bolsters the
prospect of creating and capturing latent demand in EM.
Similarly, economic reforms have driven structural change in the Turkish retail
industry since the early 1980s. Single-location, small-scale, capital-weak, independent
and family-owned businesses dominated the industry prior to 1980 (Tokatli and
Boyaci, 1998). Domestic conglomerates’ efforts to diversify sparked the emergence of
large-scale retailing. Originally engaged in agricultural, food and industrial goods
production, these conglomerates entered the retail market in the late 1980s and early
1990s to benefit from high growth potential. The number of retail establishments
Market selection
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expansion
223
IMR
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224
Table III.
Overall assessment of
national diamond
attributes
increased 23.8 per cent but concentration remained low compared to Western Europe
(Özcan, 2001). Various formats were introduced in a short period of time (Tokatli and
Boyaci, 1998). The entry of international firms specializing in food, fast-food and
apparel retailing fuelled the development in retail. In addition, specialty retailing is
boosted by extensive mall development and revitalization of shopping districts in
major cities. The private consumption per capita in Turkey increased by 158 per cent
between the years 2000 and 2004, and retailing has been the industry that benefited
most from developments in increasing disposable incomes and consumer expenditure.
The retailing industry in Turkey is expected to record good growth in the coming
years due to driving factors like increasing population, urbanisation, disposable
incomes; young population demanding modern retail products; local and foreign
investment in terms of new outlets opening or new entries such as Harvey Nichols in
2006; favourable payment options; expansion of multiples into different cities of the
country; opening of new shopping and retail centres where different formats will be
available (Euromonitor International, 2006). Overall, assessment of national attributes
for the Turkish retail and textile and apparel industries are presented in Table III.
The analysis of customer receptiveness indicated that Turkish consumers were
receptive to foreign apparel retailers. A general operational market research approach
(Tull and Hawkins, 1987) was adopted and an intercept survey was conducted to
collect data from consumers in the central business districts of the cities of Istanbul,
Ankara and Izmir. These urban centres are home to one third of the total population
and one third of the nation’s retail establishments. A sample size of 500 was considered
sufficient for inductive measures necessary to demonstrate the proposed criteria.
Respondents were fairly equally distributed across specific market segments targeted
by US apparel retailers. The survey addressed three variables as indicators of
customer receptiveness: the beliefs about the impact of foreign retailers on social and
economic development, perceptions of the selected characteristics of the offerings of
Turkish, European, and US retailers, and acceptance of US apparel brands. The
questionnaire contained measures adopted from previous research (Eckman et al.,
1997) as well as items designed specifically for this study. It was translated and back
translated; edited for cultural relevance and tested by a pilot administration. Sample
selection, development of valid measures and the data analysis were performed in
accordance with procedures suggested by Churchill and Iacobucci (2002).
Attribute
Textile and apparel industry
Retail industry
Factor conditions
Abundance of basic factors;
specialized factors pools
Large and growing demand
Growth and deepening of related
and supporting industries
Domestic rivalry, improving
organizational skills and strategic
perspectives; foreign entry
Positive basic and advanced factors
Demand conditions
Related and supporting
industries
Firm strategy, structure
and rivalry
Government
Positive reinforcement policies
Large and growing demand
Growth and deepening of related
and supporting industries
Low domestic rivalry, developing
organizational skills and strategic
perspectives; increasing foreign
entry
Some reinforcement policies
Descriptive analyses were conducted to provide information on the three variables
measured. Multivariate and univariate analyses of variances were used to examine
respondents’ beliefs on the impact of retail development on local community by
demographics, as well as perceptions of offers by Turkish, European, and US
retailers by origin. When differences among groups were found, a post hoc Scheffé
test, with significance level set at p # 0.05 was used to determine which groups
differed. For the multiple item measure of perceptions of Turkish, European, and
US retailers’ impact, principle component analysis with varimax rotation was used
as a data reduction technique. A minimum eigenvalue of 1.0 determined the
number of factors extracted. Items loading equal to or greater than 0.40 on a
single factor were retained. Each factor was then examined for reliability and only
those with a standardized a coefficient of 0.70 or greater were included in the
analyses.
Market selection
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expansion
225
Social and economic impact of retail development
Turkish consumers’ beliefs about the social and economic impact of foreign
retailers on local community was measured on seven-point scales ranging from
“absolutely not influential” to “absolutely influential” for 12 economic and social
aspects. Turkish consumers believe that foreign retailers are influential (x ¼ 4.85)
on social and economic development of the community. Principal component
factor analysis revealed three factors concerning respondents’ beliefs.
