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Delineating Foreign Market Potential: A Tool for International Market Selection

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DOI: 10.1002/tie.21686

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 FEATURE ARTICLE 1

Delineating Foreign
Market Potential:
A Tool for International
Market Selection
By
Ayse Ozturk, Eric Joiner, and S. Tamer Cavusgil

International expansion is becoming more imperative in today’s marketplace. However, determining

which markets best suit a specific company is not a straightforward task. This study tackles the ques-
tion of how managers should go about identifying, evaluating, and selecting foreign markets. For this
purpose, we propose a practical, flexible, and forward-looking three-stage template for assessing for-
eign market opportunities and identifying the most promising international markets. The three stages
include determining country responsiveness for a specific industry, estimating future industry growth,
and incorporating an industry-relevant aggregate measure. The study illustrates the tool for three
companies from various industries and discusses the implications. The proposed tool offers insights
on crucial dimensions for the industry-specific market potential, and assists managers in identifying
favorable foreign markets. This study also addresses the gap in the international market selection lit-
erature by developing a new empirical tool for foreign market analysis and selection using longitudinal
secondary data. © 2015 Wiley Periodicals, Inc.

Introduction is a vast market with immense opportunities; at the same

time, their partners in Latin America speak of a booming

I
magine a case where the executives of a company are
considering expanding into new foreign markets yet
are not sure of where to start and how to proceed in
their search. These executives are getting some contra-
dictory information. For example, they hear that China
economy there. However, the executives want to select
a foreign market based on more objective criteria and a
structured analysis rather than subjective input. Also, they
want to consider the unique drivers of demand for their
own industry.

Correspondence to: Ayse Ozturk, CIBER, Georgia State University, 35 Broad Street, Atlanta, Georgia 30303, 404-413-7431 (phone), aozturk1@gsu.edu

Published online in Wiley Online Library (wileyonlinelibrary.com)

