HRMGT-3101

GOOD
AFTERNOON
BATANGAS STATE UNIVERSITY
THE NATIONAL ENGINEERING UNIVERSITY
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LETTERS
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BREAKER 2. DATA
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BREAKER 3. RONUCTY
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 1. RISKS
ANSWERS: 2. DATA
3. COUNTRY
4. MARKET
5. PRODUCT
 HRMGT-3101

COUNTRY
EVALUATION
AND SELECTION
BATANGAS STATE UNIVERSITY
THE NATIONAL ENGINEERING UNIVERSITY
 OUR TEAM

Magpantay, Mendoza, Naz, Angela Ongray,

Jasmine A. Milarose D. V. Julie M.
 OBJECTIVES
Objective 1 Objective 2 Objective 3

Discuss company Explain how clues from the Examine the major
strategies for sequencing environmental climate can help variables a company
the penetration of managers limit geographic should consider when
countries and for alternatives. deciding whether and
committing resources. where to expand abroad.
 OBJECTIVES
Objective 4 Objective 5 Objective 6

Provide an overview of Describe some simplifying tools for Introduce how managers
methods and problems determining a global geographic make final investment,
when collecting and strategy. reinvestment and
comparing information divestment decisions.
internationally.
I. INTRODUCTION
Because companies lack the
resources to take advantage of
all international opportunities
they identify, they must
determine both the order of
country entry as well as the rates
of resource allocation across
countries.
II. CHOOSING MARKETING AND PRODUCTION
SITES, AND GEOGRAPHIC STRATEGY
In choosing geographic sites, a firm must determine both where to
market and where to produce. The answer can be one and the same
place if transportation costs are high and/or government regulations
make local production a necessity. In many industries, facilities
must be located near foreign customers; in others, market and
production sites are continents away. Developing a site location
strategy that helps a firm maximize its resources and competitive
position is very challenging, given that many estimates and
assumptions about factors such as future costs and prices and
competitors’ reactions must be made.
III. SCANNING FOR ALTERNATIVE
LOCATIONS
Scanning is useful insofar as a company
might otherwise consider either too few
or too many possibilities. Through the
use of scanning, decision makers can
perform a detailed analysis of a
manageable number of geographic
locations.
IV. CHOOSING AND WEIGHTING VARIABLES
To evaluate and compare countries, scanning techniques
based on broad environmental variables that identify both
opportunities and risks should be used. Ultimately, variables
must be weighed against each other to effectively evaluate
the potential success of a particular venture and to compare
various ventures.

A. Opportunities B. Risks
 A. OPPORTUNITIES
MARKET SIZE

Market size is determined by sales potential. In some instances, past and current
sales for either an existing product or a similar or complementary product are
available on a country-by-country basis.

EASE & COMPATIBILITY OF OPERATIONS

The more time, money and energy a firm expends in examining a particular
alternative, the more likely it is to accept it, regardless of its merits. This situation
is known as the escalation ofcommitment. Feasibility studies should have clear
decision points that prevent such a situation from occurring.
 A. OPPORTUNITIES
COSTS & RESOURCE AVAILABILITY

Costs are a critical factor in production-location decisions. Often firms need to be

located near suppliers and customers in an area where infrastructure will allow
them to move supplies and finished products very efficiently.

RED TAPE

includes the difficulty of getting permission to operate, bringing in expatriate

personnel, obtaining licenses to produce and market goods and satisfying
government agencies on matters such as taxes, labor conditions and
environmental compliance.
 B. RISKS
RISK & UNCERTAINTY

In fact, the liability of foreignness refers to the fact that foreign firms have a lower
rate of survival than local firms for the initial years after the start of operations. As
part of a feasibility study, the degree of acceptable risk should be determined so a
firm does not incur unacceptable costs.

