COUNTRY EVALUATION AND SELECTION

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COUNTRY EVALUATION AND SELECTION
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• Case Ford Motor Company

• By 1930 Ford was manufacturing or
  assembling automobiles in twenty foreign
  countries
• Emphasis on 100 control over foreign Expansion
• Political Conditions also shaped the companys
  foreign expansion
• 1998, Ford sells in over 200 countries and
  territories and has production in 30.

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• I - Introduction

• Examining international geographic strategies is
  important because companies seldom have enough
  resources to take advantage of all opportunities.
  
• Committing human, technical, and financial
  resources to one locale may mean forgoing
  projects in other areas.
• Because companies motives and competencies may
  differ substantially, what may be a very
  attractive country for one company may , at the
  same time , be unattractive for another.

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A - Choosing Sites for Marketing and Production

• Companies must determine where to market and
  where to produce.
• Companies also must ascertain where to locate
  such specialized units as RD departments and
  regional headquarters.
• Market-location and production-location

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B - Overall Geographic Strategy

• In essence a company needs to decide where to
  operate and what portion of operations to place
  within each country

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• II - Scanning for Alternatives

• Scanning is useful because otherwise a company
  might consider too few or too many possibilities.

A - Risk of Overlooking Opportunities

• As a company tries to optimize its sales or
  minimize its costs, it can easily overlook or
  disregard some promising options.
• Further, certain locales sometimes are lumped
  together and rejected before being sufficiently
  examined for expansion possibilities.

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B - Risk of Examining too Many Opportunities

• A detailed analysis of every alternative might
  result in maximized sales, but the cost of so
  many studies would erode profits

C - The Environmental Climate

• In any company, decision-makers perception of
  the environmental climate , those external
  conditions in host countries that could
  significantly affect the success or failure of a
  foreign business enterprise will determine
  whether a detailed feasibility study will be
  undertaken and the terms under which a project
  will be initiated.

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III - Influential Variables Oppotunities

• Investment decisions are made on the basis of
  expected opportunities versus risks.
  Opportunities, in turn, are determined by
  revenues less costs.

Examining key variables helps companies

• a) Determine the order of entry
• b) Set the rates of resource allocation among
  Countries

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A - Market Size

• Sales potential is probably the most important
  variable in ascertaining which locations will be
  considered and whether an investment will be made
• Indicators of Market Size GNP, per capita
  income, growth rates, size of the middle class,
  and level of industrialization.
• - Ex The triad market of the United States,
  Japan, and Western Europe accounts for about half
  the worlds total consumption, and an even higher
  proportion of purchases of computers, consumer
  electronics, and machine tools.
• Asian economies, Latin economies

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B - Ease and Compatibility of Operations

• Geographic, Language and Market Similarities
• Companies are highly attracted to countries that
  are located nearby, share the same language, and
  have similar market conditions.
• Fit with Company Capabilities and Policies
• There is the best chance for a proposal to be
  accepted when a location offers size, technology
  and other factor familiar to a company personnel
• Allows ownership
• Impose no restrictions on remittance of profits

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C - Costs and Resource Availability

• Costs, especially labor costs are an important
  factor in the production-location decision
• Other costs raw materials, capital, taxes
• Availability of specific skills
• Availability of infrastructure to allow for the
  efficient movement of supplies and finished
  products.
• Availability of banks, universities, insurance
  groups, public accountants, customs brokers, etc.
• Product Image also dictate location of investment
• Red Tape

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IV - Influential Variables Risk
A - Risk and Uncertainty

• Should return on investment be calculated on the
  basis of the entire earnings of a foreign
  subsidiary or just on the earnings that can be
  remitted to the parent?
• Does it make sense to accept a low return in one
  country if doing so will help the companys
  competitive position elsewhere?

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B - Competitive Risk

• A companys innovative advantage may be
  short-lived. Even when the company has a
  substantial competitive lead time.
• Companies also may develop strategies to find
  countries in which there is least likely to be
  significant competition.

C - Monetary Risk

• If a companys expansion occurs through direct
  investment abroad, access to the invested capital
  and the exchange rate on its earnings are key
  considerations.
• Liquidity Preference

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C - Political Risk

• A major concern of international companies is
  that the political climate will change in such a
  way that their operating position will
  deteriorate.
• Ex during the period of apartheid in South
  Africa, many foreign investors were affected by
  boycotts.

Approaches to Predicting Political Risk
a) Analysis of Past Patterns b) Opinion
Analysis c) Instability Assessment
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V - Business Research

• Business research is undertaken to reduce
  uncertainties in the decision process, to expand
  or narrow the alternatives under consideration,
  and to assess the merits of existing programs.
• How much research Companies should compare the
  cost of information with its value.
• Problems with Data lack, currency, inaccuracy,
  data discrepancies

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External Sources of Information

• Country Reports
• The Economist Intelligence Unit
• Specialized Studies
• Service Companies
• Governmental Agencies
• International Agencies
• Trade Associations
• Information Service Companies

Comparability problems differences in collection
methods, definitions, distortion in currency
conversions.
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VI - TOOLS FOR COMPARING COUNTRIES

• Environmental Scanning systematic assessment of
  external conditions that might affect a companies
  operations.

A - Grids

• A grid may be used to compare countries on
  whatever factors are deemed important.
• Both the variables and the weights will vary by
  product and company.
• Grids rank countries by important variables

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B - Opportunity-Risk Matrix

• A company can decide on indicators and weight
  them, evaluate each country on the weighted
  indicators.
• It is up to the company to determine which
  factors are good indicators of risk and
  opportunity, the factors then must weighted to
  reflected their importance.
• One key ingredient of this matrix projection of
  the future country location.
• The matrix is important as a reflection of the
  placement of a country relative to other
  countries.

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C - Country Attractiveness Company Strength
Matrix

• This matrix highlights the fit of a companys
  product to the country.

Country Factors market size, growth prospects,
price controls, red tape, requirements for local
content and exports, inflation, trade balance,
political stability
Company Strength market share, market share
position, product fit to the countrys needs,
absolute profit per unit, percentage profit on
cost, quality of products, fit of the companys
promotion program to the country in comparison
with that of its competitors.
Problems a) a company may choose to stay in a
market to prevent competitors from using their
dominance there to fund expansion elsesewhere, b)
often difficult to separate the attractiveness of
country from a companys position, and c) some of
the recommended take a defeatist attitude to a
companys competitive position
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VII - DIVERSIFICATION VERSUS CONCENTRATION
STRATEGIES
Strategies for ultimately reaching a high level
of commitment in many countries are
Diversification fast expansion in many markets
Concentration go to one or a few and build up
fast before going to others.
Growth Rate in Each Market Fast growth favors
concentration because companies must use
resources to maintain market share.
Sales Stability in Each Market The more stable
that sales and profits are within a single
market, the less advantage there is from a
diversification strategy.
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Competitive Lead Time the first to enter a
market often gains advantage in terms of brand
recognition and because it can line up the best
suppliers, distributors, and local partners.
Spillover Effects marketing program in one
country results in awareness of the product in
other countries. In this case a diversification
strategy has positive impacts.
Need for Product, Communications, and
Distribution Adaptation favors concentration
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VIII - DIVESTMENT STRATEGIES
Companies must decide how to get out of
operations if
a) They no longer fit the overall strategy b)
There are better alternative opportunities.