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Food product target market

prioritization using MCDM
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Christian Salmon, Mohammad Dehghanimohammadabadi

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Proceedings of the 2014 Industrial and Systems Engineering Research Conference

Food product target market prioritization using MCDM approaches

Mohammadsadegh Mobin, Mohammad Dehghanimohammadabadi, Christian Salmon

Department of Industrial Engineering and Engineering Management,
Western New England University

Abstract

This paper applies multiple Multi-Criteria Decision Management (MCDM) methods as a mechanism for identifying
international markets for a producing nation’s food production. The specific application presented in this paper is
for export markets of Iranian Pistachios; however, the model could be applicable across multiple food products and
nations. Quantitative and qualitative criteria for market assessment were identified via a literature review. These
include: 1) Regulation criterion, 2) Cultural criterion, 3) Transportation distance criterion, 4) Economy criterion, 5)
Market potential criterion, 6) Politics criterion, 7) Revealed Comparative Advantage (RCA). Shannon’s Entropy
method was applied to weight criteria based upon the context-dependent concept of informational importance. The
application of multiple MCDM techniques allows for a comparative assessment of the methods and results. These
included: Simple Additive Weights (SAW), Technique for Order of Preference by Similarity to Ideal Solution
(TOPSIS), and VIKOR. This paper concludes with the observation that results, and ultimately investment dollars
spent, are highly sensitive to model characteristics selected arbitrarily by the modeler. And if a different modeler
made different arbitrary choices in criteria selection and criteria weighting methods, results would be fundamentally
altered. This is the case for each of the MCDM methodologies employed.

Keywords
International Target Market, MCDM, Shannon’s Entropy,
 Mobin M., Dehghanimohammadabadi M., Salmon C.
1. Introduction
The nations of the Middle East are the main producers of pistachios, specifically Iran which is responsible for
roughly 50% of global pistachio production [1]. Further, the Iranian pistachio has been cited as superior in flavor
due to the favorable growing conditions, such as ample solar radiation and soil nutrition [2]. This offers Iranian
producers the opportunity to leverage ample high quality production into substantive revenues. However, caution is
required when exploring the international marketplace.

As the world’s markets continue to globalize, international market selection is, and will continue to be a strategic
decision and advantage in the success or failure of a firm [3, 4]. Due to substantive resource investments that are
required when entering new and emerging international markets, coupled with a delay in returning capital in the
form of revenue e, a miss-step can have immediate as well as long-term consequences on a firm’s viability [5].

In theory, a decision makers’ target market section is derived through some intuitive sense over market potentials
and the underlying risks. To mitigate the risk of judgment errors and subsequent resource misallocation, this paper
investigates the use of Multi-Criteria Decision Management (MCDM) processes for market identification, with an
application specific to the Iranian producers of pistachios. The market identifying criteria were defined via a
literature review of the market analysis literature. The most relevant criteria were determined as being oriented
around: 1) culture, 2) regulation, 3) transportation distance, 4) economy, 5) market potential, 6) politics, and 7)
revealed comparative advantage (RCA).

Data relevant to each of these criteria were collected, subject to data availability, for nations that constitute the top
Pistachios importers (85% of the total global market) for each of the criterion. These data were then analyzed via
TOPSIS, VIKOR and SAW.

This paper demonstrates that the ranking of target markets is fairly stable as a function of the MCDM process
utilized, however, is highly sensitive to the input criteria, and that results will vary substantively with a relatively
minor shift in the criteria selected. This matter is of concern when identifying market for export because the
literature is populated with a large number of potential criteria that could be used. Thus, the relevant criteria
identification process is second only in importance to a robust discussion of the results of an analysis.

2. Literature review
Experienced exporters consider a variety of criteria to be crucial when selecting international market targets,
though some criteria outweigh others. A literature review of the most commonly referenced works was conducted
to identify these criteria. Wood and Robertson performed a comprehensive study and explored information
potentially useful to managers evaluating entry into export market. They identified 200 indicators of interests, and
classified each in one of six categories: Politics, Market potential, Economics, Culture, Infrastructure and Legal [6].
In other work, Malhotra S, Sivakumar focused on market selection of multinational firms and used the cultural,
administrative, geographic, and economic distance framework proposed by Ghemawat [5], and offered
empirical support for the role of different distance factors on firms’ foreign market acquisition behavior. Several
studies have suggested that Revealed Comparative Advantage (RCA) has an important role in the foreign target
market selection as well [7]. For demonstration purposes in this paper, the most commonly cited criteria from
are selected. Each is defined below.