COMPETITIVE RISK

A firm’s innovative advantage may be short-lived, particularly if a country offers

little protection with respect to intellectual property rights. When pursuing a
strategy known as imitation lag, a firm moves first to those countries most likely to
adapt and catch up to the advantage.
 B. RISKS
MONETARY RISK
Liquidity preference refers to the theory investors want some of the holdings to be
in highly liquid assets on which they are willing to take a lower return. Firms must
carefully evaluate a country’s present capital controls, recent exchange-rate
stability, balance-of-payments account, inflation rate and level of government
spending.
POLITICAL RISK
Political risk reflects the expectation the political climate in a given country will
change in such a way that a firm’s operating position will deteriorate. When
evaluating political risk, decision makers refer to past patterns in a given country,
expert opinions and country analysts.
 V. COLLECTING AND ANALYZING DATA

PROBLEMS EXTERNAL INTERNAL ENVIRONMENTAL

WITH RESEARCH SOURCES OF GENERATION SCANNING
RESULTS AND INFORMATION OF DATA
DATA
 PROBLEMS WITH RESEARCH
RESULTS AND DATA
1. Reasons for Inaccuracies
For the most part, incomplete or inaccurate
data result from the inability of governments
to collect the needed information.

2. Comparability Problems
result from definitional differences across
countries, differences in base years,
distortions in foreign currency conversions.
 EXTERNAL SOURCES OF
INFORMATION

1. Individualized Reports 6. Trade Associations

2. Specialized Studies 7. Information Service
3. Service Companies Companies
4. Government Agencies 8. The Internet
5. International Organizations
and Agencies
1. Individualized Reports

Market research and business consulting firms

conduct country studies for a fee.

2. Specialized Studies
Certain research organizations generate specific
studies about countries, regions, industries,
issues, etc., that they make available for general
purchase.
3. Sevice Companies
Most international service-related firms publish
reports that are usually geared toward either the
conduct of business in a given country or region or
about some specific subject of general interest.

4. Government Agencies
Governments and their agencies publish tomes of
information designed to stimulate business activity
both at home and abroad.
5. International Organizations and Agencies

Many of the international development banks even

help fund investment feasibility studies.

6. Trade Associations
Many trade associations collect, evaluate and
disseminate a wide variety of data dealing with
competitive and technical factors in their
industries.
7. Information Service Companies

They maintain databases from hundreds of sources

from which they will access data for a fee.

8. The Internet
As with other sources, a researcher must be
concerned about the reliability and validity of
information gathered from Internet sources.
INTERNAL GENERATION OF
DATA
When firms have to conduct studies in
foreign countries, they may find
traditional data gathering and analytical
methods do not reveal critical insights.
In that case, a researcher must be
extremely imaginative and observant.
ENVIRONMENTAL
SCANNING
Environmental scanning provides a
systematic assessment of external
conditions that might affect a firm’s
operations. For country assessment,
firms will likely collect economic,
competitive, societal and political/legal
information.
 VI. ALLOCATING
AMONG LOCATIONS
Geographic
Diversification
Reinvestment vs.
Interdependence
vs. Concentration
of
Harvesting
Locations C.
A.
B.
A. REINVESTMENT VS. HARVESTING
1. Reinvestment Decisions 2. Harvesting

Reinvestment refers to Harvesting refers to the

the use of retained
earnings to replace
depreciated assets or
to add to a firm’s
existing stock of capital.
reduction in the amount
of an investment; a firm
may choose to simply
harvest the earnings of an
operation or divest the
assets there as well.
B. INTERDEPENDENCE OF LOCATIONS
It is often difficult to assess the true impact a particular
foreign subsidiary has on other operations within an MNE if
several operations are interdependent. In the case of
intra-firm sales, transfer pricing strategy will definitely
affect the relative profitability of one unit as compared to
another. Likewise, the net value of a particular operation
may be similarly distorted for corporate profit
maximization purposes.
C. GEOGRAPHIC DIVERSIFICATION VS.
CONCENTRATION
A firm may take different paths en route to gaining a sizable
presence in most countries. At one end of the spectrum is
geographic diversification, whereby a firm moves rapidly
into many foreign countries and then gradually builds its
presence in each. At the other end of the spectrum is
geographic concentration, whereby a firm moves into a
limited number of countries and develops a strong
competitive position there before moving into others.
C. GEOGRAPHIC DIVERSIFICATION VS.
CONCENTRATION
1. Growth Rate in Each
Market.
When the growth rate in
each market is high, a firm
will likely concentrate on a
few markets because of
the cost of keeping up
with market expansion.
2. Sales Stability in
Each Market.
The more stable sales and
profits are within a single
market, the less advantageous
a diversification strategy will
be.
C. GEOGRAPHIC DIVERSIFICATION VS.
CONCENTRATION
3. Competitive Lead Time. 4. Spillover Effects.
If a firm has a long lead
time before competitors Spillover effects represent
can copy or supercede its situations in which a
advantages, then it may marketing program in one
be able to follow a country results in the
concentration strategy awareness of a product in
and still beat competitors other countries.
to other markets.
C. GEOGRAPHIC DIVERSIFICATION VS.
CONCENTRATION

