Country Evaluation and Selection

Country Evaluation
and Selection
last updated 2010 March 25

this unit is also relevant to the section on FDI - Foreign Direct Investment

INTRODUCTION

Traditionally International Business textbooks (which are mostly based on a U.S. model of doing business internationally) have a big section on how to pick the country into which your business will expand.

Such a section might be relevant if the economy of you country includes huge consumer products companies like Walmart, Coke, McDonald's, etc. - BUT, Canada does not have such companies.

Except for a small number of students that might get involved in mining exploration or work with Magna or Nortel, most Canadian students of international business will not see themselves sitting around a conference table trying to decide between the merits of setting up business in Argentina vs. Brazil.

Therefore a long conversation about Country Evaluation and Selection might be irrelevant.

Or is it?

What Canadian companies do you know that operate internationally, and might be expanding to other countries.

Here is a small list - can you add any companies that you know from reading the newspapers, or watching TV?
    o Four Seasons Hotels
    o Alcan Aluminium
    o IMAX
    o Lavalin Engineering in France
    o Saputa in Argentina
    o Quebecor Printing in Mexico
    o Canadian Banks in Latin America and the Caribbean

WTGR

Case Study
Blockbuster Video represents the fact that an increasing amount of international business development is not in traditional consumer product manufacturing but rather in consumer and industrial services

BLOCKBUSTER® the world's leading renter of videos, DVDs and video games

From Blockbuster's website early 2003
"BLOCKBUSTER operates more than 2,000 international video stores in 25 foreign countries throughout Europe, Asia, the Pacific Rim, and North and South America. The first international BLOCKBUSTER store opened in London in 1989 [textbook said 1990].
The country outside the U.S. with the most BLOCKBUSTER stores is the United Kingdom. It has more than 700 BLOCKBUSTER stores."
Blockbuster's first expansion outside the U.S. was to the U.K., not Canada - any guesses why?
2004 - now 2,600 stores outside the United States

Blockbuster
2010 2010 update
student Farhan K. in MGTC44 in March 2010 emailed to say
"I just wanted to share an article I read on CNN.com about Blockbuster. The heading caught my attention: Blockbuster is 'bleeding to death'. Apparently the movie rental company is $1 billion dollars in debt and may have to file for bankruptcy soon unless they can do something about it. This news was a little alarming to me, because even though I don't use it, I have seen it's stores all over Canada."
WTGR replies,
Farhan was referring to a story on CNN
http://money.cnn.com/2010/03/24/news/companies/blockbuster/index.htm
In 2004 the company was making profits of about $500 million a year.
CNN says "Blockbuster has been saddled with massive debt since media conglomerate Viacom (VIA) spun the company off in 2004. As part of the deal, Blockbuster had to pay Viacom shareholders a $5 per-share dividend, and the movie rental company accumulated about $1 billion of debt in the process"
CNN also mentioned "questionable business decisions -- like canceling all late fees -- ate into the company's profits"

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Choosing Marketing and Production Sites

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QUIZ What comes first
o Where to Market?
o Where to Produce?
o What to Market?

. .

ANSWER The answer takes us back to first year marketing course
Answer depends on whether your firm has a
o Product Orientation
o Sales Orientation
o Marketing Orientation

.

What to Market

services

industrial services

travel services, shipping, website design
legal advice, accounting services, security, HR

consumer services

banking, insurance, real estate, travel etc.
restaurants, movie theatres etc.

goods

industrial goods

component parts
materials, supplies

consumer goods

clothing, automobiles, consumer electronics etc

Where to Market
Where to Produce (which is not necessarily the same place as where it is sold)

Flexibility

Flexibility means the ability of your company to adapt to changing conditions so that you can continue to produce a product/service at a competitive price. In the world of 2005 flexibility is of critical importance since there have been many severe changes in the world since the 1990's. A key part of being flexible is understanding that country conditions change and listed below are some names of regions in which severe changes have taken place in the past 5 years.

Yugoslavia
Australia
Quebec
California
Florida Peru
Chile
Mexico
China Sierra Leone
Congo (Zaire)
Afghanistan
Sudan South Korea
Thailand
Indonesia
Philippines
Viet Nam

all of these regions noted because in the past few years there have been significant events, positive and negative, which would effect the interest of a foreign business to be successful setting up operations in the region

Choosing and Weighing Variables

First

select the variables that you will use to make your decision

Second

rank the variables depending on what is most important

the ranking will depend on the type of business
example: a company making small products will consider proximity to market a low priority since shipping will be inexpensive - they might consider quality of labour higher of the product requires a skilled workforce ie. Rolex.

"Opportunities are determined by revenues less costs"

Variables

market size = potential to make money selling the product
operational effectiveness, how easy is it to do what you need to do on site
costs

costs of labour force
costs of materials and components
costs of infrastructure (electricity, water, waste disposal)

resources

educated labourers and employees + research employees
professional services (HR, legal, financial, security etc.)

regulations and procedures (text says red tape)

jurisdictional regulations
cultural and social regulations and considerations

risks

Choosing and Weighing Variables - Risks

financial risks (funding, bank loans, currency exchange rates, ROI)

liquidity preference
liquidity is important especially in high risk areas
examples include stockpiled materials, capital equipment that could be sold, real estate, vehicles, IT systems etc.

economic risks (inflation, wage rates)
competitive risks

vulnerable in the "time to market" stage
weakness - competitor intelligence

political risks

varies from country to country
varies within a country depending on location of borders of other countries
eg. Ecuador - border w Colombia is more risky than border with Peru

safety risks

personnel safety
property security

handling risks

decrease the risk by using resources to "deal with it"

eg. K&R training
eg. contingency plans for environmental extremes

accept the risk and change other variables to factor in the "expense" of the risk

accept risk can include using insurance, or calculating costs differently
accept the risk cause the results will not be that bad

(eg. a middle eastern country using U.S. printing machines to make counterfeit money)

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MISTAKES I TEXTS USED I IMAGES I RANK I DISCLAIMER I STUDENT CONTRIBUTORS I FORMER STUDENTS I

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.

QUIZ	What comes first o Where to Market? o Where to Produce? o What to Market?
.	.
ANSWER	The answer takes us back to first year marketing course Answer depends on whether your firm has a o Product Orientation o Sales Orientation o Marketing Orientation

witiger.com	CONTACT I MAIN PAGE I NEWS GALLERY I E-BIZ SHORTCUTS I INT'L BIZ SHORTCUTS I MKTG&BUSINESS SHORTCUTS I TEACHING SCHEDULE
	.
	MISTAKES I TEXTS USED I IMAGES I RANK I DISCLAIMER I STUDENT CONTRIBUTORS I FORMER STUDENTS I
	.