International business environment and operations 13e pearson chapter 12

International Business
Environments and Operations,
13/e
Part 5
Global Strategy, Structure, and
Implementation
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Chapter 12
Country
Evaluation
and
Selection

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Chapter Objectives
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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

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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

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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
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Examining Economic and
Demographic Variables
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Obsolescence and leapfrogging of products
Prices
Income elasticity
Substitution
Income Inequality
Cultural Factors
Trading Blocs
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Cost Considerations of Resource
Acquisition
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Labor
Infrastructure

Ease of Transportation and Communications
Government Incentives and Disincentives

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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

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

• Mobility of Funds
– Liquidity among countries varies

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

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Collecting and Analyzing Data
Information is needed at all levels of

control.
• Companies should compare the cost of
information with its value.

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Problems With Research Results
and Data
• Limited Resources
• Misleading Data
• Reliance on Legally Reported Market
Activities
• Poor Research Methodology
• Noncomparable Information
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External Sources of Information
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Individualized Reports
Specialized Studies

Service Companies
Government Agencies
International Organizations and Agencies
Trade Associations

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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
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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
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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
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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

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

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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
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