5. Need for Product, Communication and Distribution

Adaptation.
When companies find it necessary to alter products,
promotion and/or distribution strategies in foreign
markets, a concentration strategy will be
advantageous because the associated costs cannot
be spread over sales in other countries to capture
economies of scale.
C. GEOGRAPHIC DIVERSIFICATION VS.
CONCENTRATION
6. Program Control Requirements.
The more a company needs control over a foreign operation, the
more appropriate a concentration strategy because additional
resources will be required to maintain that control.

7. Extent of Constraints.
When a firm is constrained by limited resources, it will likely follow a
concentration strategy because spreading resources too thinly can
be a recipe for failure.
VII. MAKING FINAL
COUNTRY SELECTIONS
At some point, firms must make resource allocation
decisions. For new investments they will need to develop
detailed estimates of all costs and expenses and consider
whether to enter a particular venture alone or with a partner.
For acquisitions, firms will need to examine financial
statements in great detail. For expansion within countries
where they are already operating, country managers will
most likely submit capital budget requests that include
details of expected returns. To maximize expected gains,
decisions must be made in a timely fashion.
ETHICAL DILEMMA:
ECONOMIC EFFICIENCY, NON-ECONOMIC CONCERNS, AND
COMPETITIVE STRATEGIES: ARE THEY COMPATIBLE?

Should countries work toward regulating FDI with global efficiency

as their objective, or should each country continue to serve its
own interests by competing for FDI? MNEs are frequently
criticized when they shift their geographic emphasis in response
to changing legal, political and economic environments.
ETHICAL DILEMMA:
ECONOMIC EFFICIENCY, NON-ECONOMIC CONCERNS, AND
COMPETITIVE STRATEGIES: ARE THEY COMPATIBLE?

In particular, they are criticized for selling dangerous products

abroad when domestic demand is dampened. MNEs tend to
justify their moves on the grounds they promote global efficiency
through low-cost production and high-level sales; they also note
they may be responding to trade restrictions or government
incentives, or to competitive conditions.
ETHICAL DILEMMA:
ECONOMIC EFFICIENCY, NON-ECONOMIC CONCERNS, AND
COMPETITIVE STRATEGIES: ARE THEY COMPATIBLE?

Relativists maintain it is unethical to prohibit foreign sales

because those sales are considered to be ethical in the countries
in which they are made. Normativists, on the other hand, maintain
it is unethical for a government to permit its firms to do abroad
those things they are prohibited from doing domestically.
LOOKING TO THE FUTURE:
WILL LOCATIONS AND LOCATION-MODELS CHANGE?
The receptiveness of more countries to FDI and the global move
toward privatization have combined to create even more
opportunities for MNEs. However, international geographic
expansion is a two-tiered decision. First, how much of a firm’s
sales and production should be located abroad, and second, how
should those activities be allocated across countries? A further
consideration is the location of managers. Although technology
may permit them to work from anywhere, evidence shows
business travel has increased in concert with advances in
communications.
IDENTIFICATION

It refers to the reduction in

the amount of an investment.

1
IDENTIFICATION

It refers to the reduction in

the amount of an investment.

HARVESTING

1
IDENTIFICATION

It is determined by sales
potential.

2
IDENTIFICATION

It is determined by sales
potential.

MARKET SIZE

2
IDENTIFICATION

A critical factor in production-

location decisions.

3
IDENTIFICATION

A critical factor in production-

location decisions.

COSTS

3
IDENTIFICATION
It provides a systematic assessment
of external conditions that might
affect a firm’s operations.

4
IDENTIFICATION
It provides a systematic assessment
of external conditions that might
affect a firm’s operations.

ENVIRONMENTAL
SCANNING

4
IDENTIFICATION
Represent situations in which a
marketing program in one country
results in the awareness of a product
in other countries.

5
IDENTIFICATION
Represent situations in which a
marketing program in one country
results in the awareness of a product
in other countries.

SPILLOVER
EFFECTS

5
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BATANGAS STATE UNIVERSITY

THE NATIONAL ENGINEERING UNIVERSITY