country evaluation and selection

1. INTRODUCTION

Choosing the best country to make your first foray into the deep waters of international

business is often the source of much angst and confusion but it need not be.

Country selection should be the output of a structured decision-making process rather than

endless, opinionated debate or worse, a knee-jerk reaction to an overseas enquiry.

But how much of the process comprises objective analysis of facts versus debate about the

relative merits of the criteria used to select countries? The surprising conclusion is that you need

both the art of commercial judgement and the science of analysis to make a rational decision.

“Though this be madness, yet there is method in it.” – William Shakespeare

No-one knows your business and your customer better than you. We often find the first stage of

the country selection process - determining selection criteria - is a relatively comfortable exercise

for most businesses. All business should be able to answer questions like: “why do your

customers buy from you?”

The next stage of this process – weighting criteria - is often a contentious issue. Most businesses

know the ‘art’ of running their business instinctively but feel affronted by the notion that some

criteria are more important than others. A good example is the trade-off between English-

speaking markets versus GDP per capita for differentiated products - which is more important?

Once the selection criteria are agreed and weighted against each other, the final stage - producing

a prioritised list - is quite an eye opener for many businesses. Invariably some unexpected

countries will make the list. At this point, it is not constructive to challenge the assumptions that

produced that result. The more informative topic for discussion would be: why would you not

pursue that option if the objective assessment of the facts proves the result? We find that

agreeing on the art before analyzing the science ultimately produces better outcomes for our

clients.

1.1 COUNTRY COMPARISON TOOLS

Two common tools for analyzing information collected via scanning are grids and matrices .

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Also, once a firm commits to a location, it will need continuous updates regarding external

conditions that might affect its operations there.

1. Grids

A grid can be used to make country comparisons according to a wide variety of relevant factors,

such as ownership rules, potential returns, and perceived risk. Variables can be ranked and

weighted according to specific criteria that reflect a firm’s situation and objectives. Although

useful for establishing minimum scores and for ranking countries, grids often obscure

interrelationships among countries.

2. Matrices

One matrix frequently used when doing country comparisons is the opportunity-risk matrix.

When using this matrix, the manager plots a country according to the perceived value of the

opportunity the country offers, on the one hand, and the expected level of risk associated with

operating in that country on the other. Which factors are good indicators of risk and opportunity

and the weight assigned to each must be identified and assigned by the firm. Once scores are

determined for each country being considered, they can be plotted and reviewed from a

comparative perspective. A useful application of this technique is to develop both present and

future scores for countries (e.g., five years hence) because a significant shift in a score in the

future could have serious implications with respect to the country selection process.

1.2 ALLOCATING AMONG LOCATIONS

Over time, most of the value of a firm’s FDI comes from reinvestment. Thus, in deciding where

to invest, firms must consider whether to reinvest or harvest, to what degree there is

interdependence among their locations and whether they should diversify or concentrate their

activities.

1. Reinvestment versus Harvesting

Once a firm makes an initial investment, it will then need to decide whether to continue investing

in that operation or to harvest the earnings (and possibly divest the assets) and use them

elsewhere.

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1. Reinvestment Decisions. Reinvestment refers to the use of retained earnings to replace

depreciated assets or to add to a firm’s existing stock of capital. Aside from competitive factors,

a company may need several years of almost total reinvestment (and often allocation of

additional funds) in order to realize its objectives at a given location.

2. Harvesting. Harvesting or divesting refers to the reduction in the amount of an investment; a

firm may choose to simply harvest the earnings of an operation or divest the assets there as well.

If an operation no longer fits a company’s overall strategy, or if better opportunities exist

elsewhere, it must determine how to exit that operation. When selling or closing facilities, firms

must consider possible government performance contracts as well as potential adverse publicity,

plus the possible difficulty in re-establishing operations in that country in the future.

2. Interdependence of Locations

It is often difficult to assess the true impact a particular foreign subsidiary has on other

operations within an MNE if several operations are interdependent. In the case of intra-firm

sales, transfer pricing strategy will definitely affect the relative profitability of one unit as

compared to another. Likewise, the net value of a particular operation may be similarly distorted

for corporate profit maximization purposes.

