Market selection for international expansion; Assessing opportunities in emerging markets

Sema Sakarya, Molly Eckman, Karen H. Hyllegard. International Marketing Review. London: 2007. Vol. 24, Iss. 2; pg. 208

Abstract (Summary)

Traditional market selection analysis relies on purely macroeconomic and political factors and fails to account for an emerging market's dynamism and future potential. The objective of this paper is to present a tool composed of four criteria specific to the preliminary assessment of emerging markets (EM) as international expansion opportunities. Based on the literature pointing out the limitations of international market selection (IMS) models and the need for a specialized approach, additional criteria are introduced to assess emerging market potential. Review of prior work on internationalization, EM and market selection provided the rationale for the selected criteria. Using secondary data and primary data from a sample of 500, the proposed criteria are applied to the assessment of an emerging market for US apparel specialty retailers. Assessment of the emerging market with the criteria introduced revealed growth and sourcing opportunities that might otherwise have been overlooked. Case application exposed strong future market potential, manageable level of cultural distance, supportive and developing local industry and positive customer receptiveness for foreign products and business.

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Comparative research of emerging market potential is a costly exercise for international marketers confronted with a multitude of diverse markets for which there is dearth of available research. Nonetheless, innovative companies are willing to shoulder the burden of looking at emerging markets (EM) that are commonly ignored because they offer growth potential through investment and sourcing opportunities. They often have to be able and willing to cope with issues such as risk of turbulent change, poorly developed communication and distribution systems, limited managerial resources and cultural differences ([43] Dunning and Bansal, 1997; [9] Arnold and Quelch, 1998; [35], [36] Dawson, 2000, 2001). Traditional market selection analysis relies on purely macroeconomic and political factors at the outset of the analysis and fails to account for an emerging market's dynamism and future potential resulting from rapid change, national attributes that affect specific sectors and market receptiveness.

To create a market selection framework that does justice to EM and enhances traditional analysis, we have sought to integrate into the assessment process tools developed by a variety of scholars. These tools include long-term market potential assessment from [9] Arnold and Quelch's (1998) market demand-driven model, [62], [63] Hofstede's (1980, 2001) cultural dimensions to measure cultural distance ([80] Kogut and Singh, 1988; [97] Morosini et al. , 1998), [111] Porter's (1990) competitive analysis of an industrial sector. Customer receptiveness to the specific foreign industry and products is introduced as a new dimension. Applied as a case study to assessing Turkey's potential, the proposed criteria complement traditional analyses by incorporating product market indicators, within country heterogeneity and future potential. The assumption of a static environment is released. The general indicators of risk are sensitized by the introduction of measure of customer receptiveness. The perceived uncertainty is partially quantified by a measure of cultural distance.

In addressing the need for a specialized approach to the preliminary assessment of EM as international expansion opportunities, this paper introduces long-term market potential, cultural distance, competitive strength of the related industry and customer receptiveness as four additional criteria for assessing EM as candidates for subsequent in-dept analysis. It argues that a specialized approach will compensate for the go-no-go approach that traditional analysis takes. Considered prior to the immediate measures of macro economic indicators and country risk, the additional criteria will complement the traditional market selection analyses and provide a more realistic view of EM. The focus of the paper is on EM as interesting investment opportunities that need to be looked at more seriously. The scope of the paper is limited to preliminary international market selection (IMS) analysis for EM based on external factors. Internal factors relating to the firm, entry mode selection, strategies for retail or manufacturing internationalization, competitive and functional strategies or management failure and divestment are beyond its scope.

Review of literature on company internationalization, its implications for market selection, discussion of the traditional market selection models and EM is presented in the following sections. Based on the contributions and limitations of internationalization, market selection/entry and traditional assessment literatures for market selection, the four criteria for the specialized approach to assessing EM are introduced. As an example for applying the introduced dimensions, country level, macro analysis of Turkey is conducted for long-term market potential and cultural distance criteria. For the competitiveness of the related industry and customer receptiveness criteria, Turkey was assessed from the view point of US apparel specialty retailers at the industry and consumer levels.

Internationalization of the firm and market selection for international expansion

Early explanations of internationalization were primarily influenced by general marketing theories and focused on the core competencies of a company and its opportunities in foreign markets ([107] Penrose, 1959; [112] Prahalad and Hamel, 1990). This approach argued that companies needed a compensating marketing and technological advantage to overcome the cost of foreignness ([65] Hymer, 1976; [75] Kindleberger, 1969). Subsequent scholarship focused on the choice of entry mode. [145] Vernon (1966) presented the product cycle model with a sequential mode of internationalization involving companies going through stages from export to foreign direct investment. The Nordic School process model ([71] Johanson and Wiedersheim-Paul, 1975; [70] Johanson and Vahlne, 1977) also employed a sequential entry pattern into successive culturally-close foreign markets with minimum psychic distance with companies intensifying their commitments as their experience and knowledge grows. Scholars such as [22] Buckley and Casson (1998) attempted to determine whether a company should outsource certain operations once it had decided to enter a foreign market against the backdrop of location and entry mode. Based on [31] Coase's (1937) internationalization theory and [151] Williamson's (1975) transaction cost theory, transaction cost analysis model suggested that the need to minimize transaction costs guided the strategic decision. The interpretation of the network environment and the nature and environment of interaction of the firm and customers, competitors, suppliers within the network, as well as their characteristics was suggested to be influential in the decision as to which markets the firm will enter and the organizational structure for market entry ([137] Turnbull, 1986; [34] Cunningham, 1986). The business strategy approach to internationalization stressed pragmatism and stated that the foreign expansion decision is contingent on trade-offs between variables like the nature of the market opportunity, firm's resources and managerial philosophy ([115] Reid, 1983; [147] Welford and Prescott, 1994). Subsequent studies ([43] Dunning and Bansal, 1997; [42] Dunning, 1988) argued that explanations of a company's internationalization process should be rooted in economic theory and that the decisions to internationalize and choice of entry mode were motivated by culturally-based ownership, location and internalization advantages. Economic theory was also used to model national attribute configurations that account for efficiency, competitive advantage in certain industries and clusters, enabling firms to export efficiency and enhancing their potential for successful internationalization ([109], [111] Porter, 1990, 1998).