C1: Regulation criterion: Government laws related to tariff and duties, bureaucratic quality and delays. Malhotra,
Shavin [5] recommended the government effectiveness index as a measure of regulation. This index indicates
competence of regulations and the bureaucratic quality level of public service delivery by governments in different
countries [5, 6, 8, 9]. The required data for this measure is required from Governance Matters VIII, Aggregate and
Individual Governance Indicators [9].

C2: Cultural criterion: Indicates differences in social norms, lifestyle, language, and religion between the two
countries. There are few studies which emphasized the importance of cultural distance in target market selection [10-
12].The Hofstede’s cultural index proposed four cultural aspects [13] – power distance, uncertainty avoidance,
individualism, and Masculinity/Femininity – and Malhotra, Shavin [5] proposed the following equitation based on
these cultural dimensions in order to measure cultural distance [6, 10, 11, 14, 15]:
 Mobin M., Dehghanimohammadabadi M., Salmon C.

. − . )
Cultrual distance = (1)
4×
Where . represents the acquiring country score for Hofstede’s cultural dimension j, . is the target country
score for the corresponding cultural dimension i and is the variance of the index score of cultural dimension j.

C3: Transportation distance criterion: Geographical distance between capitals of two countries from [5, 6, 16,
17] which is derived from [18].

C4: Economy criterion: Economic differences between two countries in terms of production strength,
consumption, development and performance of countries [6]. The simplest method to estimate this gap is
difference of GDP of two countries [5, 8, 17, 19]. The required data for this criterion is obtained from the World
Bank Database [20].

C5: Market potential criterion: Ability of buyer of exporter’s product and level of cost adoption. GDP of the
target country could be a measure for market potential [5, 6, 14, 17, 19, 21, 22]which evidenced by the World Bank
Database [20]. (Note: Recent studies has ranked as the most important of all primary factors for selecting target
market [6])

C6: Politics criterion: depicts stability/instability of a country in terms of politics. Less political instability
yields higher market potential. This Index is derived from The Economist website [23] which calculates Index via
combining measures of economic distress and underlying vulnerability to unrest [6, 17].

C7: Revealed Comparative Advantage (RCA): introduced by Bela Balassa [24] is based on Ricardian comparative
advantage concept used in international economics for calculating the relative advantage or disadvantage of a certain
country in a specific class of products or. RCA has since been revised, modified and applied for to a number of
food and agricultural studies [7, 25-27]. In this paper, the RCA index is calculated as the proportion of the
country's imports of the product divided by the proportion of world imports of that product (Equation 2). The
required data is derived FAO report [28].


= (2)

Table 1 shows the data with respect to each criterion for the top 18 nation consumers of Pistachios.

Table 1: Decision Matrix and collected data

C1 C2 C3 C4 C5 C6 C7
Countries
(Kms) ($ US) (M USD)
Alt 1 Belgium 2.11 1.37 4088 31006 484363 4.0 1.69
Alt 2 Canada 2.68 1.33 9562 36899 1628457 2.8 0.35
Alt 3 China 0.99 1.52 5608 2636 6617705 4.8 0.73
Alt 4 France 2.29 0.93 4216 28520 2640149 5.3 1.02
Alt 5 Germany 2.40 1.36 3511 28751 3408526 3.8 2.01
Alt 6 Greece 1.31 1.40 2471 20119 288011 6.3 1.90
Alt 7 Hong Kong 2.58 3.21 6183 27998 238681 4.0 6.57
Alt 8 India 0.72 0.64 2545 12471 1697707 4.5 1.37
Alt 9 Italy 1.14 1.60 3418 40289 2090696 5.0 1.43
Alt 10 Japan 2.21 3.09 7672 37471 5596758 3.8 0.22
Alt 11 Lebanon 0.11 0.74 1467 10089 38704 7.0 10.73
Alt 12 Luxembourg 2.40 0.58 3947 87669 53568 3.6 32.86
Alt 13 Netherlands 2.61 2.06 4069 42145 792747 4.0 1.82
Alt 14 Poland 1.23 1.21 3019 14516 476529 4.5 0.71
Alt 15 Russia 0.43 1.59 2469 11995 1665356 6.5 3.82
Alt 16 Spain 1.74 0.37 4781 22175 1401587 5.5 1.85
Alt 17 UAE 1.57 1.22 1278 23042 302117 4.1 3.43
Alt 18 UK 2.49 2.56 4402 33268 2361070 4.6 0.48
 Mobin M., Dehghanimohammadabadi M., Salmon C.

