International Market Selection Process: An Investigation of the Relevance of Business Operating Environment

ABSTRACT Different researchers have recommended different decision frameworks for international market selection. As parts of those decision frameworks, most researchers have recommended for the evaluation of macro-environmental and business operating environmental variables. However, few attempts have been made so far to empirically test those frameworks. This study provides a partial test of those frameworks. Specifically, it looks at the host country's business operating environmental variables recommended by different researchers. Using both exploratory and confirmatory factor analysis techniques it identifies the operating environmental factors considered by the successful Australian international businesses in their international market selection process. Three constructs and their measurement variables identified through literature review has been tested. The constructs are: target country's cost indicators; structutral compatibility indicators and policy indicators. INTRODUCTION International marketing researchers (Kumar et al, 1993; Douglas and Craig, 1989 and 1992) have stressed the importance and the need for systematically evaluating and selecting potential foreign markets. A number of researchers have either developed decision frameworks (frequently referred as models in the literature) and methodologies for international market selection or applied existing ones (Moyer, 1968; Walvoord, 1980; Cavusgil, 1985; Vargas-Carcamo, 1986; Root, 1987; Walsh, 1993; Kumar et al 1993; Hoffman, 1997; Daniels and Radebaugh, 1998). These decision frameworks present the international market selection process as gradual and necessarily sequential. There is general agreement in the literature that: a screening process is desirable; and market size and level of economic development should be considered early on in the decision process for identifying potential opportunities (Goodnow and Hans/, 1972; Litvak and Banting, 1973; Cundiff and Hilger, 1984; Cavusgil, 1985; Connolly, 1987; Young et al, 1989; Ball and McCulloch, 1993; Papadoupoulos and Jansen, 1994; Daniels and Radebaugh, 1998; Rahman 2001). Sources of macro-level criteria to be used in screening potential international markets as recommended by the above decision frameworks are primarily the macro-environment and the operating environment of the international market. The primary element of the macro-environment recommended for screening international markets are economic in nature. Most of the other evaluation criteria recommended are related to the market's operating environment, ie. existing infrastructure, accessibility, taxes and duties, and costs of entry. However, limited empirical testing of these frameworks has been undertaken (Aulakh and Kotabe, 1992; Rahman 2001 ), with not much reported research having been carried out in Australia. As a part of the overall pursuit of developing a decision framework for international market selection process, this article attempts to identify the international market's operating environment constructs that are part of the overall framework. Specifically, the present study aims to address the following research questions: What, if any, international market's operating environment constructs are considered by the successful Australian international businesses in their international market selection process? What are the measurement scales of those constructs? Answers to these questions will be useful to corporate policymakers, and facilitate theory advancement in the field, particularly in developing an integrated overall decision framework for international market selection. CONCEPTUAL FRAMEWORK As Russow and Okoroafo (1996) states, " While descriptions of screening techniques exist, there is a good deal of disagreement about which criteria to use. " (pp.47-64). The operating environmental constructs generally recommended by the researchers (Cavusgil, 1985; Walvoord, 1980; Root, 1994; Rahman 2001) can be grouped into three categories: (1) target country's cost indicators, (2) target country's structural compatibility indicators, and (3) target country's policy indicators. …