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International Business Environments and Operations

Part 5 Global Strategy, Structure, and Implementation

Chapter 7 Country Evaluation and Selection

Because all companies have limited resources, they must be careful in making the following decisions: 1. In which countries to locate sales, production, and administrative and auxiliary services 2. The sequence for entering different countries 3. The amount of resources and efforts to allocate to each country where they operate

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The Location Decision Process

Copyright 2013 Pearson Education, Inc. publishing as Prentice Hall

Location Decisions Affecting International Operations

Steps for country selection

Scanning versus Detailed Analysis

Without scanning, a company may: Overlook opportunities and risks Examine too many or too few possibilities

What Information is Important in Scanning?

Sales Expansion Resource Acquisition

Political Risk Monetary Risk Competitive Risk

Examining Economic and Demographic Variables

Obsolescence and leapfrogging of products Prices Income elasticity Substitution Income Inequality Cultural Factors Trading Blocs

Cost Considerations of Resource Acquisition

Labor Infrastructure Ease of Transportation and Communications Government Incentives and Disincentives

Factors to Consider in Analyzing Risk

Companies and their managers differ in their perceptions of what is risky. One companys risk may be anothers opportunity. There are means by which companies may reduce their risks other than avoiding locations. There are trade-offs among risks.

Political Risk
Analyzing Past Patterns Analyzing Opinions Examining Social and Economic Conditions

Monetary Risk
Exchange Rate Changes
Differences in the exchange rates can create gains or losses

Mobility of Funds
Liquidity among countries varies

Competitive Risk
Making Operations Compatible Spreading Risk Following Competitors of Customers Heading Off Competition

Collecting and Analyzing Data

Information is needed at all levels of control. Companies should compare the cost of information with its value.

Problems With Research Results and Data

Limited Resources Misleading Data Reliance on Legally Reported Market Activities Poor Research Methodology Noncomparable Information

External Sources of Information

Individualized Reports Specialized Studies Service Companies Government Agencies International Organizations and Agencies Trade Associations

Country Comparison Tools

May depict acceptable or unacceptable conditions Rank countries by important variables

Matrices allow companies to:

Decide on indicators and weight them Evaluate each country on the weighted indicators

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Country Comparison Tools

Simplified Market-Penetration Grid

Copyright 2013 Pearson Education, Inc. publishing as Prentice Hall

Country Comparison Tools

Opportunity-Risk Matrix

Allocating Among Locations

Alternative Gradual Commitments Geographic Diversification versus Concentration Reinvestment and Harvesting

Alternative Gradual Commitments

Companies may reduce risks from the liability of foreignness by: Going first to countries with characteristics similar to those of their home countries. Having experienced intermediaries handle operations for them. Operating in formats requiring commitment of fewer resources abroad. Moving initially to one or a few, rather than many, foreign countries.

Geographic Diversification versus Concentration

Growth rate in each market Sales stability in each market Competitive lead time Spillover Effects Need for product, communication, and distribution adaptation Program control requirements

Copyright 2013 Pearson Education, Inc. publishing as Prentice Hall

Geographic Diversification versus Concentration

Diversify or Concentrate: The Role of Product and Market Forces

Reinvestment and Harvesting

FDI-financial and human capital invested abroad Depending on the success of the investment, the company may reinvest or consider using the capital elsewhere

Noncomparative Decision Making

Most companies examine proposals one at a time and accept them if they meet minimum threshold criteria.

Future: Will Prime Locations Change?

Future growth rates will have implications for locations of markets and labor forces Technological innovation allows for new trends in urbanization as more people are able to work from locations of their choosing