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Country evaluation andselection
- 3. LEARNING OBJECTIVES Comprehend company strategies for entering countries and resource allocation Understand the use of scanning techniques in strategy development Know the methods and problems of collecting and comparing international information Understand some simplifying tools for helping decide where to operate Comprehend and compare location decisions of companies 13-3
- 4. RATIONALE FOR COUNTRY EVALUATION Concept of country scanning and evaluation: scanning vs. detailed analysis Because firms lack sufficient resources to pursue all opportunities, they must: determine the order of country entry establish the resource allocation across countries find specific geographic locations to produce or market their products take a portfolio approach in investment 4
- 5. LOCATION DECISION PROCESS The Location – Decision Process 13-5
- 6. COUNTRY EVALUATION/RESEARCH-1 In country research/scanning we collect information on opportunities, risk, operations etc. Opportunities Sales expansion: obsolescence and leapfrogging of products, prices, income elasticity, substitution, income equality, cultural factors and taste, existence of a trading bloc Cost consideration: labor, infrastructure, ease of transportation and communications, governmental incentives and disincentives 13-6
- 7. COUNTRY EVALUATION/RESEARCH-2 Risks Political risk analyzing past patterns, analyzing opinions, examining social and economic conditions Foreign exchange risk exchange rate changes, mobility of funds Competitive risk making operations compatible, spreading risk, following competitors of customers, heading off competition 13-7
- 8. COUNTRY EVALUATION/RESEARCH-3 The Distance Sensitivity of Industries: Indicators 13-8
- 9. INTERNATIONAL BUSINESS RESEARCH Business Research: Primary vs. Secondary Problems with primary data: cost, availability, risk Problems with secondary data: scarcity, accuracy, reliability, comparability, and how recent Common Secondary Sources Government Sources International Organizations Chamber of Commerce Trade Associations Professional Services: consultants Country Research and Internet 9
- 10. COUNTRY COMPARISON TOOLS Analyzing data Grids may depict acceptable or unacceptable conditions rank countries by important variables Matrices decide on indicators and weight them evaluate each country on the weighted indicators 13- 10
- 11. COUNTRY COMPARISON TOOLS Simplified Market-Penetration Grid 13- 11
- 12. COUNTRY COMPARISON TOOLS Opportunity-Risk Matrix 13- 12
- 13. ALLOCATING AMONG LOCATIONS Allocating Complementary strategies for international expansion Alternative gradual commitments Geographic diversification versus concentration Reinvestment versus harvesting 13- 13
- 14. ALTERNATIVE GRADUAL COMMITMENTS The Usual Patterns of Internationalization 13- 14
- 15. GEOGRAPHIC DIVERSIFICATION VERSUS CONCENTRATION Diversification strategy go to many markets fast and then build up slowly in each Concentration strategy go to one or a few markets and build up fast before going to others A hybrid of the above two 13- 15
- 16. GEOGRAPHIC DIVERSIFICATION VERSUS CONCENTRATION Diversify or Concentrate: The Role of Product and Market Forces 13- 16
- 17. DISCUSSION QUESTIONS 1. What factors should we consider to scan and evaluate a country? Explain. 2. What problems do companies face with international business research and data collection? Explain. 3. What are the common sources for collecting international data? Explain. 4. What is country evaluation grid and opportunity- risk matrix? Explain how they help company strategy. 17
Editor's Notes
- International Business Environments and Operations 15e by Daniels, Radebaugh, and Sullivan
- Chapter 13: Country Evaluation and Selection
- The Learning Objectives for this chapter are 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
- This Figure shows the different steps in the location decision process.
- When scanning, managers need to use information that can reveal opportunities and risks. They might consider economic and demographic data such as income levels or population density to reveal sales potential in a market. Managers also need to consider other variables like the potential for a product to become obsolete or even leapfrog another product. Similarly, a firm looking at producing in foreign markets needs to consider the costs involved in doing so by exploring wage rates and differences in infrastructure that could cause operating costs to increase, and so on.
- Just because production costs are low or sales potential is high in a given country does not automatically mean it makes sense. Managers also need to factor risk into their decisions. Keep in mind that companies and managers have different perceptions of what constitutes risk, that one company’s risk may be another’s opportunity, that companies can minimize risk in other ways than simply avoiding certain locations, and that all risks have trade-offs. Risks that should be considered include political risk, foreign exchange risk, and competitive risk. When considering political risk, note that using past patterns of risk can be problematic. In fact, it’s important to consider risk as it applies to a specific company or industry. Managers should also consider the opinions of several individuals and explore social and economic conditions to gauge the potential for social uprisings. Managers need to consider exchange rate changes and the mobility of funds when exploring foreign exchange risk. Depending on the particular situation, companies may want to ensure that they have highly liquid assets for at least some of their holdings even if it means earning a lower return. Finally, managers should consider four factors when analyzing competitive risk: making operations compatible, spreading risk, following competitors or customers, and heading off competition.
- This Table shows attributes that indicate similarity and dissimilarity between countries. Typically companies prefer to operate in environments that are similar to their home country.
- After data has been collected, it needs to be analyzed. Two common tools for analyzing data are grids and matrices.
- This Table shows a market penetration grid. Grids can be used to depict acceptable and unacceptable conditions and for ranking countries according to certain variables.
- This Figure shows the relationship between opportunity and risk. When using the matrices, managers can identify certain indicators, assign weights to them, and then evaluate each country based on the weighted indicator.
- At this point, companies are ready to start making decisions about how to allocate resources. Three alternative strategies are alternative gradual commitments, geographic diversification versus concentration, and reinvestment versus harvesting.
- This Figure shows the alternative options a firm has. Notice that a firm can minimize risk by entering countries that are most similar to the home country first and by choosing experienced intermediaries. Firms can also minimize risk by using strategies that require smaller resource commitments and by committing to only a few markets.
- Companies can enter markets using a diversification strategy, using a concentration strategy, or some hybrid of the two.
- This Table shows the major variables a firm should consider when choosing its strategy.