ENVIRONMENTAL SCANNING

EVALUATION OF COUNTRIES FOR OPERATIONS

INTRODUCTIONMost important factor which leads to the success of the International business is location.We must be careful in following decision makings:

The location of sales, production and administrative and auxiliary serviceThe sequence for entering different countriesThe portion of resources and efforts for allocate to each country where they operate .

2

OPERATING ENVIRONMENT

PHYSICAL AND SOCIAL FACTORSPolitical policies and legal practicesCultural factorsEconomic forcesGeographic influencesCOMPETITIVE FACTORSMajor advantage in price, marketing, innovation, or other factorsNumber and comparative capabilities of competitorsCompetitive differences by country

OBJECTIVESSTRATEGYOPERATORS

MEANSStructure & ImplementationChoice of countriesOrganization & control mechanisms

Modes Functions

3

Where can we best leverage our existing competencies? Where can we go to best sustain, improve or extend our competencies?

Which market should we serve?Where should we place production to serve them?

4

OBJECTIVES

STRATEGY

Overlaying Tactic Choice of Countries

Choosing new locationsScan for alternativesChoose and weight variablesCollect and analyze data for variables Use tools to compare variables and narrow alternatives

Allocating among locationsAnalyze effects of reinvestment versus harvesting in existing operating locationsAppraise interdependence of locations on performanceExamine needs for diversification versus concentration of foreign operations

Making final decisions Conduct detailed feasibility study for new locationsEstimate expected outcome for reinvestmentsMake location and allocation decisions based on company's financial decision-making tools

5

ENVIRONMENTAL SCANNING

WHAT ENVIRONMENTAL SCANNING?Is the acquisition and use of information about events, trends, and relationships in an organization's externalenvironment, the knowledge of which would assist management in planning the organization's future course of action.

HOW DOES SCANNING WORK?Managers use scanning techniques to examine and compare countries on broad indicators of opportunities and risks.Without scanning a company may, -Overlook opportunities and risks. -Examine too many or too few possibilities.

SCANNING VS DETAILTED SCANNINGScanningScanning is the process by which managers examine many countries broadly and then narrow them down to the most promising ones.Basically we analyze publicly available information such as from the internet.Detailed AnalysisAfter managers narrow down the most promising countries they need to compare the feasibility and desirability of each.

Normally detailed analysis is done after the scanning

Eg: Intel use scanning techniques to limit visits to a few Latin American countries.

WHAT INFORMATION IS IMPORTANT IN SCANNING??Managers should consider country conditions that could affect their companies success or failure.This conditions should reveal both opportunities and risks.

OPPORTUNITIESSales expansion -Expansion of sales is probably the most important factor motivating companies to engage in international business, because most sales will lead to more profit. -Managers would like to have sales figures for the type of product they want to sell, but such information may not be available specially if the product is new.

There are several economic and demographic variables that affect sales expansion. They are,

Obsolescence and leapfrogging of productsPrices Income elasticitySubstitutionIncome inequalityCultural factors and tasteExistence of trading blocs

Resource acquisitionCompanies undertake international business to secure resources that are too expensive or not available in their home countries.When acquiring resources companies have to consider about costs.A companys total cost is made up of numerous sub costs.The factors affecting these sub costs are,LaborInfrastructureEase of transportation and communicationGovernment incentives and disincentives

13

Risk associated with international businessThe Companys expansion strategy includes expansion into various countries around the world. While the Company endeavors to limit its exposure by entering only countries where the political, social and economic environments are conducive to doing business, there can be no assurances that the respective business environments will remain favorable.

Factors to consider in analyzing riskCompanies and their managers differ in their perceptions of what is riskyOne companys risk may be another's opportunity Companies may reduce their risk by means other than avoiding locationsTrade-offs among risks

Categories of risk assessment

COLLECTING AND ANALYZING DATAInformation is needed in all levels of control. It helps managers to improve corporate performance. For that managers should compare the estimated cost of information with the probable payoff it will generate in revenue gains or cost savings.

In many countries the researches are expensive to undertake because of the lack, obsolescence and in accuracy of data. There are two basic problems; 1. Inaccuracy 2. Non comparability

17

INACCURACYReasons for inaccuracy Government resources may limit accurate data collection.Governments may purposely publish misleading information.Respondents may give false information to data collectors.Official data may include only legal and reported market activitiesPoor methodology may be used.

NON COMARABILITYReasons for non comparabilityDifferences in definitions and base year.Distortion in currency conversion.

External sources of informationInformation is need for decision making, for scanning purpose we use internet to collect most of the information.Major types of information sources are,Individualized reportsSpecialized studiesServices companiesGovernment agenciesInternational organizations & agenciesTrade associations

INTERNALLY GENERATED DATACollecting information through observations, investigations and by asking many questions.Traditional analysis methods would not reveal such facts.

Country comparison tools

There are two common tools 1. Grid 2. Matrices 01. GRIDGrid is used to compare countries on whatever factors they deem important. This may depict acceptable or unacceptable conditions.Rank countries by important variables.This technique can be used even without comparing.This will be complex when number of variable increase.

