 When organizations enter foreign markets, they make decisions about which regions, countries, markets and or segments to target, as marketers will talk about the market selection process, and a number of factors will influence our choice. Let us start by listing the learning goals for this video. Firstly, we will address what the connection with the rest of an organization's internationalization process is. Secondly, we will look at how we can compare and evaluate different countries or markets, so that we are able to make an informed choice of which one to select. Finally, since no two organizations are the same, and their behavior is very different, we will provide an overview of some different approaches to a market selection process. So let us begin. What is the connection to the rest of an organization's internationalization process? When an organization goes from marketing their products and services only on their home market, to also target one or several foreign markets in different countries or regions, we talk about an organization's internationalization process. An organization's internationalization process starts with the choice of which foreign markets to target. We call this the market selection process. Secondly, we would need to address how to organize the entry to the foreign market. Here we discuss which entry mode to use, and many factors will influence our decision. Ultimately, we would define our marketing mix, the four or the seven Ps, for the foreign market. The marketing mix we use on the foreign markets may vary to the ones we use on the home market. We would address issues regarding standardization and or adaptation of the marketing mix. The initial market selection is what we will address with this video. So how can we go about making an informed choice of which foreign market to enter? Let us use an example. This French business produces French cakes and desserts. In these modern production facilities, well-educated confectioners develop recipes and create delicious cakes and desserts. The cakes and desserts are frozen immediately after production and are then distributed to a variety of catering companies, restaurants and cafes around France. French cakes would like to expand their business to international markets and their eyes are set on either the UK or Denmark. They have some but very limited experience in these two countries and they have asked for our professional advice on which of the two markets to go for. So what should influence our choice between these two countries? Firstly, we will investigate the market attractiveness, how attractive each market is for French cakes to enter. Secondly, we will investigate the company's competitive strength in each of the two markets. We will then use these findings to plot the two investigated markets into a matrix in order to provide an overview. Finally, we will look at French cakes' internal situation in order to determine their capabilities to serve either market. We would conduct extensive secondary and primary research in order to gain valuable insights for the comparison of the two markets attractiveness. So let us look at some of the factors we can use to compare the two markets attractiveness. Looking at the country's general economic and political stability can provide us with knowledge about the general prospects of doing business in either country. Both countries are rated well but the UK slightly lower so we will give the UK two stars and Denmark three to indicate that if compared on this factor Denmark is the most attractive. The physical distance from the home market has an impact on costs for travel and distribution and could also influence delivery times depending on the distribution setup. The UK market is closer to France than Denmark making the UK more attractive measured on this factor. Psychic distance addresses the perceived distance, how close or distant French cakes feels to either market. They have revealed to us that they understand the British business culture better than the Danish one. Therefore they feel a shorter psychic distance to the UK than to Denmark. Market trends in Denmark are showing an increased demand for organic and so called healthy cakes a business area that French cakes have experimented with before but which proved unsuccessful in France. The Danish trend is very interesting to French cakes. In the UK trends in the catering industry is showing increased demand for frozen cakes and desserts. The market size of this industry can be measured by looking at official statistics for the industry in each market. The UK market is much larger than the Danish market which makes the UK more attractive measured on this factor. Market growth rates tells us something about the potential for French cakes to establish themselves and grow in the market and it turns out that the UK shows growth rates in the market for cakes and desserts that are slightly higher than Denmark. An investigation into the average contribution margins and general profitabilities of the already established companies in each market shows that business is tough and equally so in both markets. So now we are able to visit our matrix and place the two markets on the y-axis based on the scores we have assigned them each on the evaluation of their market attractiveness. Out of 21 stars possible, Denmark reached 12 stars in total and the UK reached 16 stars in total. Therefore Denmark will be placed in the middle region of the y-axis and the UK will be placed in the upper region. The UK seems the better choice at this stage but not until after we have addressed French cakes competitive strength where we know each market's final position in our matrix. So let us move on. Now we will evaluate French cakes competitive strength on each of the two markets. Firstly, French cakes current market share in each market has an obvious influence on how strong their competitive position is. They have established a small market share in the UK. It is however almost undetectable so let us provide half a bicep for this score. In Denmark the market share is non-existent. They have only had small sporadic export orders. French cakes current financial results for each market will show the extent to which they have been able to conduct a profitable business in other market. And it