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  • Published on: 14th September 2019
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LITERATURE REVIEW

The following chapter shall provide the reader with a broad overview of existing literature and shall as such establish a theoretical and conceptual framework for the study. As the subject of international market selection is very complex, it is vital to understand the interdisciplinary context. For this reason, the international market selection is first elucidated in a border context of internationalisation. Subsequently international market selection is defined, and problems are highlighted. Then, a comprehensive review of international market selection literature with a focus on existing models and concepts is conducted. Finally, a theoretical solution to the research question is based on existing literature critically discussed and literature gaps are pointed out.

IMS AS PART OF INTERNATIONALIZATION

International market selection is regarded as part of international marketing. However, any international business development process is also closely interlinked with the field of international market selection. Hence, international market selection must be seen as an interactive process, rather than just an autonomous business activity. In this regards, the decision to internationalise is often based on either proactive or reactive motives to expand commercial activities such as export. Here, the export is often initiated by specific triggers but is also influenced by the risked involved and trade barriers. Thus, the international competitiveness of a firm is essential for any internationalisation of business activities.  

The actual decision which market or country to enter is then often undertaken based on the international environment, which i.e. includes political, economic and cultural factors. However, the decision is also based on firm`s product or service. Therefore, market selection often compromises preliminary screenings and potential market analyses to evaluate the market sales potential. This step is closely interlinked with the decision on how to enter a foreign market. Here, not only the choice of entry mode is of relevancy, but also any related decisions such as entry mode classification or export mode. Furthermore, the development of a related international marketing programme is essential for any internationalisation activity. The product and/ or service decisions in combination with pricing decisions are the important cornerstones. Also, to this have the distribution choice and a realistic customer communication approach a significant impact on the likelihood to succeed. Companies should, therefore, have the financial and marginal capabilities of implementing and coordinating an international marketing programme. Here, knowledge in cross-cultural sales negotiations and global account management can be vital. However, also, related business ethics and bribery should be addressed. In doing so, the transfer of knowledge and best practice from one market to another can have a positive impact on the development of an international marketing plan.   

As a result it becomes evident, that that the process of international market selection can not be discussed without considering affiliated factors and processes within the organisation. However, also, clarification of the corporate understanding and behaviour of their international business activities is vital for a further discussion of international market selection. Therefore, the next chapter introduces the main streams within internationalisation.

INTERNATIONALISATION

Growing internationalisation of business activities is creating the need for sophisticated market selection tools to support the managerial decision in internationalisation questions. Internationalisation and international market selection have, as a result, attracted “significant research attention from the 1960s to the mid-1980s” . Research from Yip at al. (2000) and Brouthers and Nakos (2005) are highlighting the need to follow a proactive, systematic and sequential approach, as this would increase business performance.  Even though that research and existing models have proven to be very helpful, recent interest in the research area has decreased due to difficulties in developing models which can be universally applied across different industries and countries.  Subsequently, not much recent literature is available.  Some of the best-known internationalization models are Johanson and Vahlne's model , Root's model , Miller‘s „ten steps model”  also, Yips et al.'s "way station model" .

Johanson and Vahlne's model, which is based on a study of Swedish companies expanding their activities across Europe, suggest a reoccurring circle of knowledge, commitment decision and actual market commitment. With this is the degree of market and management knowledge pivotal for the commitment decision which in turn can increase the real market commitment. The actual market commitment then increased the existing knowledge base and marginal capabilities. Therefore, the researchers do advertise an incremental internationalisation process which is closely interlinked with the Uppsala model.

Root's model is following a more structured approach by first assessing the foreign markets. Hence, the decision to internationalize is taken as granted, as the approach is actively looking for potential markets. This method is supported by outlining and clarifying any related business objectives and goals. Subsequently, the focus is given towards the choice of entry mode which is a crucial factor in their model. This step is then followed by the development of an appropriate marketing plan and resulting entry activities within the target market. Hence, Root's model is a structured approach with the focus on the entry mode decision.  

In contrast, Miller‘s „ten steps model" put more emphasis on the pre-assessment before market selection as well as on the post-selection processes. Miller's model starts with a sophisticated analysis of the company's initial situation, which includes a company analysis, evaluation of international readiness and a reassessment of the own national business plan. Next, an international market selection is conducted by a market and competitive analysis. Moreover, a market entry plan is developed to the next stage. Here, attention is given towards the identification and selection of the right partner as well as on regulation compliance. Besides, before the product is introduced to the market, service providers are selected. Finally, the product is introduced, and market presence is increased by e.g. building brand awareness.

Yips et al.'s “way station model” is developed from the previous models and combines their strength and weaknesses into a six step approach. According to Yips et al. (2000) the company is first motivated, by e.g. export opportunities, and starts the strategic planning process. This process then includes advanced market research as well as a resulting market selection. Furthermore, the choice of entry mode is essential. Hence, the development contingencies also find application within this model. Last of all, Yips et al. (2000) highlights further strategic commitment after the actual market entry as an important success factor.

Melin (1992) stresses the importance of internationalization as a part of an ongoing strategic process within the business operation.  In this regards, as current markets are becoming more and more globalized and complex in nature, international market selection has a growing impact on the firm's strategic positioning.  Nevertheless, most firms do not follow a proactive, systematic approach, but rather act as a response to for the moment unsolicited orders.   Most exports growth is due to trade with geographically and culturally near countries. Hollensen et al. (2009) stress that the firm's internationalization strategy depends on both the external environment and the organisations capabilities. Furthermore, internationalization drivers and sources of competitive advantage do impact to a great extent market selection and mode of entry.  

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