Country Evaluation and

Selection
THE IMPORTANCE OF LOCATION
• 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 VERSUS DETAILED
ANALYSIS
• In scanning, managers examine many countries broadly in order to
narrow Detailed Analysis And Travel To Only A Few Highly Promising ones.
• Yes or no questions: For a question like “Does the country allow 100 percent
ownership of foreign direct investments?” the answer is “yes” or “no.”
• Direct statistics: For a question such as “What is the highest marginal tax rate on
corporate earnings?” direct information is available from tax schedules
• Indirect indicators: For a question such as “What are the potential sales for my
product?” estimates must use indirect indicators, such as those based on per
capita GDP and population size.
• Qualitative assessment: For a question akin to “What will be the future political
leaders’ philosophy about IB?” a qualitative assessment is necessary based on
different opinions and indirect indicators.
• Detailed Analysis Once narrowing the number of countries, managers
need to compare them in greater detail. Unless they are satisfied to
outsource all their production and sales, they almost always need to
go on location to collect and evaluate more specific information.
OPPORTUNITY AND RISK VARIABLES
• Companies may simplify the scanning of research by first eliminating
countries with conditions unacceptable to them
• OPPORTUNITIES: SALES EXPANSION
• Expectation of a large market and sales growth are probably a potential
location’s major attractions
• If you’re trying to sell luxury products, GDP per capita may tell you very little.
Instead, you need to know how many people have income above a certain
level
• Examining Economic and Demographic Variables

Some primary considerations when examining economic and

demographic variables are listed below:
Obsolescence and leapfrogging of products. Demand estimation in one
country based on occurrence in others should take into account that
emerging economy consumers do not necessarily follow the same
patterns as those in higher-income countries. Chinese consumers Have
Largely leapfrogged landline telephones by going from phoneless to cell
phones
• Demand for necessities versus discretionary products. People buy
necessities, such as food, before making discretionary purchases;
thus, the cost of necessities influences the demand for optional ones.
For example, expenditures on food in Japan are high because food is
expensive and work habits promote eating out, thus food purchases
displace some discretionary purchases
• Substitution.

Consumers may substitute certain products or services differently in

one country than in other countries. In India, increased gasoline prices
relative to diesel prices forced companies such as Suzuki, Toyota, and
General Motors to alter their mix of vehicle production to include a
higher portion of diesel-powered cars
• Income inequality. Where income inequality is high, the per capita
GDP figures are less meaningful. Many people have little to spend,
while many others have substantial spending money
• Cultural factors and taste. Although cultural factors affect overall
country sales for certain products, such as Hindu restrictions on meat
in India, one needs to examine cultural subsegments. There is a large
market for Indian meat sales among people who are neither Hindu
nor vegetarian
OPPORTUNITIES: RESOURCE
ACQUISITION
• When undertaking IB to secure resources (e.g., labor, raw materials,
knowledge), companies are limited to those locales that likely have
what they want, such as securing petroleum only where there are
prospective reserves
• Cost Considerations A company’s total cost is made up of numerous
sub-costs, many of which are industry- or company-specific.
Nevertheless, several of the factors affecting these sub-costs—labor,
infrastructure, external connections, and government incentives—
apply to a large cross-section of companies
• Infrastructure
Poor internal infrastructure escalates costs. Consider Nigeria where
employees spend extra hours commuting for work on congested roads,
which decreases their productivity.
Many companies, such as Cadbury and Nestlé, use their own costly
power generators because of erratic publicly provided power so as to
prevent assembly line stoppages
 Factors to Consider in Analyzing Risk
Companies differ in their approaches to risk. Managers vary in their
perceptions of what is risky, how tolerant they are of taking risk, the
returns they expect, and the portion of their assets they are willing to
put at risk.
One company’s risk may be another’s opportunity. For example,
companies offering security solutions (e.g., alarm systems, guard
services, insurance, and armaments) may find their biggest sales
opportunities where other companies find only risks. Companies
offering risk-assessment services do better when the perception of risk
increases.
• Companies may reduce their risks by means other than avoiding
locations, such as by insuring. But all these options incur costs
• There are trade-offs among risks. Avoiding a country where, say,
political risk is high may leave a company more vulnerable to
competitive risk if another company earns good profits there
• Risks may occur for suppliers and within suppliers’ supply chains.
Companies thus need to examine the complex external dependencies
and vulnerabilities of its suppliers
Political Risk
• Changes in political leaders’ opinions and policies, civil disorder, and
animosity between the host and other countries, particularly The
firm’s home country
• For example, Unilever encountered foreign executives’ refusal to
• work in Pakistan because of security concerns
Exchange-Rate Changes
The change in foreign currency value is a two-edged sword,
depending on whether you are going abroad to seek sales or
resources. Let’s say a U.S.
company exports to India; deterioration in the Indian rupee’s value
makes the exports less
competitive because it takes more rupees to buy them
Immobility of Funds
When a company exports to or invests in a foreign country, it prefers
international mobility of its sales receipts, earnings, and capital there

