Abstract
Traditionally, the international market selection is a systematic process, based on predefined criteria. This process is, however, very time- and cost-consuming, and only a small number of firms have sufficient resources to do it. So, according to the Uppsala Model, firms tend to internationalize to the closest markets (psychic distance), managing uncertainty in a very gradual process based on experiential knowledge. The second-hand knowledge that flows in the firm's network could help firms select the market, helping them to expand gradually. Independently from the source (experiential or second hand), knowledge seems to be a mandatory resource to internationalize. However, a lot of firms imitate other firms' behavior, selecting the international market according to others' selections, believing that they must have superior information. In this situation, firms could imitate the leader (a successful firm) or the herd (a big number of firms). This international market selection is not based on knowledge; it is a mimetic process.
TopSystematic And Opportunistic Approaches (Direct Data Collection And Experimental Approaches)
According to Papadopoulos & Dennis (1988) and Musso & Francioni (2014) firms can gain knowledge and evaluate the attractiveness of potential markets by following a formalized process of data collection and standardized statistical methods that underpin the data analysis.
This formalized and structured process is known as the systematic approach. According to Andersen and Buvik (2002) it includes six stages:
- 1.
Problem definition, which implies that international market selection must be analized as an independent issue not dependent on any other decision (as, for example, entry mode selection);
- 2.
Identify the choice criteria i.e. “the decision-maker should identify all relevant criteria or objectives against which the alternatives will be evaluated” (Andersen & Buvik, 2002, 348).
- 3.
Weight the criteria, providing different relevance to diverse criteria.
- 4.
Generate the alternatives and in this case “at least two strategies could be used: 1) an extensive search, generating a complete list of all alternatives (countries, portfolios); 2) an optimal search, continuing to generate alternatives until the cost of search outweighs the value of the added information” (Andersen & Buvik, 2002, 349).
- 5.
Rate each alternative on each criterion. According to Andersen and Buvik (2002) this step is very important and must already consider the long range impact of each alternative.
- 6.
Compute the optimal solution, which could be done using several models.
Key Terms in this Chapter
Informational Cascade: Is a situation where firms sequentially take decisions. The first one chooses an option based on information. In the next step, firms observe this option, and as they believe that the first one is well informed, so they imitate it. In the next step, firms observe the imitators, believing they have good information and imitate them. This process repeats for a long time.
IMS-Mimetic Approach: Companies decide where to go following the options of those companies perceived to be successful or following the high number of companies. It is not about access to knowledge; it is about mimicking behavior.
Herding Behavior: Occurs when firms from the same industry converge to a behavior at the same time, and this Convergence is not guided by economic fundamentals. Firms are just following the large crowd (herding).
Second-Hand Knowledge: Firms are part of a very complex network; and knowledge flows in this network. This knowledge developed outside the firm is second-hand knowledge.
IMS-Relational Approach: Companies select where to go according to their network knowledge and contacts.
Rivalry-Based Theories: Is the process by which institution imitates their rival to maintain its competitive position.
Mimetic Isomorphism or Social Legitimacy: Is the process by which an institution models its behavior on the behavior of those companies perceived to be successful. In this case, mimicking behavior is encouraged not necessarily by dissemination of previously private information but by the desire of companies to improve their position and to acquire legitimacy, including social legitimacy.