© 2015 Wiley Periodicals, Inc. • DOI: 10.1002/tie.21686
2 FEATURE ARTICLE
This is a typical dilemma facing executives on a daily
basis. In the present article, we propose a systematic
approach and a practical tool for identifying best markets
based on specific industry potential. Given the absence
of pragmatic approaches to foreign market selection, the
current study addresses a gap in the literature.
Many executives now consider international expan-
sion as an imperative for growth and profits. Multina-
tional enterprises continuously look for new markets to
enter, small and medium businesses seek international
customers more than ever, and born-global firms under-
take substantial internationalization early in their evolu-
tion (Cavusgil, Knight, & Riesenberger, 2012, p. 66). Just
to cite a few examples, Burger King has recently opened
its first Maldives outlets, is considering entering Israel
and Pakistan in 2014, and is in talks to do business in
Asian markets: India, Indonesia, and China. Starbucks
plans to enter Myanmar in the near future, as part of the
expansion plans in Asia. Just this year, Spanish clothing
company Inditex is set to enter Algeria, and has opened
its first Zara Home stores in Japan; Yum! Brands KFC has
entered Ukraine and Mongolia; IKEA plans to enter the
Philippines and India, and has recently entered Qatar;
Domino’s Pizza has entered Thailand; Swedish fashion
retailer H&M and US-based clothing retailer Gap has
committed to entering India; US-based sandwich chain
Subway is planning to open its first restaurant in Ukraine
and Kenya; video rental and streaming company Netflix
has announced that its next market entry will be to the
Multinational enterprises con-
tinuously look for new markets
to enter, small and medium
businesses seek international
customers more than ever, and
born-global firms undertake
substantial internationaliza-
tion early in their evolution.
Thunderbird International Business Review
Netherlands; and the online retailer Newegg is due to
launch operations in Taiwan, while the e-commerce giant
Amazon is planning to launch its services in Russia.1 An
interesting trend in such examples today is that many of
the market entries are to the emerging or developing
countries like Kenya or Mongolia that promise abundant
opportunities but are rife with risks at the same time.
Accordingly, the decision criteria to select which markets
to enter are crucial for the well-being of companies.
As the global economy becomes more interconnected
and markets become more accessible, company executives
wish to take advantage of the opportunities in yet untapped
markets. There are growing sources of information and
guides for market expansion decisions, yet determining
which markets best suit a specific company or industry is
not a straightforward task. Accordingly, the present study
addresses the question of how managers can systematically
identify and evaluate target markets and make sound deci-
sions in international market expansion.
Although international market selection (IMS) and
foreign market opportunity analysis (FMOA) are critical
success factors in the international market expansion
of firms, there is a lack of empirical studies in this field
(Leonidou, Katsikeas, & Samiee, 2002; Papadopoulos
& Martín, 2011; Steenkamp & Ter Hofstede, 2002). A
literature review by Malhotra and Papadopoulos (2007)
identified less than 40 empirical IMS studies, with about
half of them using secondary data. Considering the
complexity of IMS decisions and the relevance of a large
number of market selection criteria, more empirical
studies are needed in the literature. At the same time,
executives desire highly practical yet insightful tools for
approaching such fundamental decisions in a rational
and systematic way. The current study aims to address
this gap by developing a new empirical tool for foreign
market selection decisions using longitudinal secondary
data. As Papadopoulos and Martín (2011) have accentu-
ated in their review paper, along with other concerns,
there is a critical need for more empirical research in
IMS, providing fresh insights and methods for assessing
markets. Similarly, these authors have noted a need for
utilizing secondary and/or primary data, and carrying
out longitudinal quantitative research. The present work
represents a response to this call.
In the present study, we first review the extant litera-
ture on market opportunity analysis. We then propose a
methodology and guidelines designed to carry out FMOA
and IMS. The proposed process takes into account such
dynamic factors as consumer spending, income, industry
growth rate, and aggregate country factors. The intent is
to assist managers in selecting the best markets for entry
DOI: 10.1002/tie
 Delineating Foreign Market Potential: A Tool for International Market Selection
by providing them with the ability to screen countries
while simultaneously assessing industry market potential.
At the same time, the goal is to contribute to a healthy
string of scholarly work in this area.
The proposed methodology is composed of a three-
stage template. In the face of rising prosperity worldwide,
the first step includes analyzing the income elasticity
of industry-specific consumer expenditure by country.
We refer to this income elasticity as “responsiveness” of
the country for that specific industry. The tool classifies
prospective countries as being responsive or unresponsive
to changes in income for specific industry expenditure.
The second step examines the growth potential of each
country in terms of income and industry-specific con-
sumer expenditure. Finally, the third step combines the
indicators of responsiveness and growth potential with an
aggregate measure such as gross domestic product (GDP)
growth rate, country risk, or other country-level indica-
tors that are most critical and relevant for a specific indus-
try. Key indicators are then plotted on a chart so as to
cluster the countries on the basis of their responsiveness,
industry growth rate, and aggregate potential. Addition-
ally, the final template accounts for the relative industry
market size of each country. As a result, the final tem-
plate incorporates major indicators of market potential:
country responsiveness, industry growth rate, aggregate
country indicator, and market size.
Our model contributes to IMS research in multiple
ways. We propose a flexible and practical approach based
on industry-level analysis, allowing for more refined
insights for managers than commonly used, country-
level macro models. We introduce a new construct of
country responsiveness to the literature based on income
elasticity of consumer expenditure. Country responsive-
ness reflects the proclivity of consumers to spend, in a
specific product category, in response to a rise in their
income. If the tendency to spend is high, then this coun-
try is classified as responsive. To our knowledge, this is
the first study that introduces the concept of country
responsiveness and explicitly considers income elasticity
in IMS. Additionally, we integrate country responsiveness
with industry growth rate and industry-relevant macro
measures to formulate the proposed IMS tool. The final
tool is forward-looking, as it incorporates future growth
potential; comprehensive, as it takes into account major
industry-level and aggregate factors; and customizable, as
it can be tailored to many different industries.
The remainder of this article is organized as follows.
We first review several relevant studies in the scholarly
literature. Next, the methodology section describes the
template and the three steps in detail. This is followed
DOI: 10.1002/tie
3
We propose a flexible and
practical approach based
on industry-level analysis,
allowing for more refined
insights for managers than
commonly used, country-
level macro models.
by the results section, which includes illustrations of the
proposed methodology for three different industries: AJC
International Inc. (meat industry), Proton (automotive
industry), and GE Healthcare (health care industry). The
subsequent section discusses the contributions and impli-
cations of the proposed template. Finally, we conclude with
limitations and suggestions for possible future research.
International Market Selection:
Insights From the Literature
The fields of IMS and FMOA have been interrelated with a
broader field of internationalization of the firm and entry-
mode decisions. Theory development in the IMS field
has been hindered by such challenges and a high degree
of fragmentation in research streams (Papadopoulos &
Martín, 2011). Thus, it is necessary to first examine the
literature related to internationalization of the firm.
Internationalization of the Firm
Since the 1950s, the increase in exports and the number of
firms entering international markets, and the emergence
of born-global firms have ignited the interest in inter-
nationalization in the scholarly literature (Alon, 2004;
Buckley & Ghauri, 1999; Malhotra & Papadopoulos, 2007).
Different motives lead companies to internationalize.
Some motives are related to external market factors such
as human resources, market size, political climate, stabil-
ity, and capital markets, and some are related to inter-
nal company motivations such as maintaining business
Thunderbird International Business Review
4 FEATURE ARTICLE
reputation and the need for growth, revenue, profit,
technology, and global orientation (Jekanyika Matanda,
2012; Zitta & Powers, 2003). Papadopoulos and Martín
(2011) argued that although the IMS research and inter-
nationalization are closely linked, research is very scant
on the relationship between IMS and internationalization
theories, which include incremental model (Johanson &
Vahlne, 1977), the eclectic paradigm (Dunning, 1988),
the network approach (Johanson & Mattson, 1988), the
contingency or business strategy approach (Robertson
& Chetty, 2000), and the “Born Global” phenomenon
(Oviatt & McDougall, 1994).
Sakarya, Eckman, and Hyllegard (2007) summarized
the links between internationalization of the firm and
IMS decisions in the literature. The early international-
ization literature was based on general marketing theo-
ries focusing on core competencies and foreign market
opportunities (Penrose, 1959; Prahalad & Hamel, 1990).
Subsequent studies focused on entry mode decisions
such as sequential modes of internationalization from
exporting to foreign direct investment (FDI) (Vernon,
1966). Then different schools of thought were proposed
on internationalization decisions. For example, the
Nordic School process model suggested sequential inter-
nationalization based on psychic distance, first entering
into culturally close markets and then increasing com-
mitments as the experience grows (Johanson & Vahlne,
1977; Johanson & Wiedershiem-Paul, 1975). This model
supported internationalization in stages. However, the
emergence of born-global firms, recent developments
and internationalization of consulting, information tech-
nology (IT) and HR services decreased the importance
of this thought. In their study, Reid and Walsh (2003)
argued that this sequential model of internationaliza-
tion, which they called the “orderly progression school”
(OPS) theory, was inadequate to explain, for example,
the case of entry to China. They examined market entry
behavior in China, and came up with the term Surge
Attraction Paradigm (SAP), which suggested that, after
the open-door policy of China, in 1978, many compa-
nies surged into the country without being properly
prepared. Large numbers of consumers, with an existing
pent-up demand, made MNCs enter in China without a
second guess. As a result, this model of entry proved to
be costly for MNCs.
Several other different theoretical perspectives on
internationalization of the firm also exist. Transaction
cost theory models suggest deploying internationaliza-
tion decisions based on minimizing transaction costs
(Williamson, 1975). The network approach focuses on
the interaction of the firm with its environment—cus-
Thunderbird International Business Review
Large numbers of consum-
ers, with an existing pent-up
demand, made MNCs enter
in China without a sec-
ond guess. As a result, this
model of entry proved to be
costly for MNCs.
tomers, competitors, suppliers—in its internationaliza-
tion decisions (Turnbull, 1986). The business strategy
approach emphasizes the trade-offs between market
opportunities, firm resources, and managerial philosophy
(Reid, 1983). Dunning’s (1988) eclectic paradigm sug-
gests that internationalization and entry mode decisions
should be based on culturally based ownership, location,
and internalization advantages. This framework, also
known as the OLI framework, suggests that the extent
of FDI activity of firms depends on competitive owner-
ship advantages of investing firms, location attractions,
and benefits of internalizing production versus licensing
(Dunning, 1988; Dunning & Bansal, 1997). Finally, the
economic theory stresses market potentials based on
market efficiency and industrial competitive advantages
(Porter, 1990, 1998).
An integrative model of international market entry
incorporating these distinct schools of thought would
provide the best insights for internationalization decisions
(Whitelock, 2002). However, as Papadopoulos and Martín
(2011) mentioned, extant literature has not suggested an
integrated scholarly framework on this topic yet.
International Market Selection (IMS)
IMS is considered a primary concern in the international-
ization process of a firm (Douglas & Craig, 1992; Kumar,
Stam, & Joachimsthaler, 1994; Malhotra & Papadopoulos,
2007). Andersen and Strandskov (1998, p. 67) defined
IMS as “the process of establishing criteria for select-
ing (country) markets, investigating market potentials,
classifying them according to the agreed criteria and
DOI: 10.1002/tie
 Delineating Foreign Market Potential: A Tool for International Market Selection
selecting which markets should be addressed first and
those suitable for later development.”
Based on this conceptualization, delineating market
potential has a significant role in IMS. In the IMS litera-
ture, market potential is recognized as a crucial factor in
foreign market evaluation (Malhotra & Papadopoulos,
2007; Robertson & Wood, 2001). Shama (2000) identi-
fied market potential as the most important determinant
of entry strategies of US companies to eastern Europe,
followed by factors such as company activity, level of com-
petition, and year of market entry. His study also revealed
market potential as an important determinant for the
satisfaction of US companies doing business in eastern
Europe. Likewise, Tatoglu and Glaister (1998) examined
the determinants of FDI in Turkey. Drawing on Dun-
ning’s (1988) eclectic paradigm, or the OLI framework,
they identified factors related to location, transaction
cost, and firm-specific variables that affected the decision
of Western multinational corporations to invest in Tur-
key. Market potential was found to be a main factor in
determining the extent of FDI activities.
Apart from the significance of market potential in
internationalization of firms, many IMS studies have
offered different approaches and criteria for identifying
potential foreign markets. One of the earlier studies by
Cavusgil (1985) offered essential guidelines for research-
ing foreign market potential in three stages: (1) prelimi-
nary country screening, based on screening the physical,
political, economic, and cultural environment; (2) assess-
ment of industry market potential to determine the aggre-
gate demand for the industry based on market access,
product potential, and local distribution and production;
and (3) analysis of company sales potential, which is based
on sales and profitability forecasting. This approach repre-
sents one of the earliest approaches in identifying foreign
markets. Similar studies have proposed evaluating interna-
tional markets in such stages as screening, identification,
and selection (Koch, 2001; Kumar et al., 1994).
Another approach, the Overall Market Opportunity
Index (OMOI) was also developed by Cavusgil (1997)
using a set of 25 emerging-market countries.2 This tool
first quantified and ranked market potential based on
fundamental economic, political, and social measures
including size of the middle class, political risk, economic
freedom, telecommunications, and physical infrastruc-
ture. Next, an index was created for each evaluation vari-
able. Finally, weights were assigned to each measure to
obtain the OMOI. A study proposed by Mullen and Sheng
(2006) extended Cavusgil’s OMOI to a larger set of coun-
tries, and assessed the validity of the OMOI by comparing
market opportunity rankings to actual subsequent trade
DOI: 10.1002/tie
5
flows from the United States. They confirmed that OMOI
is a stable tool but weights for measures should be deter-
mined carefully since results can change considerably
depending on the weights.
Further extending the OMOI method, a contribu-
tion by Cavusgil, Kiyak, and Yeniyurt (2004) proposed
two complementary preliminary market assessment
techniques: (1) country clustering on the basis of coun-
try similarity that would enable formulating synergistic
international marketing strategies, and (2) developing
an index of country market potential and country rank-
ings based on the OMOI method. They concluded that
using both approaches simultaneously would provide
the most valuable and nonoverlapping information for
managers. The combination of both methods revealed
how market attractiveness rankings varied within and
among clusters. While providing useful insights for
preliminary country screening and evaluation, these
methods did not take into account the more refined
industry-specific factors and forward-looking growth
potentials.
An important study by Papadopoulos and Denis
(1988) classified existing IMS models into three groups:
decision-making frameworks, which are conceptual models;
grouping models, which cluster potential target markets on
the basis of similarity; and estimation models, which rank
countries by order of preference. The earlier literature
mostly consisted of conceptual models and addressed
the question of how to select foreign markets (Cavusgil,
1985; Douglas & Craig, 1982). Later, some empirical
models were developed. Among these empirical studies,
grouping models clustered countries based on similari-
ties, which then helped managers benefit from syner-
gies enabling companies to standardize their offerings
and marketing strategies across markets (Cavusgil et
al., 2004; Liander, Terpstra, Yoshino, & Sherbini, 1967;
Sethi, 1971). Grouping models included techniques
such as cluster analysis, portfolio analysis, and conjoint
analysis. However, market estimation methods aimed to
rank countries based on aggregate market potential and
overall attractiveness, revealing the best possible markets
to enter (Armstrong, 1970; Conners, 1960; Dickensheets,
1963; Liander et al., 1967; Lindberg, 1982; Samli, 1977).
Estimation models included multiple factor analysis,
regression analysis, econometrics, shift-share analysis, and
multiple criteria methods (Papadopoulos & Denis, 1988).
In essence, previous studies have focused on various
factors in examining foreign market selection approaches.
Some commonly proposed criteria in the IMS literature
are summarized in Table 1. Also, major studies in
this field are summarized in Table 2, categorized as
Thunderbird International Business Review
6 FEATURE ARTICLE
TABLE 1 Criteria for IMS Decisions Proposed in the Literature
Criteria for IMS Decisions
1. Demographic environment
Population age and gender segments
Income distribution
Market size
Infrastructure
Geographical/physical distance
Market similarity
Human resources
2. Political environment
Political climate/stability
Country risk
Corruption
3. Economic environment
Economic stability
Market growth/development
Economic/market intensity
Market consumption, middle class
Economic freedom
Long term market potential
Trade agreements
Trade barriers
Investment incentives, tax advantages Mellahi, Guermat, Frynas, & Al-Bortmani, 2003
Financial risk factors
4. Social-cultural environment
Cultural distance, psychic distance
Language distance
Education level
Literacy rate
5. Sector/product-specific indicators
Competitive landscape
Customer receptiveness, demand
potential
Personal and social values of con-
sumers
6. Firm-specific indicators
Strategic orientation of the firm
Network relationships
Firm-related entry barriers
Motivations for growth and reputation
Thunderbird International Business Review
Study
Mullen, 2009
Mullen, 2009
Cavusgil, 1997; Ojala & Tyrväinen, 2008; Gaston-Breton & Martín, 2011; Sheng & Mullen, 2011; Zitta &
Powers, 2003
Cavusgil, 1997; Mellahi, Guermat, Frynas, & Al-Bortmani, 2003
Ojala & Tyrväinen, 2008; Gripsrud & Benito, 2005; Sheng & Mullen, 2011; Johanson & Vahlne, 1977; Mel-
lahi, Guermat, Frynas, & Al-Bortmani, 2003
Davidson, 1983; Jekanyika Matanda, 2012
Zitta & Powers, 2003
Zitta & Powers, 2003; Mellahi, Guermat, Frynas, & Al-Bortmani, 2003; Jekanyika Matanda, 2012; Cavusgil,
1985
Ojala & Tyrväinen, 2008
Malhotra, Zhu, & Locander, 2010
Mellahi, Guermat, Frynas, & Al-Bortmani, 2003; Jekanyika Matanda, 2012
Cavusgil, 1985, 1997; Wood, Karriker, & Williams, 2010; Gaston-Breton & Martín, 2011; Mellahi, Guermat,
Frynas, & Al-Bortmani, 2003
Cavusgil, 1997; Sheng & Mullen, 2011
Cavusgil, 1997
Cavusgil, 1997
Sakarya, Eckman, & Hyllegard, 2007
Sheng & Mullen, 2011
Papadopoulos, Chen, & Thomas, 2002; Ojala & Tyrväinen, 2007
Zhao, 2003
Sakarya, Eckman, & Hyllegard, 2007; Ojala & Tyrväinen, 2008; Dow, 2000; Sousa & Lages, 2011; Whitelock
& Jobber, 2004; Brouthers, Brouthers, & Nakos, 1998; Johanson & Vahlne, 1977
Sheng & Mullen, 2011; Cavusgil, 1985
Cavusgil, 1985
Cavusgil, 1985
Sakarya, Eckman, & Hyllegard, 2007; Wood, Karriker, & Williams, 2010; Whitelock & Jobber, 2004; Mellahi,
Guermat, Frynas, & Al-Bortmani, 2003
Sakarya, Eckman, & Hyllegard, 2007; Cavusgil, 1997; Wood, Karriker, & Williams, 2010; Papadopoulos,
Chen, & Thomas, 2002; Mellahi, Guermat, Frynas, & Al-Bortmani, 2003; Jekanyika Matanda, 2012
Gaston-Breton & Martín, 2011
Papadopoulos, Chen, & Thomas, 2002
Zain & Ng, 2006
Ojala & Tyrväinen, 2007
Zitta & Powers, 2003; Jekanyika Matanda, 2012
DOI: 10.1002/tie
 Delineating Foreign Market Potential: A Tool for International Market Selection 7