Simplified Market-Penetration GridvariablesweightC-1C-2C-3C-4C-51. Acceptable(A), unacceptable(U) factors a. allows 100% ownership - U A A A A b. allows licensing to majority-owned subsidiary - A A A A A2. Return (higher number= preferred rating) a. size of investment needed 0-5 - 4 3 3 3 b. direct cost 0-2 - 2 0 1 1 c. market size present 0-4 - 3 2 4 1 d. market size 3-10 years 0-3 - 2 1 3 1 Total 11 6 11 63. Risk ( lower number= preferred rating) a. market loss 3-10 years 0-4 - 2 1 3 2 b. exchange problems 0-3 - 0 0 3 2 c. political unrest potential 0-3 - 0 1 2 3 Total 2 2 8 7

How to construct a Grid in above mentioned grid chart it pinpoints country 2 (C-2) as high return-low risk, C-3 as low return- low risk, C-4 as high return- high risk and C-5 as low return- high riskMost attractive country is C-2 (high return-low risk)C-1 is eliminated by managers immediately (why ?)In real world company chooses the variables that it regards as most important and may weight some as more important than others

First, managers may immediately eliminate certain countries from CONSIDERATION, because of the characteristics they find acceptable.Then managers assign values & weights to the variables.So, they rank countries according to attributes of relative importance to the companyBoth variables & weight differ by product & company depending on the companys internal situation and its objectives.

02. Matrices (Opportunity-Risk Matrix)With an opportunity-risk matrix, a company can,Decide on indicators and weight them.Evaluate each country on the weighted indicators.Key element of this kind of matrix is and one that managers do not include in practice is the projectionAbove mentioned matrix, -managers will choose countries E & F ( high opportunity& low risk) -managers may sometimes have to choose a country between A& B ( WHY?) A E F D C B

Decreased Risk Increased Opportunity

Allocating Among LocationsThis scanning tool just described are useful for narrowing alternatives and allocating operational emphasis among countries. There are 3 complementary strategies for international expansion:Alternative Gradual CommitmentsGeographic Diversification versus ConcentrationReinvestment and Harvesting

Alternative Gradual CommitmentsCompanies may reduce risks from the liability offoreignness by: Going first to countries with characteristics similar to those of their home countries. Having experienced intermediaries handle operations for them. Operating in formats requiring commitment of fewer resources abroad. Moving initially to one or a few, rather than many, foreign countries.

The usual patterns of Internationalization

Geographic Diversification versus ConcentrationDiversification strategyGo to many markets fast and then build up slowly in each. (Company moves rapidly into many foreign markets, and gradually increasing its commitment in each market)Concentration strategyGo to one or a few markets and build up fast before going 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)A hybrid of the above two

Major variables a company should consider when deciding which strategy to use;Growth rate in each marketSales stability in each marketCompetitive lead timeSpillover EffectsNeed for product, communication, and distribution adaptationProgram control requirementsSubsequent Product Diversification

Diversify or Concentrate: The Role of Product and Market FactorsProduct and Market FactorsPrefer Diversification if;Prefer Concentrate if;Growth rate in each marketLowHighSales stability in each marketLowHighCompetitive lead timeShortLongSpillover EffectsHighLowNeed for product, communication, and distribution adaptationLowHighProgram control requirementsLowHigh

Reinvestment and HarvestingFDI-financial capital and has physical and human capital invested abroadDepending on the success of the investment, the company may reinvest or consider using the capital elsewhere

Reinvestment decisionsinvolve replacing depreciated assets or adding to the existing stock of capitalMost of the value of a foreign investment comes from reinvestmentonce committed to a locale, company may not have option to move its assets elsewhereExperienced personnel in a country best judges of what is needed in the localemay be delegated certain investment decisionsHarvesting (divesting)advisable when investment outlook is better in other countriesReduces commitments in countries with poorer performance outlooksOught to be plannedTakes place by selling or closing facilitiesGovernment may require performance contracts that make divestment difficult

NON COPARATIVE DECISION MAKING

Companies examine proposals one at a time and accept them if they meet minimum threshold criteria. This situation occurs because of the limited resources of companies which peruse them to maintain storehouse of foreign operating proposal.They make go- no go decision by examining one opportunity at a time and perusing it if tit meets some threshold criteria.According to the interdependence of the country the companies sometimes need to respond quickly to prospects that they had not anticipated.Many proposal might be; - To sell abroad - Sign join ventures - Licensing contracts

This initiate exports actively passively/ indirectly.This undertaking proposals are one time possibilities say yes or no for the proposal.There is a competitive advantage of moving to foreign market, for both customers and competitors.Three factors inhibit companies from comparing investment opportunities - cost - time - interrelation or operations on global performanceCost relate to the overseeing of operations in an host countries.Time relate with the feasibility studies of proposals. Waiting compare the proposal means a cost to the company. Management would have to make assumptions about the changed profits for the companies total global operations.

CONCLUSIONAs a conclusion, for the better success of a company there should be environmental scanning. In this we have to overlook the risks and opportunities.IB needs information at all levels and problems may occur when collecting and analyzing them. To be successful, companies must overcome them.Due to the limited resources of countries, they get the support through trade agreements and proposals.Cost,time,interrelation,global performance are the factors that companies consider in investing in foreign countries.

Thank you