Employment/business opportunities accounted for 37.14 per cent of the variance,
followed by socio-cultural well-being (14.82 per cent) and urban growth (9.69 per
cent). MANOVA revealed overall differences by city in respondents’ perceptions of
the influence of retail development on urban growth (F ¼ 2.98; p # 0.01).
Respondents’ perceptions of the influence of retail development on
employment/business opportunities or socio-cultural well-being did not differ by
city (Tables IV and V).
Factor (items: impact on)
Employment/business opportunities (6)
Professional career opportunities
Consumer choice opportunities
Wages
Employment
Local retail businesses
Over consumption/materialism
Socio-cultural well being (4)
Social/moral values
Community well being
Cultural identity
Natural environment
Urban growth (2)
Traffic congestion
Urban development
Eigenvalue
Percentage of
variance
Standardized a coefficient
4.46
37.14
Overall ¼ 0.68
0.80
1.78
14.82
0.81
1.16
9.69
0.71
Table IV.
Social and economic
impact of foreign
retailers: factor analysis
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226
Perceptions of Turkish, European and US retailers
Turkish consumer’s perceptions of US, European and local retailers’ offers was
measured by seven-point semantic differential scales for 13 variables (Table VI)
Although Europe is a collection of national markets, for the purpose of this study
Europe was viewed as an “integrated retail market” as characterized by retail
analysts. US retailers were perceived the highest on 11 of the 13 characteristics
measured. Repeated measures ANOVA ( p # 0.001) was used to compare
respondents’ perceptions of Turkish, European and US retailers. Differences by
origin were discovered in respondents’ perceptions of 12 of the 13 retailer
characteristics. Respondents rated US and European retailers higher than Turkish
retailers on most characteristics. The only exception was the frequency of
discounts – respondents perceived that Turkish retailers offered more discounts
than did either US or European retailers. The single characteristic for which
respondents did not perceive a difference between Turkish, European and US
retailers was payment options.
Factors
Table V.
Differences in perceptions
of social and economic
impact of foreign retailers
by city: multivariate and
univariate analysis of
variance
Ankara
Izmir
Univariate F
Multivariate F
2.98 *
Employment/business
opportunities (6)
Socio-cultural well being (4)
Urban growth (2)
5.17 (1.20)
4.45 (1.61)
4.08 (1.83)
5.44 (0.97)
4.68 (1.46)
4.51 (1.64)
5.26 (1.19)
4.32 (1.50)
3.79 (1.75)
2.69
2.44
7.57 * *
Notes: *p # 0.01; * *p # 0.001, significant contrast for urban growth between Istanbul and Izmir
Retailer characteristics
Table VI.
Turkish consumers’
perceptions of retailers’
offers by origin: repeated
measures of ANOVA
Means (SD)
Istanbul
Product qualitya,b,c
Fashion and stylea,b
Price rangea,b,c
Product assortmenta,b
Level of customer servicea,b
Frequency of discountsa,b
Number of payment optionsa,b
National brand namesa,b
Popular brand namesa,b,c
Quality of customer servicea,b
Organization of store layouta,b
Persuasiveness of advertisementsa,b
Appeal of sales promotionsa,b
Turkish
4.78
4.72
4.13
4.45
4.10
4.81
4.68
4.25
4.26
3.90
4.07
3.97
3.99
(1.63)
(1.54)
(1.56)
(1.66)
(1.58)
(1.58)
(1.66)
(1.55)
(1.65)
(1.57)
(1.64)
(1.65)
(1.79)
Means/SD
EU
5.26
5.36
5.44
5.46
5.21
4.16
4.55
5.02
5.43
5.32
5.44
5.22
4.64
(1.49)
(1.39)
(1.65)
(1.39)
(1.40)
(1.61)
(1.68)
(1.58)
(1.45)
(1.34)
(1.42)
(1.47)
(1.64)
USA
6.64
5.53
5.77
5.54
5.34
4.18
4.49
5.16
5.68
5.43
5.56
5.46
4.70
(1.49)
(1.48)
(1.55)
(1.48)
(1.49)
(1.82)
(1.76)
(1.64)
(1.41)
(1.36)
(1.43)
(1.53)
(1.67)
F
42.09 *
40.67 *
141.22 *
71.49 *
101.40 *
22.64 *
1.40
42.11 *
110.29 *
151.25 *
136.71 *
125.12 *
23.20 *
Notes: *p # 0.001; 1 – low; 7 – high; numbers in parentheses are standard deviations; adifference in
perceptions of Turkish and European retailers; bdifference in perceptions of Turkish and US retailers;
and cdifference in perceptions of European and US retailers
Acceptance of US apparel brands
Turkish consumer’s acceptance of US apparel brands was measured on seven-point
scales ranging from “very strongly agree” to “very strongly disagree” based on the
following variables: familiarity, ownership, fit, joy from using, prestige, projection of
desirable lifestyles, and manufacturing quality. The results indicate a low level of
acceptance (x ¼ 3.45) for US apparel brands. MANOVA revealed overall differences in
consumer acceptance of US brands by education (F ¼ 4.14; p # 0.001). Univariate
analysis revealed differences by education in familiarity with US apparel brand names
(F ¼ 7.87; p # 0.001), ownership of US brand name apparel (F ¼ 11.49; p # 0.001), and
manufacturing quality (F ¼ 5.87; p # 0.01) (Table VII).