TABLE 2 Summary of the Major Studies in the IMS Literature

Study Purpose Design/Methodology Propositions/Findings Contributions/Implications

Cavusgil, 1985 Provide essential guidelines
for researching foreign market
potential
Papadopoulos Classify existing IMS models
& Denis, 1988
Arnold & Assess the market potential
Quelch, 1998 exclusively for EMs
Whitelock, Discuss and suggest a model
2002 incorporating key elements of
four theories of international-
ization: the Uppsala model of
internationalization, eclectic
paradigm and transaction cost
analysis, industrial network
approach, and business strategy
approach
Malhotra & Review 31 empirical studies
Papadopoulos, from the IMS literature
2007
Papadopoulos • Link IMS research and interna-
& Martín, 2011 tionalization
• Serve as an overview of IMS
research: complexities, per-
spectives, future research
Cavusgil, 1997 Propose a method for quantify-
ing and ranking market potential
of countries
Cavusgil, Propose and illustrate two
Kiyak, & complementary approaches in
Yeniyurt, 2004 foreign market assessment and
selection: country clustering and
country ranking
1. CONCEPTUAL STUDIES
Conceptual framework Three sequential stages are sug- Represents one of the earli-
gested for IMS: market screening, est and practical approaches
identification, and selection in IMS
Literature review Three groups of IMS models identi- Provides a comprehensive cov-
fied: decision making frameworks erage and evaluation of meth-
(e.g., conceptual models); grouping odology in IMS research
models (e.g., clustering); and esti-
mation models (e.g., ranking)
Conceptual and mana- MNCs need to consider additional Provides managerial precrip-
gerial framework sources of first-mover advantage tions for entry to EMs
and adopt a demand-driven model
of market assessment when evalu-
ating entry to EMs
Conceptual study on The diversity of perspective have An attempt to incorporate vari-
theories of internation- different emphasis on internation- ous perspectives in developing
alization and market alization, market entry and mode a model of international market
entry selection entry
Literature review The area of IMS is growing in terms Provides a comprehensive
of the empirical component. The review of empirical studies in
areas of interest in IMS research IMS area
are the operations and stages of the
IMS process, ealuation processes,
and how they differ across sectors
or countries, and how IMS is related
to internationalization and mode of
entry
Literature review on • Complexity in IMS arises from A large number of future
IMS interconnectedness to internation- research directions in IMS
alization such as decisions to enter
markets, entry modes, etc.
• Theory development in IMS has
been hindered by a high degree of
fragmentation
2. GROUPINGS STUDIES
Indexing based on The overall Market Opportunity Influential new approach for
market potential indi- Index (OMOI) was developed based subsequent studies, e.g., Mul-
cators on ranking market potential of coun- len & Sheng (2006), Cavusgil,
tries, indexing market potentials, Kiyak, & Yeniyurt (2004)
and weighting each measure to
obtain an overall index
Cluster analysis and The two complementary methods Provides prescriptions to assist
indexing based on (clustering and ranking) offer objec- in managerial decision making
extended measures of tive and comprehensive analytical in the early stages of foreign
market potential techniques for evaluating markets market selection

(continued)

DOI: 10.1002/tie Thunderbird International Business Review

8 FEATURE ARTICLE

TABLE 2 Summary of the Major Studies in the IMS Literature (continued )

Study Purpose Design/Methodology Propositions/Findings Contributions/Implications

Mullen & Extend and evaluate the OMOI
Sheng, 2006 method proposed by Cavusgil
(1997)
Johanson & Develop a model of the interna-
Vahlne, 1977 tionalization process of the firm
Tatoglu & Examine the motives and char-
Glaister, 1998 acteristics of western MNEs’
foreign direct investment (FDI)
in Turkey
Shama, 2000 Test the determinants of entry
strategies of US companies to
Eastern Europe, and the factors design
that determine the satisfaction of
companies in foreign markets
Sakarya, • Propose a market selection
Eckman, & approach accounting for dyna-
Hyllegard, 2007 mism and future potential of
emerging markets
• Develop a tool based on four
criteria specific to the assess-
ment of emerging markets
(EM) as international expan-
sion opportunities
This study Propose a new, flexible and
practical approach to assist in
IMS decisions based on indus-
try-level analysis
Indexing based on OMOI is a stable tool but weights
extended set of mea- for measures should be determined
sures and countries carefully because they can change
the outcome
3. ESTIMATION STUDIES
Empircal observations The gradual acquisition, integration,
from international and use of knowledge about foreign
business studies on markets and operations help firms
Swedish firms: A case with their internationalization deci-
study of the interna- sions
tionalization process of
Swedish firms
Binomial logit regres- • Relative importance of the OLI
sion models used to (Dunning’s ownership, location,
test the relative impor- internalization) factors vary most
tance of FDI motives with the industry of the investment
and the sample char- • Market potential found to be a
acteristics main factor in determining the
extent of FDI activities
Survey data and mul- Market potential is the most impor-
tivariable research tant determinant of entry strategies,
and an important determinant of
the satisfaction of companies doing
business abroad
Use secondary data The proposed tool specific to Contribute to the development
and primary data assessing EMs revealed growth and of an assessment model for EM
from a sample of 500 sourcing opportunities that might
US apparel specialty otherwise have been overlooked
retailers, the proposed
criteria are applied to
the assessment of an
emerging market
Regression analysis The proposed model estimates
with longitudinal data market potential based on coun-
try responsiveness (i.e., income
elasticity), growth potentials, and
relevant macroeconomic variables.
Best foreign markets would differ by
industry
The modified OMOI is an
improved version of previously
suggested approach as a flex-
ible, valid and fairly stable tool
for preliminary FMOA
The proposed approach is use-
ful for firms in planning and
decision making of international
operations
The first large empirical study of
the motives of western MNEs to
engage in FDI in Turkey over a
substantial period of time
Provides considerations for
entry modes and satisfaction
in doing business in foreign
markets
• The introduced concept of
“country responsiveness’’
integrated with forward-looking
growth potential and macro-
economic variables facilitates
more precise managerial deci-
sion making for IMS
• A more focused industry-level
approach provides more refined
insights for businesses than
country-level macro models

conceptual, grouping, and estimation studies, along with
the positioning of the current study.
Besides these systematic approaches, nonsystematic
IMS processes were also found to be used widely by firms,
particularly by SMEs (Malhotra & Papadopoulos, 2007).
These firms select international markets as a reaction to
external circumstances rather than a proactive decision.
Some firms may even be engaged in international activities
as a result of partner or client decisions such as a partner
getting a contract in a specific country, or a client establish-
ing offline operations (Brewer, 2001; Westhead, Wright, &
Ucbasaran, 2002). However, firms following nonsystematic