The various approaches to the explanation of the internationalization of the firm provide different emphases on the issue of market selection and entry. Despite distinctive contributions, most of these theory streams imply that firms expand into overseas markets at an incremental pace. Initially, their scope is limited and cautious. According to the Nordic School, market selection is constrained by two interrelated key concepts: psychic distance and experiential learning ([68] Johanson, 1977; [70] Johanson and Vahlne, 1977; [80] Kogut and Singh, 1988; [51] Fina and Rugman, 1996). The psychic distance epitomizes the knowledge and information deficiency that increases the uncertainty of undertaking overseas business and the costs of coordination. As a result, companies select foreign markets that exhibit similar economic, cultural, and political systems. The Nordic School's stages theory and model of incremental market commitment have been supported for limited levels of involvement like exporting in the studies of US, Japanese, Austrian and Turkish firms ([15] Bilkey, 1978; [25] Cavusgil, 1980; [69], [70] Johanson and Vahlne, 1977, 1990). It was not supported, however, by the behaviour of some large firms using mixed approaches ([138] Turnbull, 1987). The existence of born global firms suggests a new challenge to traditional theories of internationalization ([77], [78] Knight and Cavusgil, 1996, 2004). The explanatory power of psychic distance decreased due to recent developments in consulting services, information technology and human resources with international experience. Recent research indicates that contrary to traditional companies, cultural distance has no significant impact on the internationalization of e-commerce companies ([91] Luo et al. , 2005). Overall, however, cultural differences and psychic distance remain as widely cited and well supported influences on IMS ([41] Dow, 2000; [108] Petersen and Pedersen, 1996; [148] Welch and Luostarinen, 1988).

In the eclectic paradigm, market selection and choice of entry mode are treated as one decision and the emphasis is on entry mode selection. The need for information about the market is the crucial indicator of market entry mode selection. It is assumed that the firm will make a rational entry decision based on cost information and analysis ([42] Dunning, 1988). Firm's market entry decision will be shaped by the match between its objectives and the cost of entry mode. The interaction of the firm, customers and competitors within a market environment guides the market selection decision in the network approach ([34] Cunningham, 1986). Nature of the market opportunity, firm's resources and managerial philosophy affect internationalization in the business strategy approach, and market selection will result from an evaluation of factors like market attractiveness, psychic distance, accessibility and informal barriers ([117] Root, 1987; [139] Turnbull and Ellwood, 1986).

[150] Whitelock (2002) suggests that a model of international market entry incorporating distinctive contributions and areas of convergence of the internationalization schools of thought can present a more realistic and comprehensive picture of the entry decision. The model specifies sets of variables relating to the firm and the market along with the interpretations and perceptions of decision makers, the level of experiential knowledge developed and the costs of transaction as determinants of the decision to enter a non-domestic market and the selection of market entry mode. Resources, orientation and philosophy are the variables relating to the firm as suggested by the eclectic paradigm and the business strategy approaches. Psychic distance of the Nordic School, potential attractiveness, size and growth of market from network and business strategy schools, and accessibility and competition from the network approach are variables relating to the market.

Traditional models for international market selection

Increasing dependence of companies on international business and growth and the intensity of competition makes selection of non-domestic markets one of the most critical decisions in international strategy ([7] Andersen and Strandskov, 1998). Despite its importance, however, knowledge about the initial market entry decision is limited ([46] Ellis, 2000). Literature review suggests that research on the topic remains fragmented, overshadowed by work on market entry mode selection and that integrated frameworks and comprehensive studies of market selection process have been rare ([17] BjöErkman and Eklund, 1991). Few studies attempting to integrate previous work suggest product-specific market size and growth, availability and cost of factors of production, level of economic development ([119] Russow and Okoroafo, 1996), and the country environment, psychic distance, market-based factors, competition, information and market knowledge ([149] Whitelock, 2004) as sets of criteria for market selection. [79] Koch (2001) lists the dominance of interest in the external environment over the role of company internal environment; the dominance of prescriptive approach over the descriptive one; static perspective; and focus on quantitative aspects of the process and neglect of qualitative aspects as prominent tendencies in the market/market entry mode selection literature.

The general and context-specific approaches to foreign market selection view the process of evaluating the viability of overseas markets as composed of stages like preliminary screening, identification/in-dept screening and final selection ([79] Koch, 2001; [67] Johanson, 1997; [24] Cateora, 1995; [84] Kumar et al. , 1994; [118] Root, 1994; [26] Cavusgil, 1985). Preliminary assessment or "screening" identifies potential markets as candidates for subsequent in-dept analysis ([40] Douglas et al. , 1972; [118] Root, 1994). Macro-level indicators are used to eliminate countries that do not meet the firm's objectives ([84] Kumar et al. , 1994). Market size, growth rate, fit between customer preferences and the product and competitive rivalry constitute proposed screening criteria. Identification stage involves assessment of industry attractiveness and forecasts of costs and revenues for the short-listed countries. The final selection stage determines the country market which best matches the company's objectives and available resource leverages ([67] Johanson, 1997).

For international marketers seeking to expand abroad, the literature provides primarily two normative market screening models for evaluating and selecting attractive markets ([106] Papadopoulos and Denis, 1988; [28] Cavusgil et al. , 2004). Based on large amounts of secondary statistical data, they either group countries on the basis of similarity or differentiate countries on the basis of market potential. Grouping approaches cluster countries on the similarities of social, economic and political indicators and do not measure demand levels. The similarities help managers compare countries and evaluate possible synergies ([87] Liander et al. , 1967; [122] Sethi, 1971; [64] Huszagh et al. , 1985; [28] Cavusgil et al. , 2004). They seek identification of key variables for country screening ([13] Bartels, 1963) and of countries with similar levels of industrial development through cluster and factor analysis, operationalisation of variables; and grouping of nations in terms of development within regions ([87] Liander et al. , 1967; [89] Litvak and Banting, 1968; [122] Sethi, 1971; [123] Sethi and Curry, 1973; [127] Sheth and Lutz, 1973; [120] Samli, 1977).

Scholars have criticized grouping approaches for relying exclusively on aggregate, general country indicators rather than on specific product market indicators. These critics argue that macro indicators may not reflect market development for a product. Country rankings within clusters, moreover, may differ depending on whether general or product specific indicators are used ([38] Douglas, 1971; [105] Papadopoulos, 1983). Ignorance of a country's heterogeneity as well as the use of unreliable, outdated secondary data lacking comparability across countries raises questions. Grouping methods also fail to take into account similarities among groups of consumers across national boundaries and possible economies of scale in production, R&D, marketing, and advertising are lost.

Market estimation methods aim to rank countries based on aggregate market potential and overall attractiveness. Foreign markets are evaluated according to one or more criteria and selected by the highest score. The criteria may include indicators of wealth, size, growth, competition and ease of access. Some apply models for indirect measure of market potential using multiple factor indices derived from economic development, internal stability and cohesion ([33] Conners, 1960; [37] Dickensheets, 1963; [87] Liander et al. , 1967; [120] Samli, 1977); as well as regression analysis for the prediction of demand for specific products ([8] Armstrong, 1970; [88] Lindberg, 1982). Others use trade statistics to estimate import demand through analysis of markets in terms of size and growth of imports, market coverage and competition ([141] UNCTAD/GATT, 1968; [29] Centre Francis du Commerce Exterieur, 1979). Yet others employ model estimation of the relationship for import demand of industrial products ([5] Alexandrides and Moschis, 1977); or identification of relative changes in import shares by countries ([60] Green and Allaway, 1985). These market estimation approaches fail to include product specificity in their indicators and suffer from the assumption of a static environment and methodological problems stemming from data.

