Arto Ojala and Pasi Tyrväinen
Executive Summary
In the current business environment, high-technology small and medium-sized enterprises (SMEs) are playing an increasingly important role in global markets. These firms are characterized as having a strong international focus from their inception, though they often lack sufficient resources necessary for well-organized internationalization, based on detailed data on the new, emerging global market opportunities. Although many studies have proposed that cultural distance, geographical distance, and market size have a major impact on the target country selection, these studies provide little knowledge of interrelationships between these factors and the target country preference. In this article, Ojala and Tyrväinen examine the influence of cultural distance, geographical distance, and three market size variables on the target country preference of SMEs in the software industry. In addition, an analysis of how these factors affect the selection of the first, second, and third target countries shows a shift of priorities in SMEs' country selections.
The empirical data consist of information about the first, second, and third market entries of 51 SMEs (with an average of 27 employees) that design, sell, and maintain software products. Ojala and Tyrväinen statistically analyze 123 market entry decisions, which were collected in the Finnish National Software Industry Survey in 2003, in terms of geographical and cultural distances, software market size, gross domestic product, and gross domestic product per capita indicators of the 26 countries entered.
Ojala and Tyrväinen find that geographical distance and software market size in the target country explain up to 70% of country preference in the target population. In addition, the findings of the study reveal that SMEs' entry priorities shift quickly from countries within a short geographical distance to countries with high purchasing power and at a greater geographical distance. This approach facilitates the organization of critical customer support activities (e.g., requirement specification, installation, after-sales support) in a nearby country because of lower operational cost and environmental familiarity. After a firm has implemented this strategy once, it can cost-efficiently copy and complement the same operation model in other countries. If no better information is available, managers can use the ratio of a country's software product market share percentage to the distance to the country (in thousands kilometers) as the first approximation for initial market selection. Internationalization often begins in a nearby country, for which the ratio is greater than .1, whereas the preferred second and third countries have ratios close to or greater than 1.
Biography
Arto Ojala is a doctoral candidate in the Software Business Program, Department of Computer Science and Information Systems, at the University of Jyväskylä, Finland. He received his MSc in Economics from the University of Jyväskylä. His areas of marketing expertise and interest include foreign market entry and entry mode choice, international entrepreneurship, the internationalization of small and medium-sized enterprises in the software industry, and the Japanese software market. He is also working in the Launch Pad program as a project manager. The main objective of this program is to develop start-up-phase high-technology firms' know-how in technological strategies and business activities and to improve their preparedness for international business. In addition to Journal of International Marketing, other recent publications have appeared in Thunderbird International Business Review, Journal of International Entrepreneurship, and Journal of International Technology and Information Management. His areas of interest for future research include international market selection, network relationships in market entry, and the Japanese market as a business environment for foreign software firms.
Pasi Tyrväinen is a Professor of Digital Media in the Department of Computer Science and Information Systems at the University of Jyväskylä, Finland. He received his MSc in Technical Physics and his DrTech in Computer Science from the Helsinki University of Technology. His marketing research interests include software market analysis methods for telecommunications operators, peer-to-peer and viral marketing, internationalization of software and content business, and foreign market entry. He has experience in fields of software products and services, digital music delivery, telecommunications operators and manufacturing, and industrial control business. His industrial background includes work at Nokia Research Center, research-and-development management positions at Honeywell Industrial Control, and work with new ventures. In addition to Journal of International Marketing, other recent publications have appeared in Thunderbird International Business Review, Journal of International Entrepreneurship, European Journal of Information Systems, International Journal of Business Information Systems, and Proceedings of International Association for Development of the Information Society (ADIS) International Conference on e-Commerce. His areas of interests for future research include market analysis methods for vertical software markets, marketing in digital society platforms, enterprise content management, and international software business.
Journal of International Marketing, Vol. 15, No. 3, September 2007
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