Thunderbird International Business Review DOI: 10.1002/tie

 Delineating Foreign Market Potential: A Tool for International Market Selection
IMS processes were found to be underperforming in com-
parison to those following systematic approaches in terms of
duration of export (Piercy, 1981), market share, number of
markets served, and new technology gained (Yip, Biscarri, &
Monti, 2000). Accordingly, a significant positive relationship
was found between the use of systematic IMS processes and
export performance (Brouthers & Nakos, 2005).
Some studies have pointed out the failure of mac-
roeconomic market selection models to account for an
emerging market’s (EM) dynamism and future poten-
tial (Cavusgil, 1997; Sakarya et al., 2007). They argued
the need to consider additional criteria while evaluat-
ing market potential of EMs such as long-term market
potential, cultural distance, competitive strength of the
local industry, and customer receptiveness for foreign
products and businesses. Likewise, studies by Arnold and
Quelch (1998) and Cavusgil (1997) exclusively assessed
the market potential for EMs. Arnold and Quelch (1998)
argue that multinational corporations (MNCs) need to
consider additional sources of first-mover advantage (e.g.,
favorable government relations, pent-up demand, con-
sequent learning) and adopt a demand-driven model of
market assessment when evaluating entry to EMs. Taking
into account the gray markets in EMs and accounting for
the long-term potentials would be necessary when evalu-
ating market potential of EMs. The peculiarities of EMs
not only play a role in market selection, but also affect
the considerations of the aftermath such as decisions of
timing and mode of entry (Holtbrügge & Baron, 2013).
Studies on market selection have mostly focused on
manufacturing sector and industrial marketing, while only
a few examined consumer goods and services. There are
also very few studies on specific industries such as technol-
ogy, banking, and insurance (Malhotra & Papadopoulos,
2007). A study by Xue, Zheng, and Lund (2013) found
that service and manufacturing firms differ in their inter-
national expansion in terms of resource requirement and
experience exploitation. The tool proposed in the cur-
rent study can also address this issue of differences across
sectors in IMS decisions because our tool is customizable
across industries, so it can be used for any sector of any size
for all geographies—developed or developing countries.
The present study departs from the current applica-
tions of foreign market selection in several important
ways. First, our approach takes a new perspective in
identifying potential foreign markets by introducing the
new concept of country responsiveness. In today’s global
economy and the rising economic prosperity worldwide,
it is important to incorporate this trend and reveal the
responsiveness of consumers in a country to the speci-
fied expenditure type. To our knowledge, the present
DOI: 10.1002/tie
9
research is the first attempt to introduce the concept
of country responsiveness in the research of IMS. Second,
while OMOI and many other ranking approaches rank
countries based on specified aggregate measures, our
approach takes into account industry-specific indicators and
combines it with relevant country-level measures that
differ for each industry. Taking a more focused industry-
level approach using such indicators as country respon-
siveness, industry growth rate, and industry-relevant
macro measures provides more refined insights for busi-
nesses than country-level macro models (e.g., market size
and market development). Third, compared to previous,
generic applications, the proposed tool can be custom-
ized for specific industries by selecting different industry-
relevant measures. Fourth, unlike most previous studies,
our tool takes a forward-looking approach by incorporat-
ing growth potential in selected measures. Fifth, the pro-
posed tool is in line with the previous studies in adopting
the dimensions considered most important in market
selection such as growth potential and consumer demand
(Wood, Karriker, & Williams, 2010). Finally, the pro-
posed approach employs industry-specific secondary data,
Taking a more focused
industry-level approach
using such indicators as
country responsiveness,
industry growth rate, and
industry-relevant macro
measures provides more
refined insights for busi-
nesses than country-level
macro models (e.g., mar-
ket size and market
development).
Thunderbird International Business Review
10 FEATURE ARTICLE

which have become more readily available to researchers

in recent years. In summary, a more focused, forward-
looking, industry-driven approach provided by the pro-
posed tool facilitates more precise managerial decision
making for foreign market entries. It is a comprehensive
tool for screening, clustering, and identifying foreign
markets and is applicable for all entry modes.
Methodology: Three-Stage Template
We illustrate the template by employing secondary data
obtained from the Euromonitor. The data consist of both
historical data (from 1990 to 2010) and forecast data
(from 2011 to 2020) on industry-specific consumer expendi-
ture for selected industries and annual gross income for 83
countries. Thus, the model incorporates both backward-
and forward-looking approaches. The unit of analysis is
per capita industry-specific expenditure and per capita annual
gross income. The template also accounts for the total
industry market size by calculating total consumer expen-
diture for the specified industry over the past ten years.
As illustrated in Figure 1, the template is composed
of three steps: country responsiveness, growth potential,
and aggregate market measure. The following discussion
examines each step in detail.
Step 1: Country Responsiveness
Rising prosperity worldwide, especially after the emer-
gence of populous countries such as Brazil, China, India,
and Russia, has created enormous opportunities for com-
panies. Consumer purchasing power and middle-class
households have been rapidly rising in emerging and
developing countries. As disposable income continues to
rise worldwide, companies cannot stay indifferent to the
dynamism in these markets. Yet the question is not about
which markets get wealthier but about which markets look
more promising for a company’s own products or services.
To address this question, this study focuses on income
elasticity of industry-specific consumer expenditure.
The rationale for focusing
on country responsiveness
is that responsiveness is a
potent indicator of impor-
tance for a specific industry/
product sector.
A  linear regression model is formulated using industry-
specific consumer expenditure as the dependent variable,
and income and years as the independent variables. The
coefficients for income represent the income elastic-
ity that reflects the unit change in the industry-specific
consumer expenditure by one unit change in income.
Hereafter, we refer to this income elasticity of industry-
specific consumer expenditure as country responsiveness.
We use median split for classification; countries above the
median represent responsive countries, and those below
the median represent unresponsive countries.
The rationale for focusing on country responsiveness
is that responsiveness is a potent indicator of importance
for a specific industry/product sector. For example, in
the case of the meat industry, if consumers in a country
spend more of their income increase on meat than those
in another country, the former country is more respon-
sive to meat consumption in the face of increasing income
than the latter. Thus, identifying responsive countries is a
necessary step for businesses in foreign market opportu-
nity assessment and decision-making processes.

FIGURE 1 Building Blocks for the FMOA Tool

1. Country 2. Growth 3. Aggregate FMOA TOOL

responsiveness potential market measure

• Income • Income • A relevant • Country

elasticity of growth macro measure responsiveness
industry • Industry such as: GDP • Industry
expenditure expenditure growth rate, growth
growth country risk, • Aggregate
urbanization, measure
etc.

Thunderbird International Business Review DOI: 10.1002/tie

 Delineating Foreign Market Potential: A Tool for International Market Selection
Step 2: Growth Potential
A backward-looking analysis has limitations in the sense
that it does not take into account rapid changes in global
markets. This study incorporates a forward-looking analy-
sis in the model by considering likely growth. The growth
rates for each country represent the sum of the industry-
specific consumer expenditure and income forecast for
the next ten years, in comparison to those for the past
decade. The model also incorporates industry market size
in this step to capture the total market potential of each
country. Industry market size corresponds to the sum
of the gross industry-specific consumer expenditure for
each country for the past decade.
Step 3: Aggregate Market Measure
Under normal circumstances, income growth is expected
to be positively correlated to the growth in industry-
specific consumer expenditure. As income rises, consum-
ers will increase their consumption of most products and
services. So this correlation is checked in the second step
while calculating and plotting growth rates. The fact that
markets that are experiencing a rise in income are also
exhibiting growth in industry-specific consumer expen-
diture, yet with different magnitudes, calls for additional
steps to be able to better differentiate countries. There-
fore, we keep one of the growth metrics (i.e., industry-
specific consumer expenditure since it is more relevant
and precise), and add an industry-relevant aggregate
measure, such as the rate of urbanization, country risk
score, or real GDP growth rate, which managers would
consider most critical to their business.
Consequently, the model captures country metrics
on two dimensions: growth rate in industry-specific con-
sumer expenditure, and an industry-relevant aggregate
measure. Once we plot these values on a chart, also incor-
porating the industry market size, a lucid picture appears
to show which countries have high potential for a specific
industry. As shown in Figure 2, four market clusters
are delineated: Global Industry Winners (high growth in
expenditure and high ranking in the selected aggregate
measure), Global Valuables (low growth in expenditure
and high ranking in the selected aggregate measure),
Industry Valuables (high growth in expenditure and low
ranking in the selected aggregate measure), and Stag-
nants (low growth in expenditure and low ranking in the
selected aggregate measure). In the following sections,
we illustrate the use of the template with three real-world
company scenarios. One of the illustrations, AJC Inter-
national Inc., a large international trader, has already
gained valuable insights from the template, and adopted
it as a guide in foreign market selection and assessment.
DOI: 10.1002/tie
11
FIGURE 2 Four Clusters of FMOA Tool
Industry-relevant aggregate measure
Global industry
Global valuables
winners
Stagnants Industry valuables
Growth rate in industry-specific consumer expenditure
Results: Illustrations of the Proposed
Approach
Illustration 1: Meat Industry—AJC International Inc.
AJC International, headquartered in Atlanta, Georgia, is
a leading international trader of protein—frozen meat
and other foods. It has a global supplier and customer
network located in more than 100 countries. The com-
pany is interested in new markets for exporting meat-
related products. For this purpose, our template first
identifies which countries are most responsive on meat
consumption in the face of rising disposable income.
We ran a linear regression separately for each country,
using consumer expenditure on meat as the dependent vari-
able, and income and years as the independent variables.
We obtained regression coefficients on income, which
we call country responsiveness, that represents income
elasticity of consumer expenditure on meat. With median
split on regression coefficients, 42 countries emerge as
responsive, and the remaining 41 countries emerge as
unresponsive to income changes for consumer expen-
diture on meat. Guatemala, Macedonia, and Jordan are
the top three most responsive countries while the United
Kingdom, United States, and Japan are the least respon-
sive. Table 3 presents the regression results along with the
abbreviations for country names that will be used in the
subsequent figures.
Interestingly, a great majority of the responsive mar-
kets are emerging and developing countries, while unre-
sponsive markets are represented largely by advanced
countries. One plausible explanation is that wealthier
countries already consume meat as part of their basic diet
and are already satisfied with their meat consumption,
Thunderbird International Business Review
12 FEATURE ARTICLE