By reducing subjectivity, IMS methods allow for the screening of a large number of often distant markets. Companies do not adopt these methods commonly because they fail to account for strategic dimensions of markets and lack product specificity. Grouping methods enable companies to standardize their offerings and marketing strategy across markets by providing insight into structural similarities and serving as tools for segmentation. Ranking methods help identify the best possible market to enter and countries that deserve attention. Together, these methods narrow the focus to a small number of potentially attractive markets with meaningful similarities ([28] Cavusgil et al. , 2004).

Two studies by [9] Arnold and Quelch (1998) and [27] Cavusgil (1997) specifically address the assessment of market potential for EM. [9] Arnold and Quelch (1998) argue that due to their shortcomings, traditional analyses applied to assessment of EM not only produce static snapshots that ignore long-term potential of EM, but also produce undersized GNP figures because they do not take possible gray markets into account. They suggest that companies identify their own indicators as acceptable surrogates for judging demand and adopt a more rigorous approach to assessing long-term market potential, identifying business prospects and predicting potential profits. They propose a nested model that enables a stage-by-stage process with sequential, incrementally discriminating phases of assessment to reduce candidate country-markets. Their model prioritizes long-term market potential rather than country risk and profit conversion potential. It is based on progressively detailed and market specific data, starting with limited economic and demographic measures for future demand, then moving to product/country market data.

[27] Cavusgil's (1997) indexing approach develops a market potential index for EM with 13 economic, political and social variables that reflect seven dimensions of overall market attractiveness from a western company's viewpoint. The index is created from raw values of these variables by standardizing the items into a scale of 1-100 and determining each dimension's relative weight. The seven dimensions are integrated into an overall market opportunity index to rank the EM based on attractiveness. The dimensions of market attractiveness and routinely updated EM rankings are available on line at the GlobalEDGE web site.

Opportunities in emerging markets

EM offer long-term growth opportunity that no longer exists in saturated and highly competitive developed markets. Long-term growth in markets such as Argentina, Brazil, China, Indonesia and Turkey is fuelled by their less competitive markets, increasing disposable incomes, large populations of young consumers and economic liberalization ([142] US Department of Commerce, 1996; [9] Arnold and Quelch, 1998; [114] Reda, 1998; [129] Sowinski, 2000).

Despite the lack of a commonly accepted definition, these high-growth, high-potential, high-risk markets have been categorized as "emerging markets" (EM), "emerging financial markets" (EFM) or "big emerging markets" (BEM). Criteria to classify these markets include level of economic development as expressed by the average gross domestic product (GDP) per capita, the balance of agrarian and industrial/commercial activity, the pace of economic development reflected in GDP growth rate, the system of market governance and the extent and stability of a free market system.

The International Financial Corporation first applied the term EFM in 1981 to countries for which they published standardized stock indices. It replaced terms like "developing countries" and "less developed country" in the 1990s as countries opted for market liberalization ([14] Bein, 2001). In 1994, the US Government adopted the policy of export promotion to ten BEM: Argentina, Brazil, China, India, Indonesia, South Korea, Mexico, Poland, South Africa and Turkey, the world's fastest expanding markets that fuelled explosive growth in global trade ([53] Garten, 1996; [140] UNCTAD, 1996). BEM have large populations, resource bases, markets and are regional powerhouses.

The incentive for a company to establish operations in selected EM is reflected in their demographics and spending patterns. A majority of the population in markets such as Malaysia and Mexico is below the age of 18. Chinese children spend approximately USD 5.7B a year, slightly less than US children's expenditure ([113] Rapoport and Martin, 1995). Most consumers in EM are still more than a decade short of their peak spending years. Beside the large base of young consumers, these highly populated markets have sizable middle income groups with purchasing power far beyond the country's per capita income. The combination of age and potential spending power enticed international marketers to EM.

The choice or ability to respond to opportunities in EM can determine international growth and success ([4] Alexander and Myers, 2000; [9] Arnold and Quelch, 1998; [36] Dawson, 2001). While many companies take a wait and see attitude toward EM, [9] Arnold and Quelch (1998) identify unique advantages associated with early entry such as establishing relations and influence with local governments, servicing unmet consumer demand, incurring lower marketing costs, hiring the best candidates from a potentially small group of qualified/experienced local managers, and reverse learning resulting from the need for innovative approaches. EM offer potential product development and international sourcing opportunities ([90] Liu and McGoldrick, 1996). Favourable factor and demand conditions alongside the existence of internationally competitive related and supporting industries that enhance investment and sourcing opportunities in EM are not highlighted by traditional market selection analysis.

Market selection criteria for emerging markets

In approaching EM, firms often erroneously adopt a "less developed countries" mind-set assuming that EM are at an earlier stage of the same development path followed by advanced countries. Even though the model of economic development through industrialization remains valid, developments in the global system regarding especially the financial, services and trade sectors and the information and communication technologies has complicated and altered the nature of the process as exemplified by EM. To capture the complexity and potential of EM, IMS models utilized need to compensate for the go-no-go approach that traditional analysis takes by relying primarily on macroeconomic and political risk criteria. The proposed specialized approach to market assessment introduces the future market potential of the EM, the cultural distance between the EM and the county of origin, competitive strength of the specific industry in the EM, and customer receptiveness to the products of the foreign industry and its country of origin as new dimensions to complement existing IMS criteria. The approach integrates tools by a number of researchers and is showcased in the assessment of Turkey's potential.

The specialized approach differs from the existing market assessment analyses. It is neither a clustering nor a ranking tool. It includes both qualitative and quantitative measures to guide the strategic decision of market selection. It is not a substitute for existing methods but complements them. It is product specific. Instead of reliance on aggregate, general country indicators, it accounts for a country's heterogeneity by assessing the competitive strength of the specific industry. It does not assume a static environment but captures the dynamism of EM by considering future market potential. It incorporates an objective measure of cultural distance in the assessment to quantify the subjective perception of uncertainty. Measurement of customer receptiveness for the industry and the products of the foreign country sensitize the general indicators of commercial and political risk. The proposed additional criteria for the specialized approach to the assessment of EM as international expansion opportunities are discussed below.

