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

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. nave 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

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] 6575 # MCB University Press [ISSN 0263-4503]

[ 65 ]

Adam J. Koch Selecting overseas markets and entry modes: two decision processes or one? Marketing Intelligence & Planning 19/1 [2001] 6575

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

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 (Bjorkman 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,

Figure 1 Basic approaches to foreign market and market entry mode selection

[ 66 ]

Adam J. Koch Selecting overseas markets and entry modes: two decision processes or one? Marketing Intelligence & Planning 19/1 [2001] 6575

Table I Stages of market selection process Stage 1 Cavusgil (1985) Johansson (1997) Kumar (1994) Root (1994) Screening Country identification Screening Preliminary screening Stage 2 Identification Preliminary screening Identification In-depth screening Stage 3 Selection In-depth screening Selection Final selection Stage 4 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

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] 6575

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].

flexibility (e.g. Anderson and Gatignon, 1986; Klein, 1989; Porter, 1976); and ownership (e.g. Rugman, 1981).

Market entry mode selection models

As mentioned earlier, in their market and entry mode selection companies follow one of the three general rules: 1 nave (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. Grnhaug and Kvitastein, 1993); . dissemination risk (e.g. Williamson, 1985);

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 Svard, 1982; Grnhaug 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

[ 68 ]

Adam J. Koch Selecting overseas markets and entry modes: two decision processes or one? Marketing Intelligence & Planning 19/1 [2001] 6575

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 nave 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? Marketing Intelligence & Planning 19/1 [2001] 6575

Figure 2 The systematic approach to international market expansion and entry mode selection

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

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

[ 70 ]

Adam J. Koch Selecting overseas markets and entry modes: two decision processes or one? Marketing Intelligence & Planning 19/1 [2001] 6575

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.

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

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

[ 71 ]

Adam J. Koch Selecting overseas markets and entry modes: two decision processes or one? Marketing Intelligence & Planning 19/1 [2001] 6575

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] 6575

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

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.

Figure 4 The eclectic market and entry mode selection (MEMS) model

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] 6575

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. Bjorkman, 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

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

[ 74 ]

Adam J. Koch Selecting overseas markets and entry modes: two decision processes or one? Marketing Intelligence & Planning 19/1 [2001] 6575

multinational corporate market entry strategy'', paper presented at the Annual Meeting of the Academy of International Business. Grnhaug, 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 Svard, M. (1982), Yritysten Henkiloston Kansainvalistamistarve'', (Personnel Needs in Internationalizing Firms), FIBO Publications, 19, Vientikoulutussaato, 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 ]