International Market Selection and Subsidiary Performance: A Neural Network Approach

How should multinational enterprises (MNEs) select international markets? We develop a model of international market selection that adds firm-specific advantages and transaction cost considerations to previously explored target market factors based on Dunning's Eclectic Framework. Results obtained using neural network (NN) analysis indicates that our model has strong predictive power in explaining international market selection. Further tests show that firms selecting international markets predicted by the model reported significantly higher subsidiary performance relative to firms whose investments were not predicted by the model. Our results provide strong initial evidence that a firm-level strategic approach to international market selection facilitates MNE success.