Long-term market potential

Host market potential is one of the most important explanatory factors in country attractiveness and market selection and constitutes a primary driver in company expansion into foreign markets ([154] Yoshida, 1987). International trade theories suggest a strong relationship between potential international business transactions and market size ([61] Hirsch, 1967). Network and business strategy schools in internationalization literature recognize market potential as a market related selection criterion ([34] Cunningham, 1986; [137] Turnbull, 1986; [117] Root, 1987; [147] Welford and Prescott, 1994). The eclectic paradigm stresses the need for information on the foreign market ([42] Dunning, 1988). Prescriptive sequence models of market selection propose market size and growth rate as criteria to be used at the screening stage ([67] Johanson, 1997). There is little consensus, however, on what criteria to use in measuring market potential ([119] Russow and Okoroafo, 1996). Market potential has been operationalised in terms of market size, its growth rate and product acceptance in the international marketing literature ([59] Goodnow and Hansz, 1972; [89] Litvak and Banting, 1968; [23] Buckley and Mathew, 1980; [39] Douglas and Craig, 1983; [132] Terpstra and Yu, 1988; [58] Gomes-Casseres, 1990; [95] Minor et al. , 1991; [74] Kim and Hwang, 1992; [2] Agarwal and Rarnaswami, 1992; [118] Root, 1994; [21] Browthers, 1995; [119] Russow and Okoroafo, 1996). In traditional market assessment frameworks, market estimation approaches rank countries based on aggregate market potential and overall attractiveness. Market size, growth, competition and ease of access, as well as models of indirect measures, prediction of demand for specific products, estimates of import demand are used as indicators market potential. Grouping approaches do not directly measure market size but implicitly assume that aggregate, general country indicators will reflect it. Numerous proxy variables (such as population, GNP per capita, televisions-radios-telephones-cars-trucks-newspapers per 1,000 population, level of GNP, inflation, energy consumption, steel consumption-cement production per capita, balance of payment trends, indexes of convertibility of currency and development of local capital markets) are used as indicators of economic environment and opportunity ([89] Litvak and Banting, 1968; [126] Sherbini, 1967; [130] Stobaugh, 1969; [59] Goodnow and Hansz, 1972). The implied or measured levels reflect the country's market potential at a point in time and fail to account for the future potential resulting from accelerating growth pattern of an emerging economy.

[9] Arnold and Quelch's (1998) proposal to validate traditional market assessment frameworks for EM allow for identification of business opportunities by prioritizing national-markets according to long-term market potential. Profit potential and market-entry opportunities are further assessed in relation to product or service adaptation, business partnerships, and distribution strategies. The approach is market-demand driven rather than risk-oriented. It differentiates between long-term market potential and potential for short-to-medium-term profit. The dynamic, growing EM environment is captured by considering future market potential in a stage by stage process. Future demand is assessed with minimum demographic and economic data available for all countries as well as data specific to both product and country markets. [9] Arnold and Quelch (1998, p. 13) provide the following formula for assessing long-term EM potential: Equation 1 [Figure omitted. See Article Image.] where Q , total market potential; P , national population; NP, new population, i.e. population growth in the planning period; DevGDP, average per capita GDP in developed markets; and AdjGDP, GDP in measured country market adjusted to purchasing power parity level.

By relating national population to the difference between GDP per capita averages in developed markets and an EM, the formula approximates future market size. Given the static environment assumption, long-term growth opportunities offered by EM as the world's fastest expanding markets are not exposed by traditional analysis. Incorporating long-term market potential as an additional criterion in the preliminary screening process compensates for this shortcoming.

Cultural distance

A key issue in internationalization is the need to adapt to cultural characteristics ([82] Koopman, 2000). [62], [63] Hofstede's (1980, 2001) work-related values-based framework for national culture has been applied in international business studies ([19] Bodur and Madsen, 1993; [116] Reynolds, 1999; [152] Yeniyurt and Townsend, 2003). The framework presents differences among nations along five dimensions of culture: power distance, uncertainty avoidance, individualism/collectivism, masculinity/femininity and time orientation. Hofstede's model has high external validity and significant correlations with economic, social and geographic indicators. The dimensions of national culture have been found to be valid, reliable and stable ([20] Bond, 1988; [80] Kogut and Singh, 1988). Critics on the framework's empirical validity question whether Hofstede's methodology and sample justify generalising the research findings ([135] Triandis, 1982; [124] Shackleton and Ali, 1990; [128] Sondergaard, 1994; [121] Schwartz, 1994; [153] Yoo and Donthu, 1998). Nonetheless, it remains the most comprehensive framework of national cultural values and source for national indices ([80] Kogut and Singh, 1988; [128] Sondergaard, 1994; [93] McSweeney, 2002; [11] Baskerville and Hofstede, 2003).

Researchers have used Hofstede's indices to generate cultural distance scores to reflect relative cultural similarities and differences among countries ([80] Kogut and Singh, 1988; [97] Morosini et al. , 1998). The institutional environment that shapes a company's competitive advantage is embedded in national culture ([12] Barney, 1986). Critical routines and repertoires of companies in different countries vary significantly depending on the national cultural distance between them ([125] Shane, 1993; [92] McGrath et al. , 1992; [83] Kreacic and Marsh, 1986; [62] Hofstede, 1980). Cultural distance involves differences in a country's legal system, incentives, administrative practices and working styles that increase an international company's cost of integration ([62] Hofstede, 1980). It has been identified as a key factor in explaining foreign market attractiveness, expansion patterns, adaptation of marketing and retailing strategies, modes of entry and organizational performance ([80] Kogut and Singh, 1988; [86] Li and Guisinger, 1991; [96] Morosini, 1994; [10] Barkema and Pennings, 1996; [99] O'Grady and Lane, 1996; [50] Evans et al. , 2000; [49] Evans and Mavondo, 2002). By relating culture to the cost of coordinating economic activities, researchers have investigated the effect of cultural distance on entry mode strategies ([23] Buckley and Mathew, 1980; [1] Agarwal, 1994; [21] Browthers, 1995; [95] Minor et al. , 1991; [6] Anderson and Coughlan, 1987; [58] Gomes-Casseres, 1990; [132] Terpstra and Yu, 1988). [80] Kogut and Singh (1988) have provided empirical evidence that cultural attitudes towards uncertainty avoidance affect choice between green field ventures and acquisitions.

The sequence models of internationalization imply that companies select markets similar and physically close to their domestic market as they are easier to learn and understand ([70] Johanson and Vahlne, 1977; [98] Nordstrom and Vahlne, 1994). Cultural differences in distant and unfamiliar markets on the other hand, disturb the flow of information and present barriers to a firm's learning about and understanding of the foreign environment, leading to perception of uncertainty ([144] Vahlne and Wiedersheim-Paul, 1977; [98] Nordstrom and Vahlne, 1994; [99] O'Grady and Lane, 1996). The perceived uncertainty shapes the psychic distance - "the sum of factors preventing flow of information from and to the market" ([70] Johanson and Vahlne, 1977, p. 24). It is argued that rather than the presence of external environmental factors, the way they are perceived determine the degree of psychic distance. Cultural distance construct, however, is an objective measure of cultural factors presenting barriers to firms learning and understanding of the foreign market. Even though some researchers treat it synonymous with psychic distance, cultural distance measure is based on predetermined indices of cultural dimensions. It can be interpreted as an objective and partial measure of psychic distance.

[80] Kogut and Singh (1988) suggest that explanations of market entry need to be qualified by factors stemming from institutional and cultural contexts. They define national cultural distance as "the degree of difference in cultural norms between countries" ([80] Kogut and Singh, 1988, p. 422) and suggest a composite index based on deviations from [62] Hofstede's (1980) national culture scores to estimate cultural distance. Kogut and Singh's formula, or an adapted version, have been widely used as a measure of cultural distance ([1] Agarwal, 1994; [10] Barkema and Pennings, 1996; [16] Benito and Gripsrud, 1992; [52] Fletcher and Bohn, 1998; [57] Gomez-Mejia and Palich, 1997; [72] Kale, 1991; [97] Morosini et al. , 1998; [104] Padmanabhan and Cho, 1996).