Discussion and implications
To date, empirical research on opportunities in EM is limited in quantity and focus.
The case study on Turkey extends the understanding of the potential of another
yet important emerging market. The assessment of the Turkish market on the
dimensions introduced revealed promising results. Along with five other BEM (China,
India, Indonesia, Brazil and Mexico), Turkey’s long-term market potential analyzed
using Arnold and Quelch’s (1998) formula demonstrated impressive future market
potentials for the years 2010 and 2020. These levels indicate attractive expansion
opportunities not just for US apparel specialty retailers but for most businesses
especially when the slow growth rates and the market life cycles of most products in
developed markets are taken into consideration. The future market potential figures
indicate the need to adopt a different perspective when considering EM. They also
contrast with the results obtained by traditional assessment tools that assume a static
environment. Examples include initial clustering applications like “country
temperature continuum” which does not include China, and classify Turkey as a
“cold” country along with India and Indonesia (Litvak and Banting, 1968); as well as
recent studies that rank Turkey as the 49th country among a hundred in terms of
market potential and group her in the lowest fourth cluster among ten groups of
countries (Cavusgil et al., 2004).
The measure of cultural distance (Morosini et al., 1998) between Turkey and the
USA suggest that for US apparel retailers, establishing retail operations in Turkey
would prove no more challenging than entry into most EM and some developed
markets like Japan. There is, however, a huge gap between US direct investment in
Japan (USD 80,246 M) and Turkey (USD 2,225 M) (USDIA, 2005).
Application of Porter’s (1990) analysis to Turkish apparel and retail industries
indicates an increasingly competitive apparel industry and a fast growing and less
saturated retail industry with potentials of providing successful expansion and
local sourcing opportunities for US apparel specialty retailers. Turkish firms are viable
sources of local production for private label fashion apparel giving US retailers more
control in achieving unique product attributes while reducing costs such as
transportation and import taxes. Turkey’s less saturated retail sector offers
opportunities for differentiation through the presentation of a unique image.
Turkish consumers are receptive to foreign retailers and rate US retailers highest
among both foreign and domestic operators in the country. They think that foreign
retailers positively influence social and economic development, employment, business
opportunities, socio-cultural well-being and urban growth. Turkish consumers, however,
Market selection
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227
a
b
c
a
b
c
a
b
c
I am familiar with US apparel
brand names
3.94
4.67
4.00
3.28
4.30
3.95
4.31
4.03
3.25
(2.06)
(1.86)
(2.29)
(2.18)
(2.15)
(2.20)
(2.17)
(2.04)
(2.13)
Means (SD)
a
a
a
7.87 * *
11.49 * *
5.87 *
b**
c*
Univariate F
b**
Notes: *p # 0.01; * *p # 0.001; a – no university degree; b – university degree; c – post graduate degree
US apparel brands are
well made
I own US brand apparel
Education level
Table VII.
Acceptance of US apparel
brands by education
level: multivariate and
univariate analysis of
variance
Acceptance of US brands
Significant
contrasts
between
education
levels by
product
characteristic
4.14 * *
Multivariate F
IMR
24,2
228
expressed a low-level of acceptance for US apparel brands. A variety of US products are
well known in Turkey and there are numerous US retailers operating in the Turkish
metropolitan scene. This result may be due to the relatively limited presence of US apparel
retailers as opposed to the dominance of a large number of stylish and prestigious
European and local apparel specialty retailers in the market. Perceptions of manufacturing
quality differ by education and respondents with no university education perceive US
brand name apparel to have higher manufacturing quality than respondents with post
graduate education. US apparel specialty retailers considering the low end of the market
may leverage the positive country of origin image. Retailers considering the high end of
the market may either attempt to enhance highly educated consumers’ perceptions of US
brand apparel by strategic positioning or through sourcing private label quality
merchandise from local manufacturers and avoiding US brand names.
