Country Evaluation & Selection

Foreign entry depends on various factors like

resources, level of risk, tariff and non tariff barriers, transportation cost, infrastructure, restriction on inflow or outflow of foreign investment etc
Opening of economy to foreign investment Removing obstacles to the entry of MNCs Bringing down import duties Promoting international trade

Globalization implies

Characteristics of globalization
Free trade of goods and services Free movement of capital Free movement of labour

Essential conditions for globalization

Liberalization
Reduction in unnecessary restrictions and controls over business units Simplification of procedure regarding foreign investment Relaxation in industrial licensing, price control, import license, foreign exchange control and foreign investment

 Multilateral trade agreements

WTO, IMF and UNCTAD It has promoted interdependence in trade among various nations

Multilateral investment agreements

TRIMs of WTO Agreements to remove inflow and outflow of capital

Sufficient resources
Financial, managerial, human and technological

 Comparative advantage
Regarding production cost, quality, brand image or marketing advantage

Improvement in transportation
Development of ports Container transportation

Improvement in IT and communication technology

Computers, internet, mobile phones, fax, e-mail, voice mail etc

 Failure of centrally controlled economies

USSR, Eastern Europe, Eastern Germany have failed in economic front These countries were hesitant in adopting globalization

Growth of corporate organisation

Foreign investors can easily invest money through buying of shares in other nations FII

Development of infrastructure
Power supply, transportation, ports, warehouses, banking, roads, bridges, communication etc

 Globally accepted currency

IMF has recognised 5 currencies for foreign trade US Dollar, British Pound, French Franc, German Deutschmark and Japanese Yen

Country Evaluation & Selection

Global market is very big MNC has to make the decision that in which country it should enter Where to locate its plant It cant operate in all nations Its resources may not permit it to operate in large number of nations It is essential to prepare rank list of these nations according to priority

Steps in country evaluation

Defining
International Business Objective
Selecting factors Preliminary Screening

For
evaluation

Final Selection of market(s)

Detailed Evaluation of selected market

Defining International Business Objective

Selling surplus production: select nation where
tariff and non tariff barriers are minimum

Export large quantity: demand, tariff and non

tariff barriers, economic conditions, political stability, law and order situation, level of competition, cultural factors

Select suitable location for production: labour

cost, availability of raw material, infrastructure, tax incentives, policy on FDI, political ideology

Selecting Factors for evaluation

Market Related factors & Industry related factors Market Related factors are macro in nature and are common to whole country

Market Related factors include economic conditions, economic policies, economic legislations, political factors, infrastructure, cultural factors, potential to serve as business hub

 Industry related factors are micro in nature

These factors are not common to all industries

These are industry specific

These includes availability of raw material, labour cost, availability of labour, level of competition, demand, govt. rules and regulations, tax incentives etc

Preliminary screening
Various markets are eliminated using some major parameters Its objective is to reduce the number of markets for detailed evaluation and to reject the markets which are not out rightly suitable For preliminary screening secondary data like population, GDP, per capita income, growth rate etc is used. This data is published world bank Country with low per capita income is not suitable for luxurious products

Detailed evaluation of selected market

Evaluation matrix is prepared on the basis of market related factors and industry related factors All these factors are assigned a raw score for each countrys markets which are shortlisted Weights are assigned to various factors depending upon their relative importance These weights are multiplied with raw score to obtain weighted score of each country

Final selection
On the basis of the weighted score of each country a rank list is prepared, the country with highest score is first rank, the country with second highest score is given second rank and so on The top countries from the rank list are selected

This rank list can also be used for further expansion in near future

Factors used in country evaluation and selection

Firm related factors
Internal factors Financial resources, physical and human resources Objectives of business, work environment Corporate image, R&D capabilities Vision of top management Managerial expertise etc

 Industry related factors

Availability of raw material Availability of labour Cost of labour Level of competition Demand size Govt. policies and regulations Cultural factors

 Market related factors

Economic conditions Economic policies
EXIM policy Foreign investment policy Industrial and licensing policy Monetary policy Fiscal policy Companies Act FEMA Consumer Protection Act SEBI Act Competitions Act etc.

Economic legislations

 Political factors
Political ideology Political stability

Infrastructure
Power, transportation, communication, roads Bridges, railway network, ports, banking, insurance etc

Cultural factors
Food habits, dressing style, working style etc

Potential for becoming marketing hub

Production in one nation and exporting to neighboring nations