Using Kogut and Singh's formula, [97] Morosini et al. (1998, p. 144) developed a multidimensional measure to estimate the cultural distance between countries: Equation 2 [Figure omitted. See Article Image.] where CD j , cultural distance for the j th country; j , country; I , cultural dimension; I ij 1 , Hofstede's score on i th cultural dimension and country one ( j 1 ); and I ij 2 , Hofstede's score on i th cultural dimension and country two ( j 2 ).

The composite index is an objective measure and an effective indicator of cultural distance. Problems of common method variance and retrospective evaluation are avoided by using the existing country scores ([97] Morosini et al. , 1998). Although the importance and impact of culture on IMS has been explicitly recognized through the psychic distance construct in internationalization literature, neither the traditional models nor the normative market selection process models incorporate it as a significant dimension into the screening process. In deciding about specific countries, however, business decision makers attribute greater importance to geo-cultural distance factors than to other variables ([59] Goodnow and Hansz, 1972). Along with cultural differences in language, business practices, market structures, legal and political systems and level of development, high growth and structural changes in EM lead to the perception of high level of uncertainty and psychic distance. Companies from developed economic systems take a wait and see attitude toward EM as psychically distant developing economies. The degree of psychic distance accorded to a specific country, however, is subjective, based on perceptions rather than objective and comparable measures. Most measures of the construct are based on respondents' perceptions of the differences and similarities between the home and foreign market ([49] Evans and Mavondo, 2002). There is high probability of stereotyping and generalizing a level of psychic distance to all EM without consideration of individual country circumstances. A measure of cultural distance is introduced as a second criterion in the specialized approach for assessing EM. This additional criterion serves as an objective and partial measure of psychic distance. The amount of uncertainty accorded to the measured level of cultural distance by the decision makers will still be subjective depending on the attitudes towards risk and uncertainty avoidance. This subjectivity, however, will reflect equally to the cultural distance scores of all the countries assessed and is expected to normalize the possible bias against EM.

Competitive strength of the industry

Some countries excel in certain industries. [111] Porter (1990) tries to explain why particular nations are good home basis for specific industries by identifying national attributes that contribute to or detract from the creation of competitive advantage. He determines factor and demand conditions, related and supporting industries, firm strategy, structure and rivalry as attributes that form the national diamond which is under the influence of two exogenous factors: the government and chance. Configuration of these attributes in the national diamond creates competitive advantage for certain industries in a country. Porter argues that a nation's industry achieves competitive advantage if the mix of attributes available to the industry facilitates the pursuit of a generic strategy and if the nation has selective factor disadvantages motivating firms to develop new materials or forms of mechanization. Similarly, international trade and investment theories relate factor conditions - an attribute in the national diamond, to the competitiveness of certain industries. They note that existing differences in national factor endowments affect the factor costs and form bases for comparative advantage if nations take advantage of specialization ([76] Kindleberger, 1973).

Some entry mode selection studies have examined competition and industry concentration from the perspective of global interdependence in oligopolistic industries where actions in one market impact other markets and high control entry modes are desirable ([74] Kim and Hwang, 1992; [6] Anderson and Coughlan, 1987). Within the internationalization schools of thought, the Nordic School and the eclectic paradigms do not explicitly mention the impact of competition on market selection. The network approach acknowledges the importance of competitive relations as a market related factor in market selection ([137] Turnbull, 1986). Information on competitive rivalry and competition analysis are suggested among the criteria for the screening and identification stages of the normative selection models ([67] Johanson, 1997). Traditional models of market selection analysis on the other hand, are not product market/industry specific and do not incorporate the analysis of competition.

Competitiveness of the specific industry in the EM considered for international expansion is proposed as a third additional criterion in the specialized approach. The analysis of the national diamond for the related industry helps to overcome some limitations of the traditional analysis which assumes that countries are homogeneous and the development levels of industries are implicit in and reflected by aggregate, general country indicators. EM may have favourable attribute configurations for some industries regarding factor and demand conditions as well as internationally competitive related and supporting industries that may provide international sourcing and vertical integration opportunities. The dimension provides information on the specific product market/industry and compensates for the homogeneity assumption and the lack of product specificity shortcomings of traditional market selection analysis.

Customer receptiveness

Consumer attitudes toward foreign goods and services, and their perceptions of country of origin and of foreign business are important factors when assessing the potential of markets. Although researchers have carefully examined structural changes in the environments of selected EM such as Poland, China and Brazil ([85] Kwan et al. , 2003; [3] Alexander and de Lira e Silva, 2002; [36] Dawson, 2001; [56] Goldman, 2001), there are few empirical investigations into other EM. As the number of younger, higher-income consumers with increasing demand for goods and services living in EM continues to grow, these markets become increasingly attractive and the need to assess the receptiveness of these consumers to foreign brands and business becomes important.

Customers' receptiveness to foreign products and business for a specific industry, as well as its country of origin is not considered in traditional frameworks for market selection. It may, however, have important implications for the marketer in assessing and sensitizing the standard, easily accessible commercial risk indicators used. A similar dimension - market receptivity is included in [27] Cavusgil's (1997) overall market opportunity index for EM. It is measured as the average annual growth rate of imports from the USA over the past five years (60 per cent weight) and per capita imports from the USA (40 per cent weight). The market receptivity of the index, however, pertains to trade figures only and does not provide micro level input on customers. It also lacks product specificity as aggregate import figures only are considered. Along with measures like political stability and competitiveness of the product, attitude toward foreign products - a partial measure of the customers' receptiveness has been considered among the indicators of the business environment affecting export performance ([18] Bodur, 1994). Within the stages models of market selection, only [67] Johanson (1997) proposes the basic fit between the customer preferences and the existing product among the criteria for the preliminary screening stage. A positive measure of customer receptiveness to the specific foreign industry and its country of origin may be instrumental in neutralizing the high risk and psychic distance perceived for the EM.

Customer receptiveness is introduced as an additional criterion in the specialized approach to the assessment of EM. In this study, host country customers' views on the impact of the specific foreign business activity on economic and social development, their acceptance of its products/brands, as well as their perceptions of its offers with respect to local and other foreign businesses in the same industry are used as measures for customer receptiveness to the foreign industry.

Case application: US apparel retailers and Turkey

The four criteria that make our assessment specific to EM are applied below to the case of Turkey. Secondary and primary data are used for the analysis. Country level, macro analysis of Turkey and selected EM is conducted for the first two criteria: long-term market potential and cultural distance. For the competitiveness of the related industry and customer receptiveness dimensions, Turkey was assessed from the view point of US apparel specialty retailers at the industry and consumer levels.

