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Country Analysis

Country Analysis. Chapter 13. Location decision. Where to produce and where to sell Determined by interactions of objectives, environments and competitiveness. Companies need to determine the order of country entry and resource allocation among countries

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Country Analysis

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  1. Country Analysis Chapter 13

  2. Location decision • Where to produce and where to sell • Determined by interactions of objectives, environments and competitiveness. • Companies need to determine the order of country entry and resource allocation among countries • International expansion tends to be passive in its early stage and active later.

  3. Steps in Country selection • Scan for alternatives • Why scan? • To avoid risks of overlooking opportunities and examining too many opportunities • Consider opportunities and risks • Collect data and analyze data • Use tools to narrow down alternatives

  4. Opportunities • Profit = revenue – cost • Revenue-determining variables • Market size • GNP, per capita GNP, middle class size, level of industrialization • Compatibility of operations • Geography, language, culture • FDI laws (ownership and remittance) • Cost-determining variables • Resource availability and cost • Labor costs, raw material costs, transportation costs, tax rates, technology level, bureaucracy and red tapes

  5. Risks • Uncertainty • Given the same expected return, lower uncertainty is preferred. • Given the same uncertainty, higher return is preferred. • Liability of foreignness: tendency that foreign firms’ survival rate is lower than local firms. • Type of risks • competitive risk • monetary risk • political risk

  6. Competitive risk • Losing innovative advantage • Strategies • Imitation lag: move first to the country mostly likely to catch up and later to another country • Moving to the country with no competitors (security) • Moving to the country with existing competitors (free rider)

  7. Monetary risk • Access to and conversion of invested capital are key consideration • Liquidity preference: investors’ preference of having their holdings in highly liquid assets • Capital controls and exchange rate stability are useful indicators of monetary risk

  8. Political risk • Causes • Leadership change • Political unrest and civil disorder • Animosity between host and home governments • Prediction • Analysis of past patterns • Opinion analysis (particularly expert analysis) • Instability assessment

  9. Data collection • Information is needed at all levels of control. • Compare cost and value of information. • Problems in data collection • Timeliness • Inaccuracy • Incompatibility • Sources of information

  10. Country comparison tools • Grid Analysis • Depict acceptable and unacceptable conditions • Rank countries by important variables • Opportunity-risk matrix • Selection of indicators of opportunity-risk and their weights • Evaluation of each country on the weighted indicators • Plot each country on the matrix

  11. Tools - continued • Country attractiveness – company strength matrix • Analyzing the fit of a firm’s product to individual countries • Invest/grow vs. harvest/divest choices • Environmental scanning • Systematic assessment of external conditions that might affect a firm’s operations

  12. FDI strategies • Diversification vs. concentration (sequencing entry) • Factors affecting the decision • Growth rate, sales stability, competitive lead time, spillover effects, etc. • Investment, reinvestment, and divestment • Minimum threshold criteria (commonly practiced method) • Examining individual proposals on at a time and accept them if they meet minimum threshold criteria

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