Copyright © 2011 Pearson Education 12-1 International Business Environments and Operations, 13/e Global Edition Part 5 Global Strategy, Structure, and

Copyright © 2011 Pearson Education

12-1

International BusinessEnvironments and Operations,

13/eGlobal Edition

Part 5

Global Strategy, Structure, and Implementation


12-2

Chapter 12

Country Evaluation

and Selection


12-3

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


12-4

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


12-5

Location Decisions Affecting International Operations


12-6

Scanning versus Detailed Analysis

Without scanning, a company may:

• Overlook opportunities and risks

• Examine too many or too few possibilities


12-7

What Information is Important in Scanning?

• Opportunities– Sales Expansion– Resource Acquisition

• Risks– Political Risk– Monetary Risk– Competitive Risk


12-8

Examining Economic and Demographic Variables

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


12-9

Cost Considerations of Resource Acquisition

• Labor• Infrastructure• Ease of Transportation and Communications• Government Incentives and Disincentives


12-10

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.


12-11

Political Risk

• Analyzing Past Patterns

• Analyzing Opinions

• Examining Social and Economic Conditions


12-12

Monetary Risk

• Exchange Rate Changes– Differences in the exchange rates can

create gains or losses

• Mobility of Funds– Liquidity among countries varies


12-13

Competitive Risk

• Making Operations Compatible

• Spreading Risk

• Following Competitors of Customers

• Heading Off Competition


12-14

Collecting and Analyzing Data

Information is needed at all levels of control.

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


12-15

Problems With Research Results and Data

• Limited Resources

• Misleading Data

• Reliance on Legally Reported Market Activities

• Poor Research Methodology

• Noncomparable Information


12-16

External Sources of Information

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


12-17

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


12-18

Allocating Among Locations

• Alternative Gradual Commitments

• Geographic Diversification versus Concentration

• Reinvestment and Harvesting


12-19

Alternative Gradual Commitments

Companies may reduce risks from the liability offoreignness 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.


12-20

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


12-21

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


12-22

Noncomparative Decision Making

Most companies examine proposals one

at a time and accept them if they meet

minimum threshold criteria.


12-23

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


12-24

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Copyright © 2011 Pearson Education 12-1 International Business Environments and Operations, 13/e Global Edition Part 5 Global Strategy, Structure, and