Turkey's long-term market potential analyzed using [9] Arnold and Quelch's (1998) formula and taking the average per capita GDP in developed G8 countries excluding Russia, demonstrates impressive future market potentials for the EM. Long-term emerging market potentials for the years 2010 and 2020 are presented in Table I [Figure omitted. See Article Image.]. The table shows that total market potential is strongest in China and India followed by Indonesia, Brazil, Mexico, and then Turkey. Scrutiny of the data, however, reveals that Mexico, Brazil, and Turkey have stronger GDPs and that their consumers have greater purchasing power than those in China, India, and Indonesia ([81] Kolodko, 2003).

Table II [Figure omitted. See Article Image.] presents the calculated cultural distance scores between the USA and 12 EM including Turkey. The scores indicate relative differences and similarities in culture between the USA and EM, with lower cultural distance scores indicating greater similarities in culture. Hofstede's indices suggest that Turkish and US societies differ considerably. With the exception of South Africa, however, relative cultural distance between the USA and Turkey is no greater than those between the USA and most other EM. The cultural distance score of Turkey from USA is 73, one point lower than a developed market like Japan. Calculated by the same method, Japan has a cultural distance score of 74, much higher than some EM like South Africa (28), India (57), Argentina (61) and Poland (63), but she has attracted significant US direct investment. These measures suggest that cultural differences between the USA and Turkey are likely to be no more challenging than those in other EM and some developed markets.

In terms of competitive strength of the industry, Turkey has been a good home for the textile and apparel industry which has driven industrialization since the foundation of the republic. The country has a rich tradition in textile design and production and is an emerging centre for apparel production ([66] International Labour Office, 2000). The government provided policies and incentives in line with the export-oriented development strategy initiated in the 1980s. Some 15-20 per cent of the workforce is employed in textiles and apparel production, which accounts for 34-40 per cent of total exports, Turkey's largest export category, primarily to the European Union and the USA. As the seventh largest exporter of apparel accounting for 3.5 per cent of global exports, Turkey has one of the world's fastest growing apparel exporting sectors, making it a reliable local source for the production of private label apparel goods ([54] General Secretariat of ITAEA, 2004; [45] Ellis, 2003; [47] Ercan, 2002; [94] Maher, 2001; [131] Tan, 2001; [90] Liu and McGoldrick, 1996).

Research acknowledges Turkey's competitive advantage in the production of textiles and apparel ([101], [102] Öz, 1999, 2004; [131] Tan, 2001; [133] Togan, 1996; [100] Oral and Özkan, 1986). Analysis in the [32] Competitive Advantage of Turkey Textile and Apparel Industry Report (2003) reached similar conclusions for the Turkish textile and apparel industry. In [110] Porter's (1994) view, the basis of competitive advantage has shifted from efficiencies like low input costs to the ability to innovate and upgrade technology. The high export-orientated and mature Turkish textile and apparel industry is facing pressures to upgrade. The sources of competitive advantage stem from favourable basic factor conditions. Turkey is among the world's top ten cotton producers where wage rates undercut those in developed countries. But the cost of capital is high and financing is a major problem, especially for small- and medium-sized local firms. In terms of firm strategy and rivalry, most SME work as subcontractors to larger local companies engaged in international trade and to international ones that source from Turkey. Demand for high quality inputs in the sector force most of the related and supporting industries to be internationally competitive. Application of [111] Porter's (1990) framework to leather clothes industry concluded that it owes its competitiveness to rivalry in related and supporting industries ([101] Öz, 1999). The strategic path that most firms follow is to be sustainable local production sources (low-cost subcontractors) to firms in developed markets and global brands. Some firms, however, have developed or are trying to develop international brands of their own. Turkey's international success hinges on a shift from low-cost production to a differentiation strategy that emphasizes niche marketing, local brands, and high quality production.

The textile and apparel industry's competitive strength lies in marketing, technology, quick delivery, geographical proximity to Europe, advanced communication and transportation infrastructure, raw materials, intermediary goods like yarns, woven fabrics, and wide range of finished apparel goods. Turkey's disadvantages compared to its main competitors are inadequate capital; high energy and increasing labour costs; high corporate taxes; and weak country image ([32] Competitive Advantage of Turkey Textile and Apparel Industry Report, 2003). Compared to China and India, Turkey is at a disadvantage in terms of production costs and compared to Italy in terms of design, marketing, productivity, and delivery time. Labour costs in Turkey are slightly higher than in some Asian apparel producing countries, but considerably lower than in many European countries and the USA ([66] International Labour Office, 2000).

Retailing industry in Turkey on the other hand, has been going through structural change as of the 1980s. Both European and US retailers entered the Turkish market at an increasing intensity since the 1990s. Development of the Turkish retail scene has been in step with change in Europe and the USA. Structural change in Europe since the mid-1980s is characterized by steady growth in consumer affluence, widespread adoption of communication technologies, the opening of Central Europe, creation of the single European market, and increased international retail activity, including the growing presence of non-European retailers ([36] Dawson, 2001). The rise of large retailers and decline of small retailers fuelled concentration. Companies externalized logistics and internalized product development while consumer demand and business processes and structures diversified. To achieve strategic growth, US retailers expanded internationally and played a pioneering role in international sourcing by capitalizing on the competencies gained in their competitive and highly dynamic domestic market. Nonetheless, compared to their counterparts in other mature retail markets, they were slow in responding to international opportunities ([146] Vida, 2000). Experience in Europe with many US apparel specialty retailers running into trouble ([114] Reda, 1998) has taught US companies that apparel retailing is subject to local influences. Narrowing opportunities in developed markets, however, bolsters the prospect of creating and capturing latent demand in EM.

Similarly, economic reforms have driven structural change in the Turkish retail industry since the early 1980s. Single-location, small-scale, capital-weak, independent and family-owned businesses dominated the industry prior to 1980 ([134] Tokatli and Boyaci, 1998). Domestic conglomerates' efforts to diversify sparked the emergence of large-scale retailing. Originally engaged in agricultural, food and industrial goods production, these conglomerates entered the retail market in the late 1980s and early 1990s to benefit from high growth potential. The number of retail establishments increased 23.8 per cent but concentration remained low compared to Western Europe ([103] Özcan, 2001). Various formats were introduced in a short period of time ([134] Tokatli and Boyaci, 1998). The entry of international firms specializing in food, fast-food and apparel retailing fuelled the development in retail. In addition, specialty retailing is boosted by extensive mall development and revitalization of shopping districts in major cities. The private consumption per capita in Turkey increased by 158 per cent between the years 2000 and 2004, and retailing has been the industry that benefited most from developments in increasing disposable incomes and consumer expenditure. The retailing industry in Turkey is expected to record good growth in the coming years due to driving factors like increasing population, urbanisation, disposable incomes; young population demanding modern retail products; local and foreign investment in terms of new outlets opening or new entries such as Harvey Nichols in 2006; favourable payment options; expansion of multiples into different cities of the country; opening of new shopping and retail centres where different formats will be available ([48] Euromonitor International, 2006). Overall, assessment of national attributes for the Turkish retail and textile and apparel industries are presented in Table III [Figure omitted. See Article Image.].

