On International Market Opportunity Assessment: Three Studies

Abstract

An important activity in the internationalization process is to seek attractive export markets. It is known that export markets can offer attractive new market segments, revived market growth rate, and opportunities for economies of scale. Firms that achieve such superior advantages will perform well in both home market and key markets throughout the world. The importance of choosing the ‘right’ overseas market(s) has also been discussed extensively in the marketing literature. Firms that are good at preliminary market opportunity and risk screening would be able to take advantage of first mover advantages as compared to their competitors. The importance of foreign market opportunity assessment has been well noted by both marketing managers and scholars. However, a systematic screening method is still lacking. This study goes beyond the marketing literature and includes gravity models of trade in international economics to work out a framework to better assess the global markets. Two variables, distance and economic size constitute the very “basic” gravity model. The dependent variable in most gravity models is merchandise trade, in log form, between countries in given years. In addition to distance and economic size, other explanatory variables often added in gravity equations are political and economical linkages or enemies, currency linkages, education level, infrastructure and dummy variables representing measures of geographical or cultural proximity—namely, remoteness, common borders, common language and common membership in regional trading arrangements. Gravity models remain at the center of applied research on globalization of the day, and have been used to evaluate international trade flows and various trade issues such as openness, FDI flows, product quality, and trade potentials. We intend to introduce gravity theory to our marketing literature and apply gravity models of trade to our study of international market potential assessment.