Copyright © 2011 Pearson Education 12-1 International Business Environments and Operations, 13/e Global Edition Part 5 Global Strategy, Structure, and Implementation
Copyright © 2011 Pearson Education 12-2 Chapter 12 Country Evaluation and Selection
Copyright © 2011 Pearson Education 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
Copyright © 2011 Pearson Education 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
Copyright © 2011 Pearson Education 12-5 Location Decisions Affecting International Operations
Copyright © 2011 Pearson Education 12-6 Scanning versus Detailed Analysis Without scanning, a company may: Overlook opportunities and risks Examine too many or too few possibilities
Copyright © 2011 Pearson Education 12-7 What Information is Important in Scanning? Opportunities –Sales Expansion –Resource Acquisition Risks –Political Risk –Monetary Risk –Competitive Risk
Copyright © 2011 Pearson Education 12-8 Examining Economic and Demographic Variables Obsolescence and leapfrogging of products Prices Income elasticity Substitution Income Inequality Cultural Factors Trading Blocs
Copyright © 2011 Pearson Education 12-9 Cost Considerations of Resource Acquisition Labor Infrastructure Ease of Transportation and Communications Government Incentives and Disincentives
Copyright © 2011 Pearson Education 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.
Copyright © 2011 Pearson Education Political Risk Analyzing Past Patterns Analyzing Opinions Examining Social and Economic Conditions
Copyright © 2011 Pearson Education Monetary Risk Exchange Rate Changes –Differences in the exchange rates can create gains or losses Mobility of Funds –Liquidity among countries varies
Copyright © 2011 Pearson Education Competitive Risk Making Operations Compatible Spreading Risk Following Competitors of Customers Heading Off Competition
Copyright © 2011 Pearson Education Collecting and Analyzing Data Information is needed at all levels of control. Companies should compare the cost of information with its value.
Copyright © 2011 Pearson Education Problems With Research Results and Data Limited Resources Misleading Data Reliance on Legally Reported Market Activities Poor Research Methodology Noncomparable Information
Copyright © 2011 Pearson Education External Sources of Information Individualized Reports Specialized Studies Service Companies Government Agencies International Organizations and Agencies Trade Associations
Copyright © 2011 Pearson Education 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
Copyright © 2011 Pearson Education Allocating Among Locations Alternative Gradual Commitments Geographic Diversification versus Concentration Reinvestment and Harvesting
Copyright © 2011 Pearson Education 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.
Copyright © 2011 Pearson Education 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
Copyright © 2011 Pearson Education 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
Copyright © 2011 Pearson Education Noncomparative Decision Making Most companies examine proposals one at a time and accept them if they meet minimum threshold criteria.
Copyright © 2011 Pearson Education 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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