The analysis of customer receptiveness indicated that Turkish consumers were receptive to foreign apparel retailers. A general operational market research approach ([136] Tull and Hawkins, 1987) was adopted and an intercept survey was conducted to collect data from consumers in the central business districts of the cities of Istanbul, Ankara and Izmir. These urban centres are home to one third of the total population and one third of the nation's retail establishments. A sample size of 500 was considered sufficient for inductive measures necessary to demonstrate the proposed criteria. Respondents were fairly equally distributed across specific market segments targeted by US apparel retailers. The survey addressed three variables as indicators of customer receptiveness: the beliefs about the impact of foreign retailers on social and economic development, perceptions of the selected characteristics of the offerings of Turkish, European, and US retailers, and acceptance of US apparel brands. The questionnaire contained measures adopted from previous research ([44] Eckman et al. , 1997) as well as items designed specifically for this study. It was translated and back translated; edited for cultural relevance and tested by a pilot administration. Sample selection, development of valid measures and the data analysis were performed in accordance with procedures suggested by [30] Churchill and Iacobucci (2002).

Descriptive analyses were conducted to provide information on the three variables measured. Multivariate and univariate analyses of variances were used to examine respondents' beliefs on the impact of retail development on local community by demographics, as well as perceptions of offers by Turkish, European, and US retailers by origin. When differences among groups were found, a post hoc Scheffé test, with significance level set at p ≤0.05 was used to determine which groups differed. For the multiple item measure of perceptions of Turkish, European, and US retailers' impact, principle component analysis with varimax rotation was used as a data reduction technique. A minimum eigenvalue of 1.0 determined the number of factors extracted. Items loading equal to or greater than 0.40 on a single factor were retained. Each factor was then examined for reliability and only those with a standardized α coefficient of 0.70 or greater were included in the analyses.

Social and economic impact of retail development

Turkish consumers' beliefs about the social and economic impact of foreign retailers on local community was measured on seven-point scales ranging from "absolutely not influential" to "absolutely influential" for 12 economic and social aspects. Turkish consumers believe that foreign retailers are influential ( =4.85) on social and economic development of the community. Principal component factor analysis revealed three factors concerning respondents' beliefs. Employment/business opportunities accounted for 37.14 per cent of the variance, followed by socio-cultural well-being (14.82 per cent) and urban growth (9.69 per cent). MANOVA revealed overall differences by city in respondents' perceptions of the influence of retail development on urban growth ( F =2.98; p ≤0.01). Respondents' perceptions of the influence of retail development on employment/business opportunities or socio-cultural well-being did not differ by city (Tables IV and V [Figure omitted. See Article Image.]).

Perceptions of Turkish, European and US retailers

Turkish consumer's perceptions of US, European and local retailers' offers was measured by seven-point semantic differential scales for 13 variables (Table VI [Figure omitted. See Article Image.]) Although Europe is a collection of national markets, for the purpose of this study Europe was viewed as an "integrated retail market" as characterized by retail analysts. US retailers were perceived the highest on 11 of the 13 characteristics measured. Repeated measures ANOVA ( p ≤0.001) was used to compare respondents' perceptions of Turkish, European and US retailers. Differences by origin were discovered in respondents' perceptions of 12 of the 13 retailer characteristics. Respondents rated US and European retailers higher than Turkish retailers on most characteristics. The only exception was the frequency of discounts - respondents perceived that Turkish retailers offered more discounts than did either US or European retailers. The single characteristic for which respondents did not perceive a difference between Turkish, European and US retailers was payment options.

Acceptance of US apparel brands

Turkish consumer's acceptance of US apparel brands was measured on seven-point scales ranging from "very strongly agree" to "very strongly disagree" based on the following variables: familiarity, ownership, fit, joy from using, prestige, projection of desirable lifestyles, and manufacturing quality. The results indicate a low level of acceptance ( =3.45) for US apparel brands. MANOVA revealed overall differences in consumer acceptance of US brands by education ( F =4.14; p ≤0.001). Univariate analysis revealed differences by education in familiarity with US apparel brand names ( F =7.87; p ≤0.001), ownership of US brand name apparel ( F =11.49; p ≤0.001), and manufacturing quality ( F =5.87; p ≤0.01) (Table VII [Figure omitted. See Article Image.]).

Discussion and implications

To date, empirical research on opportunities in EM is limited in quantity and focus. The case study on Turkey extends the understanding of the potential of another yet important emerging market. The assessment of the Turkish market on the dimensions introduced revealed promising results. Along with five other BEM (China, India, Indonesia, Brazil and Mexico), Turkey's long-term market potential analyzed using [9] Arnold and Quelch's (1998) formula demonstrated impressive future market potentials for the years 2010 and 2020. These levels indicate attractive expansion opportunities not just for US apparel specialty retailers but for most businesses especially when the slow growth rates and the market life cycles of most products in developed markets are taken into consideration. The future market potential figures indicate the need to adopt a different perspective when considering EM. They also contrast with the results obtained by traditional assessment tools that assume a static environment. Examples include initial clustering applications like "country temperature continuum" which does not include China, and classify Turkey as a "cold" country along with India and Indonesia ([89] Litvak and Banting, 1968); as well as recent studies that rank Turkey as the 49th country among a hundred in terms of market potential and group her in the lowest fourth cluster among ten groups of countries ([28] Cavusgil et al. , 2004).

The measure of cultural distance ([97] Morosini et al. , 1998) between Turkey and the USA suggest that for US apparel retailers, establishing retail operations in Turkey would prove no more challenging than entry into most EM and some developed markets like Japan. There is, however, a huge gap between US direct investment in Japan (USD 80,246 M) and Turkey (USD 2,225 M) ([143] USDIA, 2005).

Application of [111] Porter's (1990) analysis to Turkish apparel and retail industries indicates an increasingly competitive apparel industry and a fast growing and less saturated retail industry with potentials of providing successful expansion and local sourcing opportunities for US apparel specialty retailers. Turkish firms are viable sources of local production for private label fashion apparel giving US retailers more control in achieving unique product attributes while reducing costs such as transportation and import taxes. Turkey's less saturated retail sector offers opportunities for differentiation through the presentation of a unique image.

Turkish consumers are receptive to foreign retailers and rate US retailers highest among both foreign and domestic operators in the country. They think that foreign retailers positively influence social and economic development, employment, business opportunities, socio-cultural well-being and urban growth. Turkish consumers, however, expressed a low-level of acceptance for US apparel brands. A variety of US products are well known in Turkey and there are numerous US retailers operating in the Turkish metropolitan scene. This result may be due to the relatively limited presence of US apparel retailers as opposed to the dominance of a large number of stylish and prestigious European and local apparel specialty retailers in the market. Perceptions of manufacturing quality differ by education and respondents with no university education perceive US brand name apparel to have higher manufacturing quality than respondents with post graduate education. US apparel specialty retailers considering the low end of the market may leverage the positive country of origin image. Retailers considering the high end of the market may either attempt to enhance highly educated consumers' perceptions of US brand apparel by strategic positioning or through sourcing private label quality merchandise from local manufacturers and avoiding US brand names.


