Chapter 13 Flashcards
Country Evaluation and Selection
Companies lack resources to
take advantage of all international opportunities
Companies need to
- determine the order of country entry
- allocate resources among countries
In choosing geographic sites, a company must decide
- where to sell
- where to produce
Scanning techniques
used by managers to examine countries on broad indicators of opportunities and risks
Without scanning
a company may examine too many or too few possibilities
Problems with data
- Inaccurate information
- Non-comparability
- Limited resources
- Misleading data
- Reliance on only legal and reported market activities
- Poor research methodology
Scanning utilizes
“yes” or “no” questions, direct statistics, indirect indicators, and qualitative assessment
Yes or no questions:
Ex. a question like “Does the country allow 100% ownership of foreign direct investments?”
Direct statistics:
Ex. a question like “What is the highest marginal tax rate on corporate earnings?”
Indirect indicators:
Ex. a question like “What are the potential sales for my product?”
Qualitative assessment:
Ex. a question like “What will be the future political leaders’ philosophy about IB?”
On-site visits follow
scanning and are part of the final location decision process
Escalation of commitment
The more time and money companies invest in examining an alternative, the more likely they are to accept it regardless of its merits
Companies may simplify the scanning of research
by first eliminating countries with conditions unacceptable to them
Expectation of large market and sales growth
are probably a potential location’s major attractions
Companies must consider
variables other than income and population when estimating potential demand for their products in different countries
Costs - especially labour costs - are an important factor in
companies’ production-location decisions
Disadvantages of moving companies to emerging economies because of low-labour-wages
- Competitors follow leaders into low-wage areas
- There is little first-mover advantage for this type of production migration
- The costs may rise quickly as a result of pressure on wage or exchange rates
Infrastructure problems
add to operating costs
The need to integrate operations among countries
influences location decisions
Government practices may
increase or decrease companies’ costs
External sources of information
government agencies, specialized services, and trade associations
Internal sources of information
Observation and questionnaires
Estimation of risk varies
because of different perceptions, company situations, product lines, and operating forms
To predict political risk, companies can
- analyze past patterns
- get a cross-section of opinions
- examine unsatisfactory social and economic conditions
Companies may accept
a lower return in order to move their financial resources more easily
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
Natural disasters and debilitating diseases
upset operations and are spread unevenly around the world
Companies are highly attracted to countries that
- share the same language
- have institutions similar to those in their home countries
- are located nearby
Go-no-go decisions
- need to respond quickly
- interdependent operations
In terms of location strategies, some options are to go
- first to a few versus many foreign countries
- to similar versus dissimilar countries
- to places to prevent competitors from gaining advantages
- into markets that competitors have not entered versus where there are clusters of competitors
First-mover advantage
Being first into a country enables a firm to more easily gain the best partners, best locations, and best suppliers
Teams comprising people from different functional areas
are useful in choosing and rating indicators of countries’ opportunity and risk
Grids are tools that
- may depict acceptable or unacceptable country conditions
- rank countries by important variables
With an opportunity-risk matrix
a company can decide on factors to consider and compare them
Information is needed at
all levels of control. Companies should compare the cost of information with its value
Information inaccuracies result from
- difficulty in collecting and analyzing data
- purposefully misleading data, exclusion of non-market and illegal activity
6 Basic reasons why reported information may be inaccurate:
- Governmental resources may limit accurate data collection
- Governments must depend on estimates and revisions
- Governments may omit or purposely publish misleading information
- Respondents may give false information to data collectors
- Official data may include only legal and reported market activities
- Questionable methodology may be used
Problems in information comparability arise from
- differences in definitions and base years
- distortions in currency values
Information sources differ by
cost and detail
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
Strategies for ultimately reaching a high level of commitment in many countries are
- diversification - go to many fast and then build up slowly in each
- concentration - go to one or a few and build up fast before going to others
- a hybrid of the two
Reasons for choosing a diversification or a concentration strategy
- Need for Rapid Growth in Country
- Competitive Lead Time
- Need for Product, Communication, and Distribution Adaptation
- Program Control Requirements
A company may have to make
new commitments in a locale to maintain its competitiveness
Companies must decide how to get out of operations if
- they no longer fit their overall strategy
- there are better alternative opportunities
Most companies examine proposals one at a time and accept them if they meet minimum-threshold criteria
- because unforeseen opportunities give little time to make decisions
- because of difficulty incorporating global performance into single-country analyses