TABLE 3 Regression Coefficients for Consumer Expenditure on Meat (Illustration for AJC International)3

RESPONSIVE Country Coefficients Model Statistics UNRESPONSIVE Country Coefficients Model Statistics
COUNTRIES Code Income Years Adj R2
Pr > F COUNTRIES Code Income Years Adj R2 Pr > F
Guatemala GUA 0.1085 –2.9390 0.993 <.0001 Morocco MRC 0.0310 0.0584 0.985 <.0001
Macedonia MKD 0.0899 –2.0553 0.991 <.0001 Israel ISR 0.0302 –5.4344 0.938 <.0001
Jordan JOR 0.0851 –0.8221 0.996 <.0001 United Arab Emirates UAE 0.0284 0.5982 0.968 <.0001
Azerbaijan AZE 0.0796 –0.8583 0.984 <.0001 Colombia COL 0.0279 –0.8070 0.958 <.0001
Uzbekistan UZB 0.0775 –1.4976 0.950 <.0001 Tunisia TUN 0.0272 –1.0262 0.998 <.0001
Turkmenistan TKM 0.0755 –2.2060 0.962 <.0001 Hungary HUN 0.0270 –1.1634 0.989 <.0001
Kazakhstan KAZ 0.0746 –0.5028 0.975 <.0001 Bulgaria BUL 0.0265 3.3713 0.987 <.0001
Saudi Arabia SAU 0.0732 –5.8613 0.993 <.0001 Taiwan TAI 0.0263 –0.4925 0.986 <.0001
Venezuela VEN 0.0721 –3.9967 0.979 <.0001 Turkey TUR 0.0259 0.9572 0.976 <.0001
Ukraine UKR 0.0717 0.7832 0.993 <.0001 New Zealand NZL 0.0242 –1.1193 0.968 <.0001
Bolivia BOL 0.0698 –0.3786 0.985 <.0001 Czech Republic CZE 0.0216 0.4439 0.990 <.0001
Croatia CRO 0.0662 –3.5366 0.987 <.0001 Slovakia SVK 0.0216 3.9514 0.979 <.0001
Egypt EGY 0.0657 1.5016 0.991 <.0001 Finland FIN 0.0213 –16.3939 0.950 <.0001
Georgia GEO 0.0640 –1.1530 0.983 <.0001 France FRA 0.0209 –8.1840 0.993 <.0001
Chile CHI 0.0617 2.7397 0.995 <.0001 Italy ITA 0.0205 –11.7665 0.867 <.0001
Algeria ALG 0.0602 0.6864 0.984 <.0001 Ireland IRL 0.0203 –12.9256 0.865 <.0001
Philippines PHI 0.0589 –0.4570 0.994 <.0001 Germany GER 0.0198 –13.9702 0.932 <.0001
Belarus BLR 0.0574 2.5170 0.962 <.0001 Qatar QAT 0.0197 –8.0924 0.851 <.0001
Brazil BRA 0.0557 –2.2369 0.984 <.0001 Denmark DEN 0.0193 –7.6607 0.983 <.0001
Russia RUS 0.0537 1.5537 0.990 <.0001 Kuwait KUW 0.0183 –2.2029 0.883 <.0001
Bosnia- BIH 0.0529 4.1706 0.988 <.0001 Sweden SWE 0.0182 –6.5612 0.930 <.0001
Herzegovina
Nigeria NGR 0.0529 0.2832 0.991 <.0001 Spain SPA 0.0180 –3.7545 0.960 <.0001
Peru PER 0.0526 –0.2999 0.997 <.0001 Slovenia SLO 0.0180 1.2939 0.958 <.0001
Serbia SRB 0.0521 –9.6588 0.910 <.0001 Switzerland SWI 0.0172 –5.9543 0.942 <.0001
Dominican DOM 0.0515 –2.9822 0.951 <.0001 Norway NOR 0.0172 –10.4621 0.995 <.0001
Republic
Argentina ARG 0.0511 –1.6093 0.992 <.0001 Australia AUS 0.0171 –4.7270 0.985 <.0001
Romania ROU 0.0507 0.6374 0.992 <.0001 Austria AUT 0.0170 –9.6656 0.983 <.0001
Vietnam VIE 0.0479 –0.3258 0.951 <.0001 South Korea KOR 0.0166 –1.7681 0.969 <.0001
Iran IRN 0.0477 –0.9189 0.990 <.0001 Malaysia MAL 0.0163 –1.3136 0.882 <.0001
Poland POL 0.0466 –2.9473 0.996 <.0001 Indonesia INA 0.0150 –0.1694 0.737 <.0001
Lithuania LIT 0.0442 0.0785 0.964 <.0001 Canada CAN 0.0148 –6.4578 0.985 <.0001
South Africa SAF 0.0442 –2.2492 0.952 <.0001 Thailand THA 0.0146 –1.1720 0.510 0.001
Uruguay URU 0.0421 2.5588 0.949 <.0001 Belgium BEL 0.0144 5.2729 0.890 <.0001
Pakistan PAK 0.0417 –0.2823 0.983 <.0001 Hong Kong, China HKG 0.0135 3.0074 0.961 <.0001
Ecuador ECU 0.0402 –3.3292 0.822 <.0001 Singapore SIN 0.0132 –7.6431 0.871 <.0001
Mexico MEX 0.0401 –1.0797 0.986 <.0001 Bahrain BRN 0.0113 –4.1428 0.867 <.0001
Estonia EST 0.0388 –6.0011 0.973 <.0001 Netherlands NED 0.0112 –5.1036 0.973 <.0001
Portugal POR 0.0366 –12.0439 0.983 <.0001 India IND 0.0110 –0.0088 0.984 <.0001
China CHN 0.0343 –0.2811 0.962 <.0001 United Kingdom UK 0.0109 –4.3987 0.953 <.0001
Latvia LAT 0.0327 –3.0622 0.966 <.0001 United States USA 0.0106 –5.5205 0.883 <.0001
Greece GRE 0.0320 –4.5242 0.991 <.0001 Japan JPN 0.0089 –1.8717 0.934 <.0001
Costa Rica CRC 0.0313 –1.2399 0.969 <.0001