Companies in general prefer to enter markets that rank high in attractiveness, low in market risk and where they can enjoy a competitive advantage. Even though classified as high risk environments, EM demand further consideration in the development of international operations and offer research ground for the study of market selection within an increasingly challenging global market environment. Lack of a specialized approach to assess their potential may be one reason why most firms overlook opportunities in EM. This study addressed the need for a special approach to the assessment of EM opportunities by introducing a tool composed of four additional criteria to the traditional ones. It is proposed that the application of the additional criteria will compensate for the go-no-go approach taken by the normative market selection methods by providing a matter-of-fact exposure of EM potential and will complement them in preliminary assessment before the immediate measures of macro economic variables, country risk and profit conversion potential.

The proposed approach to assessing EM contributes to and extends traditional methods by incorporating micro analysis at the industry and customer levels into country level macro analysis. The approach differs from the existing market assessment analyses. It is neither a clustering, nor a ranking tool but involves the analysis of a predetermined cluster of countries classified as EM. The proposed criteria are not substitutes for existing assessment methods but are intended to complement them by addressing the generally cited shortcomings. Product specificity is incorporated into the assessment process by introducing the analysis of the competitiveness of the local industry and the measure of customer receptiveness. Instead of reliance on aggregate, general country indicators, a country's heterogeneity is recognized through the assessment of the competitive strength of the specific industry. The measure of the long-term market potential accounts for the dynamic environment of EM and the need to use comparative specific data rather than general country indicators. An objective measure of cultural distance quantifies the subjective perception of psychic distance. Measurement of customer receptiveness for the industry and the products of the foreign country sensitize the general indicators of commercial and political risk. [9] Arnold and Quelch's (1998) market-demand driven nested model, [62], [63] Hofstede's (1980, 2001) dimensions of culture and cultural distance ([80] Kogut and Singh, 1988; [97] Morosini et al. , 1998) and [111] Porter's (1990) analysis of competitive strength provided key tools for the approach. As an example for applying the introduced dimensions, country level, macro analysis of Turkey and selected EM was conducted for long-term market potential and cultural distance criteria. For the competitiveness of the related industry and customer receptiveness criteria, Turkey was assessed from the view point of US apparel specialty retailers at the industry and consumer levels. The application of the assessment criteria provided valuable implications for the international marketer intending to exploit the Turkish market. The analysis revealed multiple interrelated, synergistic indicators of strong future market potential; a competitive, supportive and developing local apparel industry and retail scene; a manageable level of cultural distance and positive customer receptiveness for foreign products and business.

Based on external factors, the specialized approach exposes the potential of EM as international expansion opportunities. Analysis of EM by the additional criteria and the case application demonstrated that the future market potentials of EM are far beyond the levels indicated by current GDP per capita levels that are used to categorize them. Cultural distance scores can be comparable to or lower than some attractive developed markets. The level of development and competitive strength of certain industries may be higher relative to the level of economic development of the EM as reflected by general macro indicators. Customer receptiveness to foreign business and products support the potential for certain industries. Long-term commercial activity in the market and the maintenance and development of the established exchange relationships with these customer segments may be less challenging than implied by the general commercial and political risk indicators. We believe that the results highlight growth opportunities in Turkey for US apparel specialty retailers that might otherwise have been overlooked. We suggest that the specialized approach for assessing EM where turbulent operational environments are commonplace will assist experienced and less conservative marketers identify untapped international market potential. The final decision to enter a potentially attractive EM, as well as the selection of market entry mode will be shaped by the interaction of the external indicators of market attractiveness with factors related to the internal company environment like the vision and objectives, attitude towards risk, orientation and philosophy, amount of control sought and resources.

Future research is warranted on the potential of EM as companies in developed countries seek new growth opportunities. Compared to existing market assessment frameworks, the proposed specialized approach presumes a predetermined cluster of countries and incorporates both qualitative and quantitative measures to guide the strategic decision of market selection. Demonstration of the approach involved a sample of EM for two of the proposed criteria - long-term market potential and cultural distance. Micro analysis at industry and customer levels for the other two dimensions was conducted for Turkey only. This limitation can be addressed by replicating the study in different EM contexts and developing linkages between international expansion strategy development, implementation, and market measurement. Repeating studies will be instrumental in developing the proposed exploratory approach to assess and expose EM potential. There is the opportunity to further refine the assessment tool. Follow-up studies may help to validate the assessment criteria introduced and point to further dimensions relevant for demonstrating the potential of EM that may not be captured by traditional IMS methods. Studies pertaining to the integration of the introduced dimensions into an index, determining their relative importance in reflecting the potential of the EM, as well as quantifying some dimensions like the competitiveness of the related industry will contribute to the development of a comprehensive model for assessing EM as expansion opportunities.

Partial funding for this research was provided by a Career Enhancement Grant from Colorado State University.


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Further Reading

1. GlobalEDGE (2004), "Market potential indicators for emerging markets", available at: (accessed 21 June).






Corresponding author

Sema Sakarya can be contacted at:





[Author Affiliation]

Sema Sakarya, Department of International Trade, Bogazici University, Istanbul, Turkey


Molly Eckman, College of Applied Human Sciences, Colorado State University, Fort Collins, Colorado, USA


Karen H. Hyllegard, College of Applied Human Sciences, Colorado State University, Fort Collins, Colorado, USA





Equation 1


Equation 2


Table I: Long-term market potentials for 12 EM


Table II: Dimensions of culture and cultural distance scores for 12 EM


Table III: Overall assessment of national diamond attributes


Table IV: Social and economic impact of foreign retailers: factor analysis


Table V: Differences in perceptions of social and economic impact of foreign retailers by city: multivariate and univariate analysis of variance


Table VI: Turkish consumers' perceptions of retailers' offers by origin: repeated measures of ANOVA


Table VII: Acceptance of US apparel brands by education level: multivariate and univariate analysis of variance





Indexing (document details)


Cross cultural studies,  Emerging markets,  Globalization,  Competitive advantage,  Textile industry,  Cultural differences,  Economic models,  Market entry

Classification Codes

9178 Middle East,  9190 United States,  9130 Experimental/theoretical,  1220 Social trends & culture,  8620 Textile & apparel industries,  1130 Economic theory,  7000 Marketing


United States,  US,  Turkey


Sema Sakarya,  Molly Eckman,  Karen H. Hyllegard

Author Affiliation:

Sema Sakarya, Department of International Trade, Bogazici University, Istanbul, Turkey
Molly Eckman, College of Applied Human Sciences, Colorado State University, Fort Collins, Colorado, USA
Karen H. Hyllegard, College of Applied Human Sciences, Colorado State University, Fort Collins, Colorado, USA

Document types:


Document features:

Equations,  References,  Tables

Publication title:

International Marketing Review. London: 2007. Vol. 24, Iss. 2;  pg. 208

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