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International BusinessEnvironments and Operations,
13/eGlobal Edition
Part 5
Global Strategy, Structure, and Implementation
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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
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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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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
• Obsolescence and leapfrogging of products• Prices• Income elasticity• Substitution• Income Inequality• Cultural Factors• Trading Blocs
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Cost Considerations of Resource Acquisition
• 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
• 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
• 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 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.
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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
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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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