Thunderbird International Business Review DOI: 10.1002/tie

 Delineating Foreign Market Potential: A Tool for International Market Selection
so an increase in their income is likely to be spent on
other items, probably luxury items rather than necessity
items. However, countries with a high proportion of low-
income households may not be consuming enough meat
for their dietary needs, so an increase in income is likely
to be spent on necessity items like food, including meat,
in those geographies. Another underlying insight might
be that responsive countries are still unsaturated markets
in meat industry, while unresponsive countries may be
saturated.
Next, the model incorporates the expected growth
for income and consumer expenditure on meat for the
next ten years for the sample countries, and plots on a
chart along with the market sizes. Azerbaijan, China, and
Kazakhstan are expected to have the highest growth in
income; Russia, Azerbaijan, and Kazakhstan are expected
to have the highest growth in consumer expenditure
on meat; and the United States, China, France, Brazil,
and Russia have the largest industry market size for total
consumer expenditure on meat in the past ten years.
Figure 3 presents these results. An interesting finding is
that responsive countries are expected to grow consider-
ably in both income and expenditure, whereas unrespon-
sive countries are anticipated to experience stable growth
over the next ten years.
FIGURE 3 Growth Chart for Meat Industry (Illustration for AJC International)4
DOI: 10.1002/tie
13
A strong positive correlation between growth in
income and growth in consumer expenditure (0.87)
on meat is also apparent in Figure 3. In order to gain
additional insights, the model adds a relevant aggregate
measure to better differentiate countries. AJC Interna-
tional is interested in exporting its products, so country
risk plays an important role in exporting. The template
keeps the expected growth rate for consumer expendi-
ture on meat, and adds the Robinson Country Risk scores5
for each country. Although a pattern exists such that
high-growth countries have low risk scores or, conversely,
low-growth countries have high risk scores, this is not a
linear pattern, and countries are better distinguished this
way. The final template, presented in Figure 4, suggests
that countries in the top right cell (global industry win-
ners) are more favorable, whereas those in the bottom
left cell (stagnants) are less favorable. Moreover, there
is a trade-off between the countries in the top-left cell
(global valuables) and those in the bottom-right cell
(industry valuables).
A significant point in Figure 4 is that many countries
do not necessarily belong to one of the four clusters. For
example, Brazil and Russia are in the high-expenditure
growth bucket but have medium risk scores. However,
other features they share such as being responsive and
Thunderbird International Business Review
14 FEATURE ARTICLE
FIGURE 4 FMOA Chart for Meat Industry (Illustration for AJC International)6
having large market size make them favorable markets.
So AJC International should consider these additional
indicators when using the final template. China, Brazil,
and Russia seem very promising with high growth poten-
tial, medium risk, large market size, and responsiveness.
Other smaller countries also look promising such as
Kazakhstan, Azerbaijan, Egypt, Georgia, Vietnam, and
Uruguay. Another interesting finding is that responsive
countries show higher growth in expenditure on meat.
The only unresponsive country that can be considered
favorable at this stage is Indonesia.
AJC International has already seen benefits of this
tool. First, this analytical approach confirms and quanti-
fies the managerial intuition of company executives that
emerging and developing markets offer high potential
for meat consumption. Moreover, the quantification of
market potentials enables the executives to rank coun-
tries based on the dimensions proposed in the tool
exclusively for their industry. Finally, the company can
periodically update the tool over time to continuously
monitor foreign markets, and capture market changes
as they occur. In brief, the proposed tool has already
proven to be relevant and useful for practitioners in the
meat industry. Unlike the first illustration, the next two
illustrations are not currently in use, but are developed as
Thunderbird International Business Review
further examples especially to emphasize the applicability
of the proposed template in other industries.
Illustration 2: Automotive Industry—Proton
Proton is a Malaysian automobile manufacturer founded
in 1983. Its automobiles are exported to more than 25
countries, including the United Kingdom, South Africa,
Australia, and several other countries in the Middle East
and Southeast Asia. The company is pursuing the goal
of being an internationally successful Malaysian automo-
tive manufacturer. If Proton wishes to identify new mar-
kets or monitor the performance of its current markets,
it can adapt the proposed template to the automotive
industry.
The methodology starts first by identifying the
responsive countries. The model uses data on consumer
expenditure on purchase of cars, motorcycles and other vehicles as
the industry-specific consumer expenditure. As a result,
the regression model revealed 42 responsive and 41
unresponsive countries. The Dominican Republic, Chile,
and Russia are the most responsive countries, whereas the
United States, Slovakia, and Sweden are the least respon-
sive countries. Table 4 presents the regression results.
Next, as in the previous case, the model incorporates
the expected growth rates for income and consumer
DOI: 10.1002/tie
 Delineating Foreign Market Potential: A Tool for International Market Selection 15

TABLE 4 Regression Coefficients for Consumer Expenditure on Automotive (Illustration for Proton)7

RESPONSIVE Country Coefficients Model Statistics UNRESPONSIVE Country Coefficients Model Statistics
COUNTRIES Code Income Years Adj R 2
Pr > F COUNTRIES Code Income Years Adj R2 Pr > F
Dominician DOM 0.1487 –8.5444 0.971 <.0001 Azerbaijan AZE 0.0204 –0.2910 0.996 <.0001
Republic
Chile CHI 0.0704 5.9883 0.954 <.0001 Lithuania LIT 0.0204 3.5662 0.978 <.0001
Russia RUS 0.0689 5.5464 0.952 <.0001 Austria AUT 0.0190 –12.7534 0.872 <.0001
Uzbekistan UZB 0.0636 1.3743 0.936 <.0001 Guatemala GUA 0.0189 –0.2787 0.994 <.0001
Turkey TUR 0.0623 –0.1840 0.935 <.0001 China CHN 0.0187 –2933 0.976 <.0001
Kazakhstan KAZ 0.0612 –0.6711 0.953 <.0001 Serbia SRB 0.0181 2.6993 0.966 <.0001
Mexico MEX 0.0592 1.8334 0.985 <.0001 Jordan JOR 0.0176 –0.3428 0.993 <.0001
Costa Rica CRC 0.0580 –1.3586 0.948 <.0001 Taiwan TAI 0.0175 –5.2955 0.567 0.000
Bolivia BOL 0.0552 –0.6014 0.846 <.0001 Israel ISR 0.0164 –3.0727 0.754 <.0001
New Zealand NZL 0.0544 –5.5583 0.874 <.0001 Croatia CRO 0.0163 0.9952 0.673 <.0001
Slovenia SLO 0.0519 –11.7493 0.933 <.0001 Georgia GEO 0.0161 0.0370 0.982 <.0001
Thailand THA 0.0509 –1.6325 0.786 <.0001 Portugal POR 0.0158 12.0711 0.893 <.0001
Denmark DEN 0.0449 –3.2752 0.743 <.0001 Egypt EGY 0.0156 –0.2036 0.958 <.0001
Vietnam VIE 0.0448 –3630 0.980 <.0001 Estonia EST 0.0156 1.0806 0.587 <.0001
Macedonia MKD 0.0432 –2.1583 0.929 <.0001 Switzerland SWI 0.0150 –0.1811 0.965 <.0001
Singapore SIN 0.0400 –12.3333 0.586 <.0001 Indonesia INA 0.0150 –0.0879 0.979 <.0001
Bulgaria BUL 0.0394 –0.2694 0.961 <.0001 Japan JPN 0.0147 –6.7446 0.524 0.001
Romania ROU 0.0380 –2.4892 0.953 <.0001 Nigeria NGR 0.0146 –0.3673 0.811 <.0001
Turkmenistan TKM 0.0377 3.3316 0.941 <.0001 Netherlands NED 0.0142 1.5459 0.954 <.0001
Malaysia MAL 0.0357 –0.0557 0.970 <.0001 Belarus BLR 0.0134 0.4515 0.996 <.0001
Germany GER 0.0356 –10.1284 0.820 <.0001 Algeria ALG 0.0133 –0.3349 0.862 <.0001
South Africa SAF 0.0348 –0.0886 0.965 <.0001 Tunisia TUN 0.0133 0.7652 0.993 <.0001
Ecuador ECU 0.0326 –3.7119 0.773 <.0001 Ukraine UKR 0.0132 0.0079 0.989 <.0001
Colombia COL 0.0320 –0.0600 0.905 <.0001 Uruguay URU 0.0123 0.0442 0.990 <.0001
Hungary HUN 0.0318 4.1342 0.928 <.0001 Kuwait KUW 0.0115 2.0585 0.950 <.0001
United Kingdom UK 0.0312 –3.6215 0.925 <.0001 Italy ITA 0.0113 6.0686 0.814 <.0001
Iran IRN 0.0306 1.0858 0.993 <.0001 Australia AUS 0.0110 10.9658 0.861 <.0001
Argentina ARG 0.0296 –0.6194 0.977 <.0001 Philippines PHI 0.0091 0.0126 0.995 <.0001
South Korea KOR 0.0279 –8.3383 0.876 <.0001 Venezuela VEN 0.0089 –2.4300 0.563 0.000
Ireland IRL 0.0268 15.0529 0.900 <.0001 Poland POL 0.0085 3.6872 0.971 <.0001
Latvia LAT 0.0266 1.3538 0.907 <.0001 India IND 0.0081 0.0529 0.948 <.0001
Brazil BRA 0.0264 –2.9565 0.742 <.0001 Morocco MRC 0.0063 –0.2763 0.925 <.0001
Greece GRE 0.0246 14.3885 0.945 <.0001 Hong Kong, HKG 0.0043 1.2662 0.888 <.0001
China
Qatar QAT 0.0240 –2.7505 0.803 <.0001 Peru PER 0.0040 –0.4083 0.896 <.0001
Norway NOR 0.0235 28.2725 0.945 <.0001 Pakistan PAK 0.0039 0.0073 0.985 <.0001
United Arab UAE 0.0234 0.5734 0.926 <.0001 Finland FIN 0.0114 9.9644 0.623 <.0001
Emirates
Canada CAN 0.0229 19.9609 0.960 <.0001 Spain SPA 0.0089 23.5676 0.907 <.0001
Bosnia- BIH 0.0228 –0.4765 0.972 <.0001 Saudi Arabia SAU 0.0072 –4.6029 0.818 <.0001
Herzegovina
Bahrain BRN 0.0221 –5.3716 0.573 0.0002 Sweden SWE 0.0053 21.5761 0.704 <.0001
Czech Republic CZE 0.0220 –0.4727 0.996 <.0001 Slovakia SVK –0.0004 9.4232 0.931 <.0001
Belgium BEL 0.0210 3.4469 0.972 <.0001 USA USA –0.0196 45.3304 0.378 0.005
France FRA 0.0207 –8.9482 0.909 <.0001