3. Methods for determining the weights of criteria:

Multiple methodologies are available for determining the relative importance of each criterion in this decision
problem. Each has advantages and disadvantages and data requirements. Considered for this study were
weighted lease square method, analytical hierarchy process (AHP), linear programming techniques for
multidimensional of analysis preference (LINMAP), as well as entropy method, though the most applicable method is
driven by the nature of the decision problem [29]. Shannon’s Entropy Method [30] was therefore determined to be the
most relevant because the nature of the process leverages the variance in the intra-criteria data. This results in the
weighting process being defined by the criteria with the most differentiation between the alternatives in a highly
complex globalized market system. This is outlined in Equations 3, 4 and 5.
= ∑ (3)
For the jth column, is computed as:
= − ∑ log( ) (4)
The quantity essentially provides a measure of closeness of the different proportions. The smaller the value of ,
the larger the variation among the proportions for classifying the rows. So the final weights can be calculated as:
= [∑ , = 1, … , (5)
( ]

Table 2 presents the weights for each of seven criteria based on Shannon’s entropy method (Equation 5). From these
data it can be seen that Criteria 5 and 7 dominate this decision problem. A further review suggests that Criterion 6
influences the decision to a trivial degree, and might be dropped as a meaningful element of the analysis. For
demonstration purposes, all 7 criteria will be utilized in this analysis.

Table 2: Weight of each criterion based on Shannon’s entropy method

Criteria C1 C2 C3 C4 C5 C6 C7
Weight 0.07 0.07 0.06 0.09 0.24 0.01 0.46

4. MCDM Methods: SAW, TOPSIS and VIKOR

Like criterion weighting methods, MCDM methodologies each have particular aspects that make each more or less
applicable to some specific situation. There is, of course, no perfect allocation of individual method to specific
decision problem, and thus there is much room to apply multiple methodologies to individual decision problems.
The results may or may not be that each of the processes applied did or did not yield a similar or identical decision
space. However, the discussion that follows of different methods yield substantially different results is as interesting
as the process itself. For this study, three methodologies were selected for analysis. Each is outline below.

4.1. SAW:
SAW is the oldest, most widely known and practically used method [29, 31]. In SAW, the sum of the weighted
normalized values of all the criteria is calculated for the j-th alternative:
S = ∑ w r (6)
w = weight of the ith criterion ( ∑ w = 1)
r ∶ normalized ith criterion' s value for jth object
i = 1, … , m (m: the number of the criteria)
j = 1, … , n (n: the number of alternative)
Alternatives should be ranked in the decreasing order of the calculated values of the criterion [29, 31]. In SAW, the
minimizing criteria can be easily converted to the maximizing ones by this formula
̅ = (7)
: ith criterion's value for jth alternative
min ∶ the smallest ith criterion's value for all the alternatives
̅ ∶ the converted values
The transformation formula used for maximizing criteria is as follows:
 Mobin M., Dehghanimohammadabadi M., Salmon C.

̅ = , max ∶ the largest ith criterion' s value for all the alternatives (8)
4.2. TOPSIS:
The TOPSIS was introduced by Hwang and Yoon [32]. The basic mechanism to this approach is to calculate the
“distance” from each alternative to a “positive ideal solution” (PIS) and a “negative-ideal solution” (NIS) that are
defined in “n-dimensional” space, where n = the number of criterion in the decision problem. The chosen
alternative should have the smallest vector distance from the PIS and the greatest from the NIS.

