Companies seeking to expand abroad are faced with the complex task of screening and evaluating foreign markets. How can managers define, characterize, and express foreign market opportunity? What makes a good market, an attractive industry environment? National markets differ in terms of market attractiveness, due to variations in the economic and commercial environment, growth rates, political stability, consumption capacity, receptiveness to foreign products, and other factors. This research proposes and illustrates the use of two complementary approaches to preliminary foreign market assessment and selection: country clustering and country ranking. These two methods, in combination, can be extremely useful to managerial decision makers in the early stages of foreign market selection.
Marketing across national boundaries has become imperative for long-term company survival and profitability. However, faced with so many countries to evaluate, a business executive can be overwhelmed with the diversity and complexity of alternative market opportunities. There are vast differences among countries in terms of size, income, language, infrastructure, market access, culture, and many other important dimensions. Yet, the differences and similarities among countries are fundamental in determining which markets are suitable for entry.
The issue of delineating and quantifying foreign market opportunity has always been a primary concern for managers, and numerous methods have been presented (e.g., Douglas & Craig, 1983, Harrell & Kiefer, 1981, Helsen et al., 1993 and Kale & Sudharshan, 1987). Cavusgil (1985) suggests a three-step process for identifying the overseas markets with the best potential. He recommends a preliminary screening to determine which possibilities warrant further investigation, to be followed by an assessment of industry market potential to estimate aggregate demand, and finally, an analysis of sales potential in light of a company's unique product and circumstances. Whatever the process may be, it is commonly accepted that country screening should be the first step.
International marketers use two primary approaches in screening for attractive markets abroad. First, clustering yields a group of countries with similar commercial, economic, political, and cultural dimensions. These similarities not only help managers compare the countries, but also provide information on possible synergies among markets. The second is ranking countries according to dimensions that are relevant to the international marketer. Ranking essentially rates countries in terms of their overall market attractiveness. When these two methods are combined, the manager can identify a reduced set, or sets, of potentially attractive markets with meaningful similarities. Once the screening is completed, in-depth evaluation is still necessary for foreign market entry and expansion decisions.
Screening and pinpointing attractive country markets for entry can be an overwhelming task for international marketing executives, given the number of choices available and the number of decision variables. Managers require a systematic approach to guide them through the process. The two methods described here provide the international marketer and the scholar alike with objective and comprehensive analytical techniques for evaluating markets.
Indexing focuses on relative market attractiveness by considering seven dimensions of overseas potential. It allows us to rank countries in terms of their market appeal. Managers can choose to weigh these factors to reflect the specific characteristics of their own business or project. In addition, the dimensions and variables can be changed to fit specific industries, businesses, or projects. While the rankings are useful in setting target markets priorities, they do not help determine the specific strategies to employ once the markets are chosen. Clustering fills that need by placing countries into homogeneous groups with meaningful similarities.
The aim of this study is not merely to provide a list of countries that are meritorious candidates for market entry. Rather, the objective is to reduce the complexity of market selection by demonstrating the use of analytical approaches based on readily available secondary data. Finally, it should be emphasized that indexing and clustering represent an excellent start for country screening and evaluation, but more detailed and refined analysis is necessary once the candidate countries are reduced to a manageable number. Such in-depth analysis is also imperative for the subsequent formulation of an international market entry program.
