Foreign Market Selection: Which and How Many?

Abstract

Defining the priorities for your international expansion is a complex decision impacted by the type of investment you intend to make in a foreign market and by the cognitive models used by those who make the decision (for instance, their aversion to risk). The foreign market selection process consists of two steps: the initial screening of potential markets and the final decision on a shortlist of options. The initial screening of potentially attractive foreign markets, instead of focusing on generic macroeconomic indicators, should consider two aspects: market accessibility (for instance, legislative and political factors) and market attractiveness. The latter includes proxy indicators of market size and growth; costs of production factors, if the internationalization goal includes delocalization of production activities; and availability of local talent, if your goal is to internationalize your firm’s research and development activities. For the final decision about the priority foreign markets, we need to consider the hierarchy of our internationalization goals. For this strategically important decision, there may also be diverse reasoning among business units, as internationalization goals and priorities may vary according to the industry or the product and service offered. A rational decision about foreign markets involves a complex multifactor analysis, and in this chapter we propose the tools and instruments that will enable you to reason through a large number of criteria, some of which are qualitative. We end with a warning about possible decision-making biases in the foreign market selection process, looking at how your reasoning might be influenced externally and how you may find yourself subject to a bandwagon effect.