Competitive Risk:
Factors affecting companies’ competitive positions through location
decisions include
compatibility for companies’ operations, diversification of locations,
following competitors or customers, and heading off competitors
Heading Off or Avoiding Competition
• Companies may seek competitive advantage by
• (1) being the first to go into a foreign country, (2) avoiding country
entry where competition is strong, and (3) moving quickly by
whatever operating mode into as many markets as possible.
• First, being first into a country enables a firm to more easily gain the
best partners, best locations, and best suppliers—a strategy known as
a first-mover advantage
the same risk factors as we used for the grid explanation,
they might give 35 percent (0.35) of the weight to political risk, 30 percent (0.30) to foreignexchange
risk, 20
percent
(0.2) to
natural
disaster
risk, and
15
percent (0.15)
to
competitive

risk, for a total allocation of 100

percent
SOURCES AND SHORTCOMINGS OF COMPARATIVE
COUNTRY INFORMATION
SOME PROBLEMS WITH RESEARCH RESULTS AND DATA
Inaccuracy
1. Governmental resources may limit accurate data collection.
Countries’ resources may
limit budgets for data collection, the latest computer hardware,
software, and training
programs
2. Governments must depend on estimates and revisions. Although
both are important, there is
a trade-off between accuracy and timeliness of data.
3. Governments may omit or purposely publish misleading information.
Government researchers Sometimes Publish False or purposely
Deceptive Information Designed to mislead Their superiors
4. Respondents may give false information to data collectors
5. Official data may include only legal and reported market activities
6.
GEOGRAPHIC DIVERSIFICATION
VERSUS CONCENTRATION
• diversification strategy in the context of IB location describes a
company’s rapid movement into many foreign markets, gradually
increasing its commitment within each one
• concentration strategy, the company will first move to only one or a
few foreign countries, not going elsewhere until it develops a very
strong involvement and competitive position
Which strategy to choose!!
• Need for Rapid Growth in Country:

Within industries requiring a high entry cost because of capital-

intensive technology or mass marketing, companies may lack resources
enabling them to enter many countries simultaneously, thus a
concentration strategy is usually preferred. Similarly, if country markets
are all growing rapidly, companies may need to invest heavily in each to
build and maintain a threshold market share, thus straining resources if
simultaneously entering a large number of countries
• Competitive Lead Time:

We have discussed that in cases where technology obsolesce rapidly,

companies need to enter many markets quickly before competitors
usurp their advantages, thus being in situations that favor a
diversification strategy.
Born-global companies are particularly prone to follow diversification
strategies because so many of them depend on new and quickly
obsolescing technologies that require fast market penetration
• Need for Product, Communication, and Distribution Adaptation

When companies must tailor their products and operating methods for
each country they enter, they incur Additional costs

They may need to follow a concentration strategy to minimize the costs

of
entering multiple countries simultaneously
• Program Control Requirements

• The more a company wants to control its operations in a foreign

country, such as because of fear that a partner will become a
competitor, the more favorable a concentration strategy is. This is
because the company will need to use more of its resources to
maintain that control, such as by taking a larger percentage of
ownership in the operation
REINVESTMENT VERSUS HARVESTING
• Reinvestment Decisions Once committed to a given locale, a company
may need to reinvest its earnings there. The failure to expand might
result in not attaining its target growth objectives

• Harvesting Companies commonly reduce commitments in some

countries because they have poorer performance prospects than do
others—a process known as harvesting or divesting