turns out that although almost insignificant at this stage they have made a small profit in both markets. Access to distribution channels is very important to gain a foothold on a new market. If all available channels are heavily guarded by strong competitor to network relationships this will negatively influence French cakes competitive strength. In the UK although it is still early days French cakes have managed to gain access to a distribution channel since they have started dealing through an agent with a promising network. In Denmark they have no access as of yet since sales have been through sporadic direct export only. Competitive strength is also affected by how well a company's product fits to the market demands. French cakes cakes and desserts have been reported to fit both markets well and the UK slightly better. Country specific know-how is also important in gaining competitive strength. As French cakes have started to gain knowledge through their dealings with a local agent they have some but still very limited know-how in the UK. Denmark is still unknown territory. So now we are able to visit our matrix again and place the two markets on the X axis based on the scores we have assigned them for competitive strength. Before we do so please note that the X axis points the opposite way to what you might expect. It's illustrated here by the order of the awarded biceps. We used five factors enabling a maximum score of 15 biceps. Denmark reached only 1.5 biceps and the UK reached a slightly better 4.5 biceps. Denmark was placed in the middle position on market attractiveness and with the 1.5 biceps for competitive strength we will slide the Danish flag to this position. The UK was placed in the upper region on market attractiveness and with 4.5 biceps we will slide the UK flag to this position. This exercise has given us a good overview of the two options and we're able to say that the UK seems to be the better choice. However before we suggest that French cakes goes ahead we would recommend that they look at some internal factors. We would recommend that they consider their available skills and resources within the company. Do they have the required financial resources to undertake a more serious expansion in the UK? And do they have the right people with the right skills in establishing the entry? Secondly we would recommend that they consider their product adaptation capabilities. Firstly addressing whether or not the existing products would need some adaptations to suit the British market and if so whether this is something they're both willing and able to carry out. And finally we would recommend that the French cakes identify sources of competitive advantage relevant to the UK market before going ahead with the next steps of the process. So a combination of factors addressing the market attractiveness of each market the company's competitive strength in each market as well as the company's capabilities should all influence the choice of which market or country to target. And we can also say that the more systematic the selection process can be carried out the more informed the final choice can be. We have now established what the market selection process is and how it is connected to the rest of an organization's internationalization process. And we have gained knowledge of how to compare and evaluate two proposed markets by addressing a combination of different factors. So let us move on to the final part of this video where we will provide an overview of different approaches to a market or country selection process. Although no two companies follow the exact same process as marketers we often talk about these three different types of market selection approaches. The reactive approach explains those situations where the international markets are not proactively chosen. The so-called selection process is instead characterized by being purely reactive to external drivers. If for example a wholesaler in Denmark contacts French cakes and inquires about a supplier French cakes and desserts this could be the first step to a reactive market selection for French cakes. The neighbor approach explains those situations where the international markets close to home markets are selected. The selection criteria is either a low geographic, psychic or cultural distance to the home market. The systematic or analytical approach implies a more complex and thorough process and resources are needed to allow for the collection of required secondary and primary data. Marketers most often recommend this approach as the one that provides the most informed decisions of which countries and markets to target. In theory the screening of markets begins with the world market as an option and ends with a narrowly defined target market within one or several selected countries. The process includes several steps. It starts with a selection of macro segmentation criteria and the development of macro segments. This is followed by a thorough screening process of selected segments or countries. This is much the same as the evaluation we carried out in our example only potentially more detailed. And finally, micro segments in one or more selected countries are developed and chosen between. The extent and depth of this approach is often adapted to suit the resources available to the company. Often we will find that when companies select new markets to enter they use a combination and adaptation of these different approaches to suit their needs and available resources. The systematic approach in a more or less detailed version is the one usually recommended by marketers. We have now completed the learning goals of this video by providing an overview of the different approaches to a market selection process. If you want to learn more about internationalization, the market selection process, entry mode decision or the global marketing mix or about other marketing related subjects then I suggest that you watch additional videos on my channel. To further support and substantiate your learning I recommend that you read Global Marketing by Sven Hollinsen as well as Principles and Practices of Marketing by Job Barnett as Chadwick and if you're able to read Danish international market-surfing by Rulihet Andersen and others. My name is Tina Wade. Thank you for watching.