There are a few different methods for determining the PIS and NIS. Here the PIS was defined as the best
performing attribute for each criterion amongst the alternatives. Conversely, NIS was constructed from the poorest
performing attributes of each criterion amongst the alternatives. This process is presented below as 5 Steps:

Step 1: Alternative data were intra-criterion normalized via vector normalization (Equation 9).
= , = 1,2, … , ; = 1,2, … ,
∑ (9)
∶ the appraisal matrix R of alternative i under appraisal criterion j
: the normalized appraisal matrix R of alternative i under appraisal criterion j

Step 2: These normalized values were then weighted with the data from Table 3 via Equation 10.
= ∗ , = 1,2, … , ; = 1,2, … , (10)
: the weighted normalized appraisal matrix R of alternative i under appraisal criterion j

Step 3: Equations 11 and 12 were used to determine PIS (A+) and NIS (A-)
∗ ∗
= ∈ , ∈ ) | = 1,2, … , } = { ∗ , ∗
,…, ,…, ∗
} (11)
= ∈ , ∈ ) | = 1,2, … , } = { , ,…, ,…, } (12)
∗
: the positive ideal solution for the jth criteria
: the negative ideal solution for the jth criteria
Step 4: The n-criteria evaluation distance can measure the separation from the PIS and NIS for each alternative.
∗ ∗
= ∑ ( − ) , = 1, 2, … , (13)

= ∑ ( − ) , = 1, 2, … , (14)
Step 5: Calculate the relative closeness to the ideal solution ( C ∗ ).
The relative closeness of the ith alternative with respect to the PIS is defined as C ∗ . If the value of C ∗ is closer to 1,
the alternative i will be closer to the PIS.
∗
= , 0 < ∗ < 1, = 1,2, … ,
∗ (15)
+
Step 6: Rank the priority. The alternative with the highest will get the first rank and so on.

4.3 VIKOR:
VIKOR was developed by Opricovic [33] and Opricovic and Tzeng [34] which is based on the compromise
programming of MCDM and the English equivalent of its Serbian name is Multi-criteria Optimization and
Compromise Solution. Same as TOPSIS, VIKOR lies on distances. In VIKOR, the PIS indicates the alternative with
the highest value (score of 100) while the NIS indicates the alternative with the lowest value (score of 0). The steps
of VIKOR process are as follows:

Step 1: Calculate the normalized values (f ). In VIKOR, the normalized values are calculated by using this formula:
x
f = , i = 1,2, … , m; j = 1,2, … , n.
∑ x (16)
 Mobin M., Dehghanimohammadabadi M., Salmon C.
Step 2: Determine the best and worst values ( ∗ ). In order to calculate the best and the worst values we
have following formulas:
∗
= , = 1,2, … , , ∗ : the positive ideal solution for the jth criteria (17)
= , = 1,2, … , , : the negative ideal solution for the jth criteria (18)
Step 3: Distance and calculation of final value.
Step 3-1: Compute the values s and R for i = 1, … , I. In this step, first the distance from each alternative to the PIS
is calculated and then summed them up in order to obtain the final values as follows:
(∗ )
S = ∑ , S : the distance rate of the ith alternative to the PIS (best combination) (19)
(∗ )
(∗ )
R = Max , R : the distance rate of the ith alternative to the NIS (worst combination) (20)
(∗ )

The excellence ranking will be based on S values and the worst rankings will be based on R values. Then, final
value will be calculated by using following formula.
Step 3-2: Compute the values I for i = 1, … , I as follow:
− ∗ − ∗
= + (1 + ) (21)
− ∗ − ∗
∗ ∗
= , = , = , = , : a weighting reference (0.5)
5. Results
A review of Table 2 demonstrates that the Shannon Method biased the weights towards Criteria C5 and C7. The use
of the Shannon Method to weight these criteria will (by definition) bias weights towards the criteria with high
variability in the attributes of those criteria within the data. In this case, the Relative Competitive Advantage (C7)
and GDP (C5) both exhibited substantive variability in the data for the 18 nations. This resulted in the analysis
being dominated by Luxembourg for each of the three MCDM methodologies (Table 3).

That this dominance is so absolute (with scores 2x nearest competitors for SAW and TOPSIS indicates that
Luxembourg is either the singular superior potential market for the commodity of interest here (Iranian Pistachios),
or all three MCDM methodologies were biased to one anomalous observation. For example: an intuitive analysis of
the data in Table 4 suggests that it is the variability in the RCA data (of which Luxembourg dominates) that ‘fooled’
the Shannon Method into allocating a disproportionate weighting to a criteria singularly dominated by Luxembourg.
However, Luxembourg, being a very small yet wealthy nation might ultimately yield limited total market potential
due to the small population.

