Toward a tradeoff model for international market selection

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Abstract

The literature on International Market Selection (IMS) contains many proposed models which make significant contributions but do not effectively address the IMS problems. A new tradeoff model is proposed that uses two key constructs, demand potential and trade barriers, as well as firm strategy as a contingency construct. Each key construct is measured by only four variables, resulting in simplicity and low application cost, and strategy is used to develop weights for the variables. The model is tested in real market conditions for 17 target countries and three diverse products over a six-year period. The weighting solution that favors demand potential is shown to have strong predictive power for the short to medium term. In addition to being tested and validated, the model introduces a number of advances including the weighting of indicators, an approach to quantifying nontrade barrieers, and validation for two different exporting countries.

Section snippets

Overview of the IMS literature

IMS aims to determine the relative attractiveness of markets within a considered set, prior to the final in-depth assessment of the most appealing one(s) for expansion (Reid, 1981). Among others, Ayal and Zif, 1978, Chetty and Hamilton, 1993 stress that effective market choice is a strategic decision that affects export performance. Errors can be costly and may also dampen the firm’s export enthusiasm (Welch & Wiedersheim-Paul, 1980). Cooper and Kleinschmidt (1985) have shown that exporters who

Review and analysis of the shift-share model

Shift-share uses only one input variable, industry-specific imports at two time points for a selected basket of countries, and estimates each country’s market potential based on its rate of import growth relative to the others (Green & Allaway, 1985). The model’s logic is summarized in the Appendix, part A. Given its core strengths of simplicity and industry-specific orientation, a more intensive analysis was undertaken to examine whether the model’s major weakness, that it is limited to

Model development and method

The step-wise IMS modelling approach proposed in the seminal studies of Douglas, Lemaire and Wind, 1972, Dichtl and Koglmayr, 1987 was used to guide the development of the model. This consists of setting relevant criteria; specifying key constructs and their measures and allocating weights to them; setting rules for aggregating scale values and their weights; and using these to transform the data into an overall score. Because the model attempts to address a major gap in international research

“Two-dimensional” approach

The target markets were clustered by their values into even quadrants, based on the plotting described above for each of the six [exporting country ∗ product] sets. The results are shown in Fig. 2. Target markets in the upper right (high potential/low barriers) offer the best export opportunities, those in the lower left (low potential/high barriers) are the least promising, and so on.

Implications and conclusions

Research of this type is limited primarily by the deficiencies of secondary data. Key challenges include the lack of direct conversion schemes between the trade coding systems (the SITC codes alone have been revised three times since 1965 and some countries still report using earlier versions), varying data definitions, and the unavailability, unreliability, or aging of data for some countries, particularly less developed ones (e.g., see Nachum, 1994). Greater product specificity would also be

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