DOI: 10.1002/tie Thunderbird International Business Review

16 FEATURE ARTICLE

expenditure on automotive, and plots on a chart along

with the market sizes. Azerbaijan, China, and Kazakhstan
are expected to have the highest growth in income; Rus-
sia, Serbia, and Iran are expected to have the highest Unlike the meat industry,
growth in consumer expenditure on automotive; and the
United States, Germany, and United Kingdom have the responsive countries do not
largest industry market size for total consumer expendi-
ture on automotive in the past ten years. necessarily exhibit higher
Figure 5 presents these results. Unlike the meat
industry, responsive countries do not necessarily exhibit growth in the automotive
higher growth in the automotive industry. A plausible
reason is that the automobile is not as much a necessity industry. A plausible reason is
item as meat. So responsiveness for meat consumption
can have a more consistent pattern for some countries that the automobile is not as
over time than that for a durable good like automobile.
Countries that have spent more of their income increase much a necessity item as meat.
on meat are likely to continue doing so in the near future
until they are saturated. This is not necessarily the case
for durable or luxury goods as in the automotive indus-
try. Additionally, meat is a subcategory in fast-moving
consumer goods that exhibit a continuous consump- market size gap between the United States and all other
tion pattern as opposed to a car, which has a discrete countries.
consumption pattern. Another interesting finding is The final step is to add a relevant aggregate measure,
that, unlike the meat industry where the market size gap since there is again a high positive correlation between
between the United States and the subsequent countries growth in income and growth in consumer expenditure
is not very large, the automotive industry exhibits a huge on automotive (0.79). Many measures such as the rate of

FIGURE 5 Growth Chart for Automotive Industry (Illustration for Proton)8

Thunderbird International Business Review DOI: 10.1002/tie

 Delineating Foreign Market Potential: A Tool for International Market Selection
urbanization, number of middle-class households, or real
GDP growth rate can be relevant to the automotive industry.
The choice depends on the judgmental decision of man-
agers. For illustration purposes, our template uses urban
population growth rate in the past five years. Figure 6 shows
some accumulation in the bottom left cell (stagnants), but
two countries look especially promising in the top right cell
(global industry winners): China and Indonesia.
Again, many countries are at the intersection of some
clusters. For example, Iran and Vietnam are very close to
the global industry winners but not in that cluster. Since
there are no strict rules for cluster assignments, these
countries in the intersection also require significant con-
sideration. Iran has a decent market size, and Vietnam has
one of the highest urban population growth rates. Addi-
tionally, both markets are responsive markets. Therefore,
company executives can consider these markets promis-
ing. Likewise, in the bottom right cell, Russia also looks
promising, considering it has the highest expenditure
growth rate, is responsive, and has a large market size.
Illustration 3: Health Care Industry—GE Healthcare
A third illustration is GE Healthcare (a $17 billion seg-
ment of General Electric Co.). GE Healthcare has a
range of products and services that include medical imag-
FIGURE 6 FMOA Chart for Automotive Industry (Illustration for Proton)9
DOI: 10.1002/tie
17
ing and information technologies, medical diagnostics,
patient monitoring systems, performance improvement,
drug discovery, and biopharmaceutical manufacturing
technologies. The company is currently providing health
care services in more than 100 countries. The market
expansion is already large for GE Healthcare, but it can
use the proposed tool for evaluating the forward-looking
performance of the markets that it currently serves, and
continuously monitor for new potential foreign markets
to enter.
The tool follows the same steps: The first step is
to identify the responsive countries. Here, the data on
consumer expenditure on health goods and medical services
captures the industry-specific consumer expenditure.
The tool identifies 42 responsive and 42 unresponsive
countries (the data set includes 84 countries for this
illustration). Switzerland, Georgia, and Uruguay are the
most responsive countries, whereas the United States,
Italy, and Israel are the least responsive countries. Table 5
presents the regression results.
The second step is to obtain the growth charts and
market size. Figure 7 presents the growth chart. Simi-
lar to the meat industry, there is a linear relationship
between growth in income and growth in expenditure;
countries with higher growth in income also have higher
Thunderbird International Business Review
18 FEATURE ARTICLE

TABLE 5 Regression Coefficients for Consumer Expenditure on Health Goods and Medical Services (Illustration for GE
Healthcare)10

RESPONSIVE Country Coefficients Model Statistics UNRESPONSIVE Country Coefficients Model Statistics
COUNTRIES Code Income Years Adj R 2
Pr > F COUNTRIES Code Income Years Adj R2 Pr > F
Switzerland SWI 0.1074 64.9094 0.995 <.0001 Azerbaijan AZE 0.0294 –0.1556 0.988 <.0001
Georgia GEO 0.0894 3.2454 0.964 <.0001 Ecuador ECU 0.0288 –0.2811 0.986 <.0001
Uruguay URU 0.0724 5.7167 0.992 <.0001 Germany GER 0.0285 17.8620 0.992 <.0001
South Africa SAF 0.0658 7.0376 0.998 <.0001 Poland POL 0.0282 2.0290 0.996 <.0001
Vietnam VIE 0.0634 0.0777 0.990 <.0001 Latvia LAT 0.0275 0.6142 0.972 <.0001
Singapore SIN 0.0627 –4.1832 0.965 <.0001 Guatemala GUA 0.0269 0.8930 0.982 <.0001
Chile CHI 0.0549 4.9658 0.993 <.0001 Finland FIN 0.0267 10.4845 0.997 <.0001
Argentina ARG 0.0524 15.3899 0.971 <.0001 Hong Kong, China HKG 0.0267 7.4423 0.951 <.0001
Peru PER 0.0511 1.1153 0.998 <.0001 Colombia COL 0.0266 0.2954 0.992 <.0001
Thailand THA 0.0507 –0.7857 0.993 <.0001 Bolivia BOL 0.0257 0.2507 0.984 <.0001
Greece GRE 0.0503 –1.1098 0.995 <.0001 Jordan JOR 0.0254 0.7657 0.995 <.0001
Croatia CRO 0.0497 0.6471 0.978 <.0001 Spain SPA 0.0250 0.9856 0.998 <.0001
Algeria ALG 0.0493 1.7926 0.991 <.0001 Malaysia MAL 0.0249 –0.0345 0.966 <.0001
Iran IRN 0.0492 1.5231 0.995 <.0001 Czech Republic CZE 0.0233 –2.9911 0.977 <.0001
Portugal POR 0.0490 –5.3173 0.988 <.0001 Slovenia SLO 0.0233 1.5933 0.995 <.0001
Costa Rica CRC 0.0470 1.6232 0.985 <.0001 France FRA 0.0232 1.2520 0.990 <.0001
Taiwan TAI 0.0463 22.3739 0.996 <.0001 Uzbekistan UZB 0.0227 0.2247 0.993 <.0001
South Korea KOR 0.0462 –0.5961 0.975 <.0001 Kazakhstan KAZ 0.0221 0.5821 0.963 <.0001
Morocco MRC 0.0452 0.3570 0.996 <.0001 India IND 0.0213 0.8004 0.981 <.0001
Canada CAN 0.0450 10.9069 0.997 <.0001 Hungary HUN 0.0208 2.6945 0.988 <.0001
Bulgaria BUL 0.0408 2.4266 0.974 <.0001 Russia RUS 0.0207 –0.1802 0.962 <.0001
Belgium BEL 0.0406 4.5022 0.988 <.0001 Estonia EST 0.0187 4.9011 0.986 <.0001
Philippines PHI 0.0401 –0.0241 0.983 <.0001 Macedonia MKD 0.0177 –0.0809 0.866 <.0001
Venezuela VEN 0.0401 2.1484 0.994 <.0001 Austria AUT 0.0174 7.4921 0.995 <.0001
Australia AUS 0.0399 7.8158 0.992 <.0001 Dominican Republic DOM 0.0171 2.2498 0.973 <.0001
Nigeria NGR 0.0396 0.2149 0.999 <.0001 Belarus BLR 0.0169 1.0406 0.978 <.0001
Bosnia- BIH 0.0386 1.9940 0.994 <.0001 Saudi Arabia SAU 0.0167 0.7916 0.978 <.0001
Herzegovina
Serbia SRB 0.0383 4.1917 0.976 <.0001 Kuwait KUW 0.0166 3.0177 0.928 <.0001
Egypt EGY 0.0368 0.8954 0.970 <.0001 Sweden SWE 0.0163 10.4879 0.996 <.0001
Slovakia SVK 0.0359 –4.5465 0.991 <.0001 Denmark DEN 0.0161 3.6060 0.995 <.0001
Tunisia TUN 0.0358 0.4720 0.999 <.0001 Norway NOR 0.0157 3.4184 0.993 <.0001
China CHN 0.0348 0.8664 0.993 <.0001 Japan JPN 0.0153 23.7498 0.927 <.0001
Mexico MEX 0.0342 1.5449 0.979 <.0001 New Zealand NZL 0.0137 1.2594 0.726 <.0001
Turkmenistan TKM 0.0339 0.8116 0.999 <.0001 Kenya KEN 0.0136 0.3545 0.984 <.0001
Indonesia INA 0.0328 0.7812 0.992 <.0001 Qatar QAT 0.0131 –0.5369 0.943 <.0001
Brazil BRA 0.0327 0.7846 0.994 <.0001 United Arab UAE 0.0127 2.5851 0.964 <.0001
Emirates
Romania ROU 0.0326 –0.0830 0.991 <.0001 United Kingdom UK 0.0125 –0.6745 0.991 <.0001
Turkey TUR 0.0324 3.1079 0.984 <.0001 Cameroon CMR 0.0119 –0.0024 0.943 <.0001
Ukraine UKR 0.0311 –0.4655 0.991 <.0001 Bahrain BRN 0.0105 3.9048 0.972 <.0001
Pakistan PAK 0.0310 0.1700 0.986 <.0001 Israel ISR 0.0102 4.0485 0.989 <.0001
Lithuania LIT 0.0308 3.6104 0.989 <.0001 Italy ITA 0.0092 9.8355 0.886 <.0001
Ireland IRL 0.0307 –3.0574 0.984 <.0001 United States USA 0.1117 85.9717 0.981 <.0001