To investigate this observation further, the weighting and scoring processes were conducted a second time without
Criteria C7 (RCA) in order to see the effect of Shannon weights on the distribution of results. The reweighted
criteria (C1 to C6) are presented in Table 4. Here it can be seen that the weights are more evenly distributed that as
originally presented in Table 2 (though C6 is still weighted low and C5 is still a dominate characteristic or the
analysis).

The results are a reordering of the original results, most notably with Luxembourg dropping in rank from 1 to 6
(SAW), 1 to 8 (TOPSIS) and 1 to 15 (VIKOR) (Table 5). A review of the remainder of the results demonstrates that
there is some reordering of the top 5 or 6 positions, however, those nations ranked in the upper third tended to
remain in the upper third, and the lower third in the lower third (with the exception of Italy).

Table 4 suggests that the criteria are still heavily biased to C5, thus the analysis was conducted a third time without
GDP resulting in Table 6, a more evenly distributed series of Criteria (with the exception of C6). Table 7 presents
the results of the three analyses. Here it can be seen that Luxembourg regains its position at or near the top of the
rankings, though with a much reduced dominance over its peers. Interestingly, Italy (9th by all three MCDM
Methods in Table 3) ranks at 1st or 2nd respectively for TOPSIS and VIKOR in Table 7. Other notable observations
include:
 Netherlands rising in rank from (15, 15, 12) to (7, 3, 7) for SAW, TOPSIS and VIKOR respectively.
 Belgium rising relative to its original ranking in Table 3 as well as its re-ranking in Table 5 in the absence
of Criteria C7.
 Mobin M., Dehghanimohammadabadi M., Salmon C.
Table 3: Final Result of alternative rankings based on SAW, TOPSIS and VIKOR
Rank SAW TOPSIS VIKOR
Country Score Country Score Country Score
∗

1 Luxembourg 0.627 Luxembourg 0.735 Luxembourg 0.000

2 Lebanon 0.317 Lebanon 0.302 Lebanon 0.786
3 China 0.302 China 0.269 Hong Kong 1.369
4 Japan 0.281 Japan 0.236 Russia 1.534
5 Germany 0.237 Hong Kong 0.184 UAE 1.620
6 France 0.197 Germany 0.176 Germany 1.700
7 Russia 0.196 Russia 0.147 China 1.742
8 Spain 0.195 France 0.140 Spain 1.772
9 Italy 0.191 Italy 0.129 Italy 1.777
10 India 0.182 UK 0.122 India 1.788
11 UAE 0.176 UAE 0.118 Greece 1.809
12 UK 0.167 India 0.115 Netherlands 1.828
13 Hong Kong 0.162 Spain 0.109 France 1.836
14 Canada 0.147 Canada 0.097 Belgium 1.837
15 Netherlands 0.142 Netherlands 0.091 Japan 1.877
16 Belgium 0.124 Greece 0.084 Poland 1.933
17 Greece 0.118 Belgium 0.081 UK 1.944
18 Poland 0.102 Poland 0.070 Canada 1.987

Table 4: Weight of each criterion based on Shannon’s entropy method without considering C7
Criteria C1 C2 C3 C4 C5 C6
Weight 0.12 0.12 0.11 0.17 0.45 0.02

Table 5: Final Result of alternative rankings based on SAW, TOPSIS and VIKORE
Rank SAW TOPSIS VIKOR
Country Score Country Score Country Score
∗

