International Business Environments and Operations Chapter 12

International Business
Environments and Operations
Part 5
Global Strategy, Structure, and
Implementation
12-1
Copyright © 2011 Pearson Education, Inc. publishing as Prentice Hall
Chapter 12
Country
Evaluation
and
Selection
12-2
Chapter Objectives
• To grasp company strategies for sequencing the penetration of
countries
• To see how scanning techniques can help managers both limit
geographic alternatives and consider otherwise overlooked areas
• To discern the major opportunity and risk variables a company should
consider when deciding whether and where to expand abroad
• To know the methods and problems of collecting and comparing
international information
• To understand some simplifying tools for helping decide where to
operate
• To consider how companies allocate emphasis among the countries
where they operate
• To comprehend why location decisions do not necessarily compare
different countries’ possibilities
12-3
Introduction
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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Location Decisions Affecting
International Operations
12-5
Scanning versus Detailed Analysis
Without scanning, a company may:

• Overlook opportunities and risks
• Examine too many or too few possibilities
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What Information is Important in
Scanning?
• Opportunities
– Sales Expansion
– Resource Acquisition
• Risks
– Political Risk
– Monetary Risk
– Competitive Risk
12-7
Examining Economic and
Demographic Variables
• Obsolescence and leapfrogging of products
• Prices
• Income elasticity
• Substitution
• Income Inequality
• Cultural Factors
• Trading Blocs
12-8
Cost Considerations of Resource
Acquisition
• Labor
• Infrastructure
• Ease of Transportation and Communications
• Government Incentives and Disincentives
12-9
Factors to Consider in Analyzing
Risk
• Companies and their managers differ in their
perceptions of what is risky.
• One company’s risk may be another’s
opportunity.
• There are means by which companies may
reduce their risks other than avoiding
locations.
• There are trade-offs among risks.
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Political Risk
• Analyzing Past Patterns

• Analyzing Opinions
• Examining Social and Economic
Conditions
12-11
Monetary Risk
• Exchange Rate Changes

– Differences in the exchange rates can
create gains or losses
• Mobility of Funds
– Liquidity among countries varies
12-12
Competitive Risk
• Making Operations Compatible

• Spreading Risk
• Following Competitors of Customers
• Heading Off Competition
12-13
Collecting and Analyzing Data
Information is needed at all levels of

control.
• Companies should compare the cost of
information with its value.
12-14
Problems With Research Results
and Data
• Limited Resources
• Misleading Data
• Reliance on Legally Reported Market
Activities
• Poor Research Methodology
• Noncomparable Information
12-15
External Sources of Information
• Individualized Reports
• Specialized Studies
• Service Companies
• Government Agencies
• International Organizations and Agencies
• Trade Associations
12-16
Country Comparison Tools
• Grids
– 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
12-17
Allocating Among Locations
• Alternative Gradual Commitments

• Geographic Diversification versus
Concentration
• Reinvestment and Harvesting
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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.
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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
12-20
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
12-21
Noncomparative Decision Making
Most companies examine proposals one

at a time and accept them if they meet
minimum threshold criteria.
12-22
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
12-23
All rights reserved. No part of this publication may be
reproduced, stored in a retrieval system, or transmitted, in
any form or by any means, electronic, mechanical,
photocopying, recording, or otherwise, without the prior
written permission of the publisher. Printed in the
United States of America.
12-24

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International Business

Environments and Operations

Because all companies have limited resources,

Without scanning, a company may:

• Analyzing Past Patterns

• Exchange Rate Changes

• Making Operations Compatible

Information is needed at all levels of

• Matrices allow companies to:

• Alternative Gradual Commitments

Companies may reduce risks from the liability of

• FDI-financial and human capital invested

Most companies examine proposals one

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