Presentation on theme: "CHAPTER 7 - Country Evaluation and Selection LEARNING OBJECTIVES After reading this chapter, you should be able to: To grasp company strategies for sequencing."— Presentation transcript:
Scanning versus Detailed Analysis Without scanning, a company may: Overlook opportunities and risks Examine too many or too few possibilities Scanning allows managers to examine most or all countries broadly and then narrow them to the most promising ones. In scanning, managers compare country information that is readily available, inexpensive, and fairly comparable — usually without having to incur the expense of visiting foreign countries. Instead they analyze publicly available information, such as from the Internet, and they communicate with experienced people e.g. http://www.doingbusiness.org Once managers narrow their consideration to the most promising countries, they need to compare the feasibility and desirability of each. At this point, unless they are satisfied enough to outsource all their production and sales, they almost always need to go on location to analyze and collect more specific information.
Examining Economic and Demographic Variables 1.Obsolescence and leapfrogging of products Consumers in developing economies do not necessarily follow the same patterns as those in higher-income countries. In China, for example, consumers have leapfrogged the use of landline telephones by jumping from having no telephones to using cellular phones almost exclusively. 2. Prices If prices of essential products are high, consumers may spend more on these products than what one would expect based on per capita GDP, thus having less to spend on discretionary purchases. The expenditures on food in Japan, for instance, are higher than would be predicted by either population or income level because food is expensive and work habits promote eating out. 12- 6
Examining Economic and Demographic Variables 3.Income elasticity A common tool for predicting total market potential is to divide the percentage of change in product demand by the percentage of change in income in a given country. The more that demand changes in relation to income changes, the more elastic is the demand. Demand for necessities such as food is usually less elastic than is demand for discretionary products such as flat-screen TVs. 4. Substitution Consumers in a given country may more conveniently substitute certain products or services than consumers in some other countries. For example, there are fewer automobiles in Hong Kong than one would expect based on income and population, because the crowded conditions make the efficient mass transit system a desirable substitute for automobiles.
Examining Economic and Demographic Variables 5. Income Inequality Where income inequality is high, the per capita GDP figures are less meaningful, because many people have little to spend and many others have substantial income to spend, as in our example of luxury product sales in India. 6. Cultural Factors and Taste Countries with similar per capita GDPs may have different preferences for products and services because of values or tastes. For example, the large Hindu population in India reduces per capita meat consumption there. However, there is a large niche market of Indians who are neither Hindu nor vegetarian. 12- 8
Distance Framework Cultural Distance Administrative Distance Geographic Distance Economic Distance Attitude Creating Distance Different language Different ethnicities: lack of connective ethnic or social networks Different religions Different social norms Absence of colonial ties Absence of shared monetary/political association Political hostility Government policies Institutional weaknesses Physical remoteness Lack of a common border Lack of sea or river access Size of country Weak transportation or communication links Different in climates Difference consumer incomes Different costs and quality of: natural resources financial resources human resources infrastructure intermediate input information or knowledge The distance framework helps managers identify and assess the impact of distance of different types (Pankaj, 2001).