1 China 0.538 China 0.7209 Japan 0.1364

2 Japan 0.511 Japan 0.7035 China 0.2417
3 Germany 0.385 Germany 0.4911 Germany 0.6350
4 France 0.336 France 0.4006 France 0.9166
5 Italy 0.316 UK 0.3540 Italy 1.0652
6 Luxembourg 0.315 Italy 0.3529 UK 1.0860
7 Spain 0.312 India 0.2999 India 1.1940
8 Lebanon 0.309 Luxembourg 0.2960 Russia 1.2429
9 India 0.299 Russia 0.2846 Spain 1.3524
10 UK 0.295 Canada 0.2732 Canada 1.3636
11 Russia 0.263 Spain 0.2652 Netherlands 1.6332
12 Canada 0.261 Netherlands 0.2097 Poland 1.6981
13 UAE 0.235 Lebanon 0.2015 Belgium 1.7193
14 Netherlands 0.215 UAE 0.1907 UAE 1.7396
15 Belgium 0.184 Belgium 0.1812 Luxembourg 1.7502
16 Poland 0.170 Poland 0.1785 Greece 1.7722
17 Greece 0.168 Greece 0.1746 Lebanon 1.7961
18 Hong Kong 0.130 Hong Kong 0.1146 Hong Kong 1.9380
 Mobin M., Dehghanimohammadabadi M., Salmon C.
Table 6: Weight of each criterion based on Shannon’s entropy method without considering C7 and C5
Criteria C1 C2 C3 C4 C6
Weight 0.22 0.23 0.19 0.31 0.04

Table 7: Final Result of alternative rankings based on SAW, TOPSIS and VIKOR
Rank SAW TOPSIS VIKOR
Country Score Country Score Country Score
∗
1 Luxembourg 0.566 Luxembourg 0.7557 Italy 0.1490
2 Lebanon 0.558 Italy 0.5120 Luxembourg 0.2409
3 Spain 0.394 Netherlands 0.4455 Belgium 0.6231
4 UAE 0.391 Lebanon 0.4387 UK 0.7106
5 India 0.334 UAE 0.4384 France 0.7284
6 Italy 0.315 Spain 0.4236 Germany 0.7300
7 Netherlands 0.292 India 0.4228 Netherlands 0.7461
8 France 0.285 France 0.4208 UAE 0.8472
9 Germany 0.278 Belgium 0.4189 Canada 0.8944
10 Belgium 0.275 Germany 0.4069 Japan 0.9096
11 Canada 0.274 Greece 0.4035 Spain 0.9282
12 Russia 0.272 Russia 0.3880 Greece 1.0169
13 Greece 0.270 Poland 0.3812 Hong Kong 1.0585
14 Poland 0.250 Canada 0.3785 India 1.2219
15 UK 0.245 UK 0.3584 Poland 1.2330
16 Japan 0.237 Japan 0.3281 Lebanon 1.2816
17 Hong Kong 0.207 China 0.2924 Russia 1.3124
18 China 0.159 Hong Kong 0.2666 China 1.8176

6. Conclusion:
Our study used three MCDM processes to rank 18 potential international markets for Iranian pistachios using seven
primary criteria that were the most commonly cited in a literature review. The original results demonstrated that one
nation singularly dominated the rankings (Luxembourg). This dominance was absolute; however a more pragmatic
review of the nation as a logical target market for the specific commodity of interest suggested that the results might
be overly biases towards an anomalous small and wealthy nation. This bias was caused by the singular dominance
in one criterion (C7 - RCA) that exhibited a substantive variance in the nations’ data, and thus was highly weighted
by the Shannon Method.

The analysis was conducted a second time in the absence of this criteria. The results were a meaningful drop in the
ranking of the formerly dominate nation for all three MCDM methods, coupled with some reordering of the
remaining top half of the rankings. A secondary result was a transfer of the dominating stance from the criterion C7
to C5 (GDP). Thus, the analysis was conducted a third time by dropping C5. The results demonstrated a return of
Luxembourg to the top of the rankings, but also the raise of other nations that were formerly ranked in the lower half
under the original and secondary analysis.

MCDM methodologies can be excellent applications for identifying potential target markets for export or goods.
However, a strict reliance on the results of any specific methodology and set of criteria can yield to an investment of
limited resources in a market with limited practical potential. This was demonstrated here through a logical process
of identifying a subset of all nations that exhibit pistachio consumption. This subset was then evaluated via logically
identified criteria, which ultimately yielded results heavily biased to the nation with the smallest number of potential
buyers of export good.
 Mobin M., Dehghanimohammadabadi M., Salmon C.
Future research will consider normalizing criteria that will remove biases of the type identified in the analysis
presented here, with the GDP per capital of Luxembourg being the most obvious example. GDP is a critical metric
of purchase capacity, though the metric becomes a detriment when it yields to grossly distorted results. Identifying
secondary normalization mechanisms would hopefully negate many of these concerns.

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