Analyzing International Opportunities 13-1

Choosing Marketing and Production Sites and Geographic Strategy Companies must determine where to market and where to produce Decisions on market and production locations may be highly interdependent Process of determining overall geographic strategy must be flexible Country conditions change Plan must allow company to: respond to new opportunities withdraw from less-profitable operations

Choosing New Locations Scan for alternatives Scan for alternatives Choose and weight variables Choose and weight variables OpportunitiesOpportunities Market sizeMarket size Ease and compatibilityEase and compatibility Cost and resource availabilityCost and resource availability Collect and analyze data for variables Collect and analyze data for variables Use tools to compare variables and narrow alternatives Use tools to compare variables and narrow alternatives 13-4

Step 1 Identify basic appeal Identify basic appeal Step 2 Assess national business environments Assess national business environments Step 3 Measure market or site potential Measure market or site potential Screening Markets and Sites Step 4 Select the market or site Select the market or site

Business Constraints Companies lack the resources to take advantage of all international opportunities Companies lack the resources to take advantage of all international opportunities Companies must determine the order of country entry Companies must determine the order of country entry Companies must set the rates of resource allocation among countries Companies must set the rates of resource allocation among countries 13-5

Country Selection Companies are attracted to countries that: Companies are attracted to countries that: Are located nearbyAre located nearby Share the same languageShare the same language Have market conditions similar to those in the home countryHave market conditions similar to those in the home country Companies pare proposals to countries that: Companies pare proposals to countries that: Offer size, technology, and other factors familiar to company personnel Allow an acceptable percentage of ownership Permit sufficient profits to be easily remitted 13-9

Potential: Industrialized Markets Demographics Demographics Competitors’ market shares Competitors’ market shares Import/Export volumes Import/Export volumes Distribution network Distribution network Marketing approaches Marketing approaches Retail sales levels Retail sales levels Income elasticity Income elasticity

Potential: Emerging Markets Market size Market size Market growth rate Market growth rate Market intensity Market intensity Market consumption capacity Market consumption capacity Commercial infrastructure Commercial infrastructure Economic freedom Economic freedom Market receptivity Market receptivity Country risk Country risk

Issues With Emerging Economies Advantages may be short-lived Advantages may be short-lived Competitors follow leaders into low- wage areas Competitors follow leaders into low- wage areas Little first-in advantage for this type of production migration Little first-in advantage for this type of production migration Comparability problems Comparability problems 13-10

Issues with Emerging Economies, con’t Foreign costs rise quickly due to wage pressures and exchange rates Foreign costs rise quickly due to wage pressures and exchange rates Extent of “red tape” Extent of “red tape” Risk and uncertainty Risk and uncertainty Lack, obsolescence, or inaccurate data/information to base decisions on Lack, obsolescence, or inaccurate data/information to base decisions on 13-11

Field trips Engage in negotiations Gain firsthand exposure Contact customers/others Competitor analysis Access to inputs Competitors’ numbers/shares Competitors’ strategies Channel access Customer loyalty Select the Market or Site

Market Research Difficulties CulturalproblemsAvailability of data Comparability

Sources of Information Individualized reports Individualized reports Specialized studies Specialized studies Service companies Service companies Government agencies Government agencies International organizations and agencies International organizations and agencies Trade associations Trade associations Information service companies Information service companies Internet Internet 13-12

Methods of Primary Research Trade shows and missions Interviews and focus groups Surveys Environmental scanning

Making Final Country Decisions Make site visits Make site visits Construct detailed estimates of costs and expenses Construct detailed estimates of costs and expenses Decide whether to invest alone or with a partner Decide whether to invest alone or with a partner Examine financial statements in detail for acquisitions Examine financial statements in detail for acquisitions Watch analysis constraints such as: Watch analysis constraints such as: TimeTime costscosts 13-16

Allocating (operations) Among Locations Analyze effects of reinvestment versus harvesting in existing operating locations Analyze effects of reinvestment versus harvesting in existing operating locations Appraise interdependence of locations on performance Appraise interdependence of locations on performance Examine needs for diversification versus concentration of foreign operations Examine needs for diversification versus concentration of foreign operations 13-7

Diversification vs Concentration Diversification Diversification Company moves rapidly into many foreign markets, and gradually increasing its commitment in each marketCompany moves rapidly into many foreign markets, and gradually increasing its commitment in each market Concentration Concentration Company moves to one or a few foreign markets until its develops a very strong involvement and competitive position then move to others.Company moves to one or a few foreign markets until its develops a very strong involvement and competitive position then move to others.

Diversify or Concentrate International Facilities Analyze growth rate and sales stability in each market Analyze growth rate and sales stability in each market Research expected lead time over competitors Research expected lead time over competitors Determine what the spillover effects are Determine what the spillover effects are Measure degree of need for product and marketing localization for different countries Measure degree of need for product and marketing localization for different countries 13-6