International Business

Sixteenth Edition, Global Edition

Chapter 13
Evaluation of Countries
for Operations

Copyright © 2018 Pearson Education Limited. All Rights Reserved.

Learning Objectives (1 of 2)
13-1 Elaborate on the significance of location in IB
operations
13-2 Illustrate why comparing countries through
scanning is important and how it connects to
final location choices
13-3 Discern major opportunity and risk variables
and how to prioritize and relate them when
deciding whether and where to expand
abroad

Copyright © 2018 Pearson Education Limited. All Rights Reserved.

Learning Objectives (2 of 2)
13-4 Summarize the sources and shortcomings of
comparative country information
13-5 Explain alternative considerations and means
for companies to allocate resources among
countries
13-6 Recognize why companies make non-
comparative decisions when choosing where
to operate abroad

Copyright © 2018 Pearson Education Limited. All Rights Reserved.

 THE IMPORTANCE OF LOCATION
Objective 13-1
• Because companies have limited resources, they
must be careful in choosing among countries when
making the following decisions:
The location of sales, production, and administrative
and auxiliary services, such as R&D.
The sequence for entering different countries.
The portion of resources and efforts to allocate to
each country where they operate.

Copyright © 2018 Pearson Education Limited. All Rights Reserved.

COMPARING COUNTRIES THROUGH

Objective 13-2
• Managers use scanning techniques to examine and
compare countries on broad indicators of
opportunities and risks.
• Why Is Scanning Important?
• Scanning is like seeding widely and then weeding
out; it is useful insofar as a company might otherwise
consider too few or too many possibilities. However,
comparison among countries is not always practical.

Copyright © 2018 Pearson Education Limited. All Rights Reserved.

 Scanning and Detailed Analysis
Objective 13-2
• Scanning : Step 1
• During the scanning phase, information gathered might include:
• Yes or no 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. Copyright © 2018 Pearson Education Limited. All Rights Reserved.
• 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: Step 2
• If Managers need to decide where best to emphasize
sales, they will likely need to visit the shortlisted countries
to observe the market and visit with distributors.

Copyright © 2018 Pearson Education Limited. All Rights Reserved.

 Factors to Analyze Regarding Risk
Objective 13-3
Companies and their managers differ 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
Copyright © 2018 Pearson Education Limited. All Rights Reserved.
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.

• Risks may occur for suppliers and within suppliers’ supply

chains, thus companies need to examine the complex external
dependencies and vulnerabilities of its suppliers

Copyright © 2018 Pearson Education Limited. All Rights Reserved.

 Shortcomings of Comparative Country
Information

Objective 13-4
• Inaccuracy: for a variety of reasons, data could be outdated,
published results could be misleading, and questionable
methodology could be used.
•
 Non-Comparability: Countries do not necessarily publish
reports for the same length of time periods or at the same time
as each other. So a company must extrapolate in order to
estimate how countries compare.

Copyright © 2018 Pearson Education Limited. All Rights Reserved.

 Strategies for International Expansion:
Diversification, Concentration, Reinvesting
Objective 13-5
• Diversification Strategy: 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.

Copyright © 2018 Pearson Education Limited. All Rights Reserved.

• 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.
• Reinvesting and 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.

Copyright © 2018 Pearson Education Limited. All Rights Reserved.

Moreover, headquarters management may delegate certain
investment decisions to experienced foreign subsidiary managers
because they believe that subsidiary management is the best judge
of what the operation needs.
Harvesting Companies commonly reduce commitments in some
countries because they have poorer performance prospects than
do others—a process known as harvesting (or divesting). Burger
King, for example, sold off underperforming operations in Korea
and Slovakia so as to have funds for more promising ventures in
the Chinese and Russian markets.

Copyright © 2018 Pearson Education Limited. All Rights Reserved.

 NON-COMPARATIVE DECISIONS
Objective 13-6
• Decision Making Process:
• 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, and because of difficulty in
incorporating global performance into single analysis.
•.

Copyright © 2018 Pearson Education Limited. All Rights Reserved.

• Go-no-go decisions:
• One might expect companies to maintain a storehouse of
ranked foreign operating proposals, undertaking the best,
second best, etc. until they could make no further
commitments, but this is usually not the case
.
• They make go-no-go decisions by examining one
opportunity at a time and pursuing it if it meets some
threshold criteria.

Copyright © 2018 Pearson Education Limited. All Rights Reserved.

• Interdependence
• another factor inhibiting country operating comparison is
their interdependence. Profit figures from individual
operations may obscure the real impact on overall
company performance

Copyright © 2018 Pearson Education Limited. All Rights Reserved.