Thunderbird International Business Review DOI: 10.1002/tie

 Delineating Foreign Market Potential: A Tool for International Market Selection
FIGURE 7 Growth Chart for Health Care Industry (Illustration for GE Healthcare)11
growth in expenditure or vice versa. The correlation
between the two growth rates is 0.91. China, Kazakhstan,
Azerbaijan, Belarus, and Russia have the highest growth
rate in both dimensions. Furthermore, similar to the
automotive industry, the market size gap between the
United States and all other countries is very large.
The final step is to add a relevant aggregate measure
such as the number of inpatient beds. As can be seen
from Figure 8, there is some accumulation in the bottom
left cell (stagnants), but it is interesting that the BRIC
countries (Brazil, Russia, India, and China) occupy the
best cluster (global industry winners).
GE Healthcare already has services in the most prom-
ising BRICs, so this tool would help the company track
and assess the current and predicted future performance
of the markets it currently serves. Moreover, using this
tool, the company can still evaluate the countries in the
top left cell (global valuables) or bottom right cell (indus-
try valuables) for market entry alternatives.
Discussion and Implications
The FMOA tool proposed in this study provides man-
agers with a comprehensive and objective method to
DOI: 10.1002/tie
19
assess foreign market opportunities, and assists man-
agers in making rational decisions in foreign market
selection. It is especially helpful for identifying new
potential markets for entry but is not limited to this
task. Companies can monitor worldwide markets by
using the proposed method and continuously update
their performance metrics. Managers can use it as a
benchmark for assessing underperforming markets. For
instance, Tata Motors has dealerships in 26 countries.
By adopting this tool, it will be able to not only screen
and identify new potential markets to enter, but also
keep track of the performance of these 26 markets for
their business.
An advantage of this tool can also prove to be a chal-
lenge. Since it is a flexible tool, managers can decide
on which aggregate country measure to use. However,
different aggregate measures may lead to different con-
clusions. This challenge can be overcome by combining
all relevant aggregate measures, calculating a total index
(similar to the OMOI), and using that index instead of
one aggregate measure. For simplicity purposes, we cre-
ated the tool using what we thought would be the most
industry-relevant aggregate measures for each illustrated
industry.
Thunderbird International Business Review
20 FEATURE ARTICLE
FIGURE 8 FMOA Chart for Health Care Industry (Illustration for GE Healthcare)12
To benefit fully from the tool, managers would
need to follow up on the insights of the tool, and
consider factors that determine the feasibility and
relative desirability of these markets. These additional
considerations include such factors as entry barriers,
import duties and tariffs, distribution infrastructure,
availability of qualified business partners, intensity of
competition, and government imposed incentives/
disincentives. For instance, entry barriers can be
company-related or industry-related barriers. Ojala
and Tyrväinen (2007) argue that most of the barriers
are firm specific, so firms should not ignore evaluating
their resources and capabilities while evaluating a for-
eign market for entry.
Limitations and Future Research
The proposed tool is primarily based on drivers of con-
sumer expenditures for a specified industry. Moreover,
it reveals consumer responsiveness in a country towards
a specific industry. Thus, it is more applicable in busi-
ness-to-consumer (B2C) settings rather than business-
to-business (B2B) settings. Future research may attempt
to develop a more generalized tool applicable for both
settings.
Thunderbird International Business Review
This study takes a new perspective in the foreign
market selection literature by emphasizing the industry
potential rather than macro-level market potential. We
believe that focusing on industry potential would reveal
more refined insights for businesses compared to the
aggregate levels of market analysis. After all, a country
may look prosperous in many aspects but may have advan-
tages or disadvantages specific to an industry that are not
very obvious in the country-level analysis. However, indus-
try potential still needs to be combined with additional
information before making a final IMS decision. Thus,
useful extensions of this research would be to incorporate
additional data into the model such as quantifying trade
barriers or government incentives or disincentives.
Conclusion
Nonsystematic market entries have unfavorable con-
sequences for the performance of companies (Reid
& Walsh, 2003). The proposed IMS methodology in
this study offers guidance for carrying out a systematic
assessment of industry-specific foreign market potential,
and assists managers in identifying favorable foreign
markets to enter. Our template will be most helpful to
firms considering entering international markets for the
DOI: 10.1002/tie
 Delineating Foreign Market Potential: A Tool for International Market Selection 21

first time since initial foreign market entry requires the
most challenging decision process. The methodology
also allows for screening countries while simultaneously
assessing industry market potential. It is straightforward
and adaptable to many service or manufacturing indus-
tries, as managers have the opportunity to choose those
market potential indicators that are most critical for
their customer segments. Availability of reliable data
such as the Euromonitor indicators certainly makes the
use of FMOA more feasible. The remaining challenge for
managers is to identify the appropriate aggregate mea-
sures for their industries. If managers can have access to
their global industry data at least for the past few years,
they can apply the tool as a reliable means to delineate
meritorious markets that warrant additional, in-depth
investigation.
Finally, managers can employ the proposed analytical
tool not only for their market entry or expansion deci-
sions but also for gaining insights into industry potential
in their current and prospective future markets. The
actual application of the tool in the business setting by
AJC International Inc. has proved highly beneficial for
its managers. We believe that the proposed tool will
continue to guide executive actions in international
expansion, and broaden the horizons of researchers
and scholars in the field. Thus, we hope that it will also
help bridge the gap between academics and the business
community.
Notes
1. http://www.planetretail.net/
2. The OMOI, now called the Market Potential Indicators for Emerg-
ing Markets, is updated semiannually and reported by globalEDGE, a
leading knowledge portal in international business (http://globaledge
.msu.edu/).
3. All models are significant at the 0.001 level. All income coefficients
are significant at the 0.05 level (median split: t -stat = 13.402).
4. Forty-two responsive countries are indicated in black; 41 unresponsive
countries are indicated in gray.
5. The Robinson Country Risk Index has been developed by GSUCIBER
at the J. Mack Robinson College of Business at Georgia State University.
6. Due to five missing values on the country risk score, the chart includes
37 out of 42 responsive countries, indicated in black. Forty-one unre-
sponsive countries, indicated in gray, are still available on the chart.
The five missing values belong to Turkmenistan, Uzbekistan, Belarus,
Bosnia-Herzegovina, and Iran.
7. All models are significant at the 0.05 level. All income coefficients are
significant at the 0.05 level, except for the last six countries: Finland,
Spain, Saudi Arabia, Sweden, Slovakia, and the United States (median-
split: t -stat = 8.002).
8. Forty-two responsive countries are indicated in black; 41 unresponsive
countries are indicated in gray.
9. Due to one missing value (Taiwan) on urban population growth rate,
the chart includes 40 out of 41 unresponsive countries, indicated in
gray. 42 responsive countries are indicated in black on the chart.
10. All models are significant at the 0.0001 level. All income coefficients
are significant at the 0.05 level, except the United States (median split:
t -stat = 7.132).
11. Forty-two responsive countries are indicated in black; 42 unrespon-
sive countries are indicated in gray.
12. Due to seven missing values on the number of in-patient beds, the
chart includes 37 out of 42 responsive countries, indicated in black,
and 40 out of 42 unresponsive countries, indicated in gray. Seven miss-
ing values are: South Africa, Argentina, Thailand, Venezuela, Nigeria,
Sweden, and Cameroon.

Ayse Ozturk is a PhD student in marketing, with a minor in international business at the Robinson College of
Business at Georgia State University. She earned her BBA from Galatasaray University, MS in marketing and MS
in managerial sciences from Georgia State University, and has previously worked with Pricewaterhouse-Coopers
and Dornbracht Americas.

Eric Joiner is the vice chairman and cofounder of AJC International. He served as president and COO for almost
20 years. During his presidency, the company had rapid expansion into China, South America, and Russia, and got
its position as the premier international protein provider. Eric is a past chairman and director for life of the United
States Poultry and Egg Export Council (USAPEEC). He currently serves as the chairman of the UIPDP (USAPEEC
International Poultry Development Program). In 2011, he received a lifetime achievement award from the National
Poultry Food Distributors Association (NPFDA). Eric serves on multiple business and community advisory boards.
He received his BBA and MBA from Georgia State University.

S. Tamer Cavusgil has focused his research and teaching on international business, global strategy, internation-
alization of the firm, and emerging markets. Tamer leads the CIBER at GSU, and serves as Fuller E. Callaway
Professorial Chair. He is an elected Fellow of the Academy of International Business. He has authored more than a
dozen books and over 180 refereed journal articles. His work is among the most cited contributions in international
business. He is the founding editor of the Journal of International Marketing.

DOI: 10.1002/tie Thunderbird International Business Review

22 FEATURE ARTICLE
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DOI: 10.1002/tie
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