Conclusion
Companies in general prefer to enter markets that rank high in attractiveness, low in
market risk and where they can enjoy a competitive advantage. Even though classified
as high risk environments, EM demand further consideration in the development of
international operations and offer research ground for the study of market selection
within an increasingly challenging global market environment. Lack of a specialized
approach to assess their potential may be one reason why most firms overlook
opportunities in EM. This study addressed the need for a special approach to the
assessment of EM opportunities by introducing a tool composed of four additional
criteria to the traditional ones. It is proposed that the application of the additional
criteria will compensate for the go-no-go approach taken by the normative market
selection methods by providing a matter-of-fact exposure of EM potential and will
complement them in preliminary assessment before the immediate measures of macro
economic variables, country risk and profit conversion potential.
The proposed approach to assessing EM contributes to and extends traditional
methods by incorporating micro analysis at the industry and customer levels into country
level macro analysis. The approach differs from the existing market assessment analyses.
It is neither a clustering, nor a ranking tool but involves the analysis of a predetermined
cluster of countries classified as EM. The proposed criteria are not substitutes for existing
assessment methods but are intended to complement them by addressing the generally
cited shortcomings. Product specificity is incorporated into the assessment process by
introducing the analysis of the competitiveness of the local industry and the measure of
customer receptiveness. Instead of reliance on aggregate, general country indicators, a
country’s heterogeneity is recognized through the assessment of the competitive strength
of the specific industry. The measure of the long-term market potential accounts for the
dynamic environment of EM and the need to use comparative specific data rather than
general country indicators. An objective measure of cultural distance quantifies the
subjective perception of psychic distance. Measurement of customer receptiveness for the
industry and the products of the foreign country sensitize the general indicators of
commercial and political risk. Arnold and Quelch’s (1998) market-demand driven nested
model, Hofstede’s (1980, 2001) dimensions of culture and cultural distance (Kogut and
Singh, 1988; Morosini et al., 1998) and Porter’s (1990) analysis of competitive strength
provided key tools for the approach. As an example for applying the introduced
dimensions, country level, macro analysis of Turkey and selected EM was conducted for
Market selection
for international
expansion
229
IMR
24,2
230
long-term market potential and cultural distance criteria. For the competitiveness of the
related industry and customer receptiveness criteria, Turkey was assessed from the view
point of US apparel specialty retailers at the industry and consumer levels. The application
of the assessment criteria provided valuable implications for the international marketer
intending to exploit the Turkish market. The analysis revealed multiple interrelated,
synergistic indicators of strong future market potential; a competitive, supportive and
developing local apparel industry and retail scene; a manageable level of cultural distance
and positive customer receptiveness for foreign products and business.
Based on external factors, the specialized approach exposes the potential of EM as
international expansion opportunities. Analysis of EM by the additional criteria and the
case application demonstrated that the future market potentials of EM are far beyond
the levels indicated by current GDP per capita levels that are used to categorize them.
Cultural distance scores can be comparable to or lower than some attractive developed
markets. The level of development and competitive strength of certain industries may be
higher relative to the level of economic development of the EM as reflected by general
macro indicators. Customer receptiveness to foreign business and products support the
potential for certain industries. Long-term commercial activity in the market and the
maintenance and development of the established exchange relationships with these
customer segments may be less challenging than implied by the general commercial and
political risk indicators. We believe that the results highlight growth opportunities in
Turkey for US apparel specialty retailers that might otherwise have been overlooked.
We suggest that the specialized approach for assessing EM where turbulent operational
environments are commonplace will assist experienced and less conservative marketers
identify untapped international market potential. The final decision to enter a
potentially attractive EM, as well as the selection of market entry mode will be shaped by
the interaction of the external indicators of market attractiveness with factors related to
the internal company environment like the vision and objectives, attitude towards risk,
orientation and philosophy, amount of control sought and resources.
Future research is warranted on the potential of EM as companies in developed
countries seek new growth opportunities. Compared to existing market assessment
frameworks, the proposed specialized approach presumes a predetermined cluster of
countries and incorporates both qualitative and quantitative measures to guide the
strategic decision of market selection. Demonstration of the approach involved a sample
of EM for two of the proposed criteria – long-term market potential and cultural
distance. Micro analysis at industry and customer levels for the other two dimensions
was conducted for Turkey only. This limitation can be addressed by replicating the
study in different EM contexts and developing linkages between international
expansion strategy development, implementation, and market measurement. Repeating
studies will be instrumental in developing the proposed exploratory approach to assess
and expose EM potential. There is the opportunity to further refine the assessment tool.
Follow-up studies may help to validate the assessment criteria introduced and point to
further dimensions relevant for demonstrating the potential of EM that may not be
captured by traditional IMS methods. Studies pertaining to the integration of the
introduced dimensions into an index, determining their relative importance in reflecting
the potential of the EM, as well as quantifying some dimensions like the competitiveness
of the related industry will contribute to the development of a comprehensive model for
assessing EM as expansion opportunities.
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Corresponding author
Sema Sakarya can be contacted at: tapans@boun.edu.tr
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