The document discusses complexity in long-term planning and decision making, especially regarding foreign market entry. It provides an example where a company must decide between exporting domestically produced goods or undertaking foreign direct investment (FDI) to produce locally, with uncertainty around future foreign costs. The company can either make this choice without information gathering or perform research first to reduce uncertainty. Decision trees are presented to illustrate the strategic options and costs under each uncertainty scenario.

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Complexity
• Two main sources of complexity:
– Uncertainty of long-term planning (especially with irreversible investments)
– Networks –
• Physical (plants, distribution centers, retail outlets etc.)
• Social networks (communication between decision makers)
• Complexity as response to quickening pace of change
– Combinatorial complexity (large number of causes is analyzed before decision
is made)
– Organic complexity (arises when number of interdependencies and feedback
loops within system )
Presented by Dr. Martins Priede

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Example: analyzing foreign market
entry
• Two states of the world:
1. Foreign costs conditions are bad
2. Foreign cost conditions are good
• Two strategies company can take:
1. Domestically produced products exported to foreign market
2. Firm undertakes foreign direct investment and produces at foreign plant
• Adopted from Buckley P. & Casson M. “Strategic Complexity in International
Business”, The Oxford Handbook of International Business, 2ed, pp. 88-126

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Entry strategy under uncertainty
Expected unit
cost
probability, p0 1
Domestic production
export
Foreign production
FDI
E
c0
C1 C’1
c2
Foreign cost conditions
are bad
Foreign cost conditions
are good
C2
c1
C’2
𝒑(𝟎 ≤ 𝒑 ≤ 𝟏)
𝑬 𝒄 = 𝟏 − 𝒑 𝒄 𝟏 + 𝐩𝒄 𝟐
Expected cost of
foreign production

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Entry strategy under uncertainty: information gathering
Expected unit
cost
probability, p1 p20 1
Domestic production
export
Foreign production
FDI
E
c0
c1
Research
Research costs q
c0+q
c2+q
c2

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Decision trees of foreign market entry,
uncertainty without research
Uncertainty: without research
Export FDI
High cost Low cost
C0 C0
High cost Low cost
C1 C2

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Decision trees of foreign market
entry, uncertainty with research
Uncertainty: with research
Export FDI
High cost
C0 C1
Low cost
C0 C2
Export FDI