International Business Environments and Operations, 13/e Part Global Strategy, Structure, and Implementation 12-1 Copyright © 2011 Pearson Education, Inc publishing as Prentice Hall Chapter 12 Country Evaluation and Selection 12-2 Copyright © 2011 Pearson Education, Inc publishing as Prentice Hall 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 not necessarily compare different countries’ possibilities 12-3 Copyright © 2011 Pearson Education, Inc publishing as Prentice Hall Introduction Because all companies have limited resources, they must be careful in making the following decisions: In which countries to locate sales, production, and administrative and auxiliary services The sequence for entering different countries The amount of resources and efforts to allocate to each country where they operate 12-4 Copyright © 2011 Pearson Education, Inc publishing as Prentice Hall Location Decisions Affecting International Operations 12-5 Copyright © 2011 Pearson Education, Inc publishing as Prentice Hall Scanning versus Detailed Analysis Without scanning, a company may: • Overlook opportunities and risks • Examine too many or too few possibilities 12-6 Copyright © 2011 Pearson Education, Inc publishing as Prentice Hall What Information is Important in Scanning? • Opportunities – Sales Expansion – Resource Acquisition • Risks – Political Risk – Monetary Risk – Competitive Risk 12-7 Copyright © 2011 Pearson Education, Inc publishing as Prentice Hall Examining Economic and Demographic Variables • • • • • • • Obsolescence and leapfrogging of products Prices Income elasticity Substitution Income Inequality Cultural Factors Trading Blocs 12-8 Copyright © 2011 Pearson Education, Inc publishing as Prentice Hall Cost Considerations of Resource Acquisition • • • • Labor Infrastructure Ease of Transportation and Communications Government Incentives and Disincentives 12-9 Copyright © 2011 Pearson Education, Inc publishing as Prentice Hall 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 12-10 Copyright © 2011 Pearson Education, Inc publishing as Prentice Hall Political Risk • Analyzing Past Patterns • Analyzing Opinions • Examining Social and Economic Conditions 12-11 Copyright © 2011 Pearson Education, Inc publishing as Prentice Hall Monetary Risk • Exchange Rate Changes – Differences in the exchange rates can create gains or losses • Mobility of Funds – Liquidity among countries varies 12-12 Copyright © 2011 Pearson Education, Inc publishing as Prentice Hall Competitive Risk • • • • Making Operations Compatible Spreading Risk Following Competitors of Customers Heading Off Competition 12-13 Copyright © 2011 Pearson Education, Inc publishing as Prentice Hall Collecting and Analyzing Data Information is needed at all levels of control • Companies should compare the cost of information with its value 12-14 Copyright © 2011 Pearson Education, Inc publishing as Prentice Hall Problems With Research Results and Data • Limited Resources • Misleading Data • Reliance on Legally Reported Market Activities • Poor Research Methodology • Noncomparable Information 12-15 Copyright © 2011 Pearson Education, Inc publishing as Prentice Hall External Sources of Information • • • • • • Individualized Reports Specialized Studies Service Companies Government Agencies International Organizations and Agencies Trade Associations 12-16 Copyright © 2011 Pearson Education, Inc publishing as Prentice Hall 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 12-17 Copyright © 2011 Pearson Education, Inc publishing as Prentice Hall Allocating Among Locations • Alternative Gradual Commitments • Geographic Diversification versus Concentration • Reinvestment and Harvesting 12-18 Copyright © 2011 Pearson Education, Inc publishing as Prentice Hall 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 12-19 Copyright © 2011 Pearson Education, Inc publishing as Prentice Hall 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 12-20 Copyright © 2011 Pearson Education, Inc publishing as Prentice Hall 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 12-21 Copyright © 2011 Pearson Education, Inc publishing as Prentice Hall Noncomparative Decision Making Most companies examine proposals one at a time and accept them if they meet minimum threshold criteria 12-22 Copyright © 2011 Pearson Education, Inc publishing as Prentice Hall 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 12-23 Copyright © 2011 Pearson Education, Inc publishing as Prentice Hall All rights reserved No part of this publication may be reproduced, stored in a retrieval system, or transmitted, in any form or by any means, electronic, mechanical, photocopying, recording, or otherwise, without the prior written permission of the publisher Printed in the United States of America 12-24 Copyright © 2011 Pearson Education, Inc publishing as Prentice Hall .. .Chapter 12 Country Evaluation and Selection 12- 2 Copyright © 2011 Pearson Education, Inc publishing as Prentice Hall Chapter Objectives • • • • • • • To grasp... 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. .. they operate 12- 4 Copyright © 2011 Pearson Education, Inc publishing as Prentice Hall Location Decisions Affecting International Operations 12- 5 Copyright © 2011 Pearson Education, Inc publishing