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IMR
24,2 Market selection for international
expansion
Assessing opportunities in emerging markets
208
Sema Sakarya
Department of International Trade, Bogazici University, Istanbul, Turkey, and
Received June 2006
Revised November 2006 Molly Eckman and Karen H. Hyllegard
Accepted December 2006
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
Introduction
Comparative research of emerging market potential is a costly exercise for
international marketers confronted with a multitude of diverse markets for which
International Marketing Review there is dearth of available research. Nonetheless, innovative companies are willing to
Vol. 24 No. 2, 2007
pp. 208-238
q Emerald Group Publishing Limited
0265-1335
Partial funding for this research was provided by a Career Enhancement Grant from Colorado
DOI 10.1108/02651330710741820 State University.
shoulder the burden of looking at emerging markets (EM) that are commonly Market selection
ignored because they offer growth potential through investment and sourcing for international
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 expansion
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 209
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.
IMR Internationalization of the firm and market selection for international
24,2 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
210 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, Market selection
1990). It was not supported, however, by the behaviour of some large firms using mixed for international
approaches (Turnbull, 1987). The existence of born global firms suggests a new
challenge to traditional theories of internationalization (Knight and Cavusgil, 1996, expansion
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 211
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.
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; Market selection
McSweeney, 2002; Baskerville and Hofstede, 2003). for international
Researchers have used Hofstede’s indices to generate cultural distance scores to
reflect relative cultural similarities and differences among countries (Kogut and Singh, expansion
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 217
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).
IMR Using Kogut and Singh’s formula, Morosini et al. (1998, p. 144) developed a
multidimensional measure to estimate the cultural distance between countries:
24,2
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.
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
IMR imports from the USA over the past five years (60 per cent weight) and per capita
24,2 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’
220 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.
Long-term market
potentials for 12 EM
221
Table I.
IMR
Power Uncertainty Masculinity/ Time Cultural distance
24,2 EM/US distance avoidance Individualism femininity orientation from USA
Argentina 49 86 46 56 NA 61
Brazil 69 76 38 49 65 69
China 80 30 20 66 118 83
222 Hong Kong 68 29 25 57 96 74
India 77 40 48 56 61 57
Indonesia 78 48 14 46 NA 87
Mexico 81 82 30 69 NA 82
Poland 68 93 60 64 32 63
S. Africa 49 49 65 63 NA 28
S. Korea 60 85 18 39 75 88
Taiwan 58 69 17 45 87 81
Turkey 66 85 37 45 NA 73
USA 40 46 91 62 29
Notes: NA – data not available; in order to generate comparable cultural distance scores for all
Table II. markets, time orientation was not included in the calculations; lower cultural distance scores indicate
Dimensions of culture greater similarities to US culture
and cultural distance Sources: Dimensions of culture indices were obtained from Hofstede (2001); and cultural distance
scores for 12 EM 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. Market selection
Demand for high quality inputs in the sector force most of the related and supporting for international
industries to be internationally competitive. Application of Porter’s (1990) framework
to leather clothes industry concluded that it owes its competitiveness to rivalry in expansion
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 223
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
IMR increased 23.8 per cent but concentration remained low compared to Western Europe
24,2 (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
224 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).
Factor conditions Abundance of basic factors; Positive basic and advanced factors
specialized factors pools
Demand conditions Large and growing demand Large and growing demand
Related and supporting Growth and deepening of related Growth and deepening of related
industries and supporting industries and supporting industries
Firm strategy, structure Domestic rivalry, improving Low domestic rivalry, developing
Table III. and rivalry organizational skills and strategic organizational skills and strategic
Overall assessment of perspectives; foreign entry perspectives; increasing foreign
national diamond entry
attributes Government Positive reinforcement policies Some reinforcement policies
Descriptive analyses were conducted to provide information on the three variables Market selection
measured. Multivariate and univariate analyses of variances were used to examine for international
respondents’ beliefs on the impact of retail development on local community by
demographics, as well as perceptions of offers by Turkish, European, and US expansion
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 225
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.
Percentage of
Factor (items: impact on) Eigenvalue variance Standardized a coefficient
Overall ¼ 0.68
Employment/business opportunities (6) 4.46 37.14 0.80
Professional career opportunities
Consumer choice opportunities
Wages
Employment
Local retail businesses
Over consumption/materialism
Socio-cultural well being (4) 1.78 14.82 0.81
Social/moral values
Community well being
Cultural identity
Natural environment Table IV.
Urban growth (2) 1.16 9.69 0.71 Social and economic
Traffic congestion impact of foreign
Urban development retailers: factor analysis
IMR Perceptions of Turkish, European and US retailers
24,2 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
226 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.
Means (SD)
Factors Ankara Istanbul Izmir Univariate F Multivariate F
Table V. 2.98 *
Differences in perceptions Employment/business
of social and economic opportunities (6) 5.17 (1.20) 5.44 (0.97) 5.26 (1.19) 2.69
impact of foreign retailers Socio-cultural well being (4) 4.45 (1.61) 4.68 (1.46) 4.32 (1.50) 2.44
by city: multivariate and Urban growth (2) 4.08 (1.83) 4.51 (1.64) 3.79 (1.75) 7.57 * *
univariate analysis of
variance Notes: *p # 0.01; * *p # 0.001, significant contrast for urban growth between Istanbul and Izmir
Means/SD
Retailer characteristics Turkish EU USA F
228
variance
Table VII.
brands by education
univariate analysis of
level: multivariate and
Acceptance of US apparel
Significant
contrasts
between
education
levels by
product
Acceptance of US brands Education level Means (SD) characteristic Univariate F Multivariate F
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
IMR long-term market potential and cultural distance criteria. For the competitiveness of the
24,2 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
230 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