Beruflich Dokumente
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Chapter Twelve
Chapter Objectives
To grasp company strategies for sequencing the penetration
of countries To see how scanning techniques can help managers both limit geographic alternatives and consider otherwise overlooked areas To discern the major opportunity and risk variables a company should consider when deciding whether and where to expand abroad To know the methods and problems when collecting and comparing information internationally To understand some simplifying tools for helping to decide where to operate To consider how companies allocate emphasis among the countries where they operate To comprehend why location decisions do not necessarily compare different countries possibilities
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determine the order of country entry establish the rates of resource allocation across
countries
If transportation costs are high and/or government regulations require local production, a firm may be forced to produce a product in the same country in which it sells it.
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collect and analyze specific information that increasingly contributes to the final location decision process. A feasibility study should have clear-cut decision points to guide managers in the decision-making process.
Escalation of commitment: the more time and money
a firm invests in examining an alternative, the more likely it is to accept itregardless of its merits.
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Some factors are more important for the market location decision, others for the production location decision. Some factors affect both decisions.
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past and present sales data socioeconomic data [GDP, per capita income, population size, population growth rates, etc.] the obsolescence and leapfrogging of products price levels and elasticity income levels and elasticity income inequalities substitutability of products existence of trading blocs taste and other cultural factors
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Firms decision points regarding country selection may include: the ability to operate with product types, technologies,
and plant sizes familiar to their managers permissible levels of ownership and profit repatriation the availability of local resources [capital, viable partners, etc.]
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Labor costs are a particularly important factor in production location decisions. However,
labor is not homogeneous capital intensity may reduce the differences in production costs from one location to another there may be sector and/or geographic differences in wage rates within countries
When companies move to emerging economies because of labor cost savings, their advantages may be shortlived because:
competitors follow leaders to low-wage locations there is little first-in advantage for this type of production migration costs in emerging economies may rise quickly as a result of pressures on wages and/or exchange rates
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beginning and continuing operations hiring and/or firing workers the use of expatriate personnel producing and marketing goods satisfying local agencies on matters such as taxes, labor conditions, and environmental compliance
[continued]
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ment officials for their personal gain Corruption, i.e., the extortion of income or resources, may include:
requirements of illegal payments to win a contract requirements of illegal payments to receive government services requirements of illegal payments to operate in a particular location or industry
Firms are likely to avoid operating countries in which legal transparency is low and corruption is high.
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risks are higher. Firms may balance operations in low-return, low-risk countries with operations in high-return, high-risk countries. Firms may guard against currency fluctuations by locating operations in countries whose exchange rates are not closely correlated. Adverse situations may heighten the perceived needs for certain products.
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During the initial scanning stage a firm should weight the elements of risk and uncertainty; during a later feasibility study, the firm must determine whether the degree of risk is acceptable.
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by moving first into those countries most likely to catch up the first mover advantage: becoming the first major competitor to enter a country in order to gain the best partners, the best locations, and the best suppliers the oligopolistic reaction: purposely crowding a market to prevent competitors from gaining advantages they might use to improve their competitive positions elsewhere clustering: locating in places where competitors are present to gain access to multiple suppliers, skilled personnel, an existing customer base, and information regarding innovations
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When firms conduct original studies in foreign countries, they may have to be extremely imaginative and observant and analyze indirect and/or complementary indicators.
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data regarding many countries make much research difficult and expensive to undertake. Reasons for data inaccuracies include:
the inability of governments to collect the needed information the publication of false or purposely inaccurate information designed to mislead constituencies the publication of conclusions based on too few observations, non-representative samples, and/or poorly designed research instruments
[continued]
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[e.g., the UN, the IMF, the World Bank, and the OECD]
IV
No Yes
Yes Yes 4 3 7 0 0 0
Yes Yes 3 1 4 0 1 1
Yes Yes 3 3 6 3 2 5
Yes Yes 3 2 5 3 3 6
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2. Return [higher number preferred] a. Investment 0-5 b. Direct costs 0-3 Total 3. Risk [lower number preferred] a. Exchange risk 0-3 b. Political risk 0-3 Total
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Harvesting: the reduction in the amount of an invest If an operation no longer fits a firms overall strategy, or if
ment, either by simply harvesting earnings or by divesting assets as well
better opportunities exist elsewhere, a firm must determine how to exit that operation.
Managers are more likely to propose investments than divestments.
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1. 2. 3. 4. 5. 6.
Market growth rate Market sales stability Competitive lead time Spillover effects Need for product adaptation Need for promotion and distribution adaptation 7. Program control requirements 8. Constraints
low low
high high
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Source: Marketing Expansion Strategies in International Marketing, Journal of Marketing, Spring 1979, p.89.
statements and operations in detail. For expansion within countries, decisions will most likely be made on the basis of capital budget requests.
[continued]
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Major factors restricting companies from comparing country investment opportunities in great detail are: coststhe additional time and resources required may increase costs to unacceptable levels timefirms may need to react quickly in order to capture first-mover advantages or respond to competitive threats
Many firms consider proposals one at a time and accept them if they meet minimum threshold criteria.
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Implications/Conclusions
Firms use both qualitative and quantitative
information to determine which markets to serve and where to locate production. Because each firm has unique competitive capabilities and objectives, the factors affecting the country selection decision will differ for each.
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a company must consider its need for reinvestment vs. divestment, its preference for diversification vs. concentration, as well as the interdependence of its operations. The interdependence of a firms operations may obscure the real impact of a given operation on overall corporate activity and profitability.
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