3. Geographic Diversification versus Concentration

A firm may take different paths en route to gaining a sizable presence in most countries. At one

end of the spectrum is a diversification strategy, whereby a firm moves rapidly into many foreign

countries and then gradually builds its presence in each. At the other end of the spectrum is a

concentration strategy, whereby a firm moves into a limited number of countries and develops a

strong competitive position there before moving into others. When deciding which strategy, or

perhaps some hybrid of the two, is desirable, a firm must consider a number of variables.

1. Growth Rate in Each Market. When the growth rate in each market is high, a firm will likely

concentrate on a few markets because of the cost of keeping up with market expansion.

2. Sales Stability in Each Market. The more stable sales and profits are within a single market,

the less advantageous a diversification strategy will be.3

3. Competitive Lead Time. Sequential entry into multiple markets is more common than

simultaneous entry. If a firm has a long lead time before competitors can copy or supercede its

advantages, then it may be able to follow a concentration strategy and still beat competitors to

other markets.

4. Spillover Effects. Spillover effects represent situations in which a marketing program in one

country results in the awareness of a product in other countries. When a single marketing

program can reach many countries (via cross-country media, for example), a diversification

strategy is advantageous.

5. Need for Product, Communication, and Distribution Adaptation. When companies find it

necessary to alter products, promotion and/or distribution strategies in foreign markets, a

concentration strategy will be advantageous because the associated costs cannot be spread over

sales in other countries to capture economies of scale.

6. Program Control Requirements. The more a company needs control over a foreign operation,

the more appropriate a concentration strategy because additional resources will be required to

maintain that control.

7. Extent of Constraints. When a firm is constrained by limited resources, it will likely follow a

concentration strategy because spreading resources too thinly can be a recipe for failure.

1.3 NONCOMPARATIVE DECISION MAKING

Companies often examine one opportunity at a time rather than ranking a set of foreign operating

proposals using predetermined criteria. This sequential process leads to go-no-go decisions and

is often necessary due to the speed with which companies need to respond to opportunities as

they arise. Decision makers often need to react quickly for both offensive and defensive motives.

The cost of conducting an extensive analysis of multiple opportunities simultaneously can also

sometimes be prohibitive.

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1.4 MAKING FINAL COUNTRY SELECTIONS

At some point, firms must make resource allocation decisions. For new investments they will

need to develop detailed estimates of all costs and expenses and consider whether to enter a

particular venture alone or with a partner. For acquisitions, firms will need to examine financial

statements in great detail. For expansion within countries where they are already operating,

country managers will most likely submit capital budget requests that include details of expected

returns. To maximize expected gains, decisions must be made in a timely fashion.

1.5 LOOKING TO THE FUTURE

There are several important demographic shifts that are expected to occur over the next several

decades. Population growth in high income countries is expected to slow and populations are

actually expected to decline in countries such as Japan and Italy. Meanwhile, population growth

in low-income countries is expected to be robust. Since there is a positive relationship between

the changes in the size of the working-age population and per capita GDP, the growth in per

capita GDP should be higher in today’s emerging economies than in today’s high-income

countries. These changes could have significant implications for the location of markets and the

location of labor forces. Another trend that could influence country selection is the propensity of

innovative people to converge on places that develop reputations for facilitating creativity and

innovation. Even with technologies that allow people to work from home or in virtual office

environments, face-to-face contact will continue to be important—especially among the best and

brightest.

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2. FACTORS FOR CONSIDERING COUNTRY EVALUATION AND

SELECTION

Because companies lack the resources to take advantage of all international opportunities they

identify, they must determine both the order of country entry as well as the rates of resource

allocation across countries. In choosing geographic sites, a firm must determine both where to

market and where to produce. The answer can be one and the same place if transportation costs

are high and/or government regulations make local production a necessity. In many industries,

facilities must be located near foreign customers; in others, market and production sites are

continents away. Developing a site location strategy that helps a firm maximize its resources and

competitive position is very challenging, given that many estimates and assumptions about

factors such as future costs and prices and competitors’ reactions must be made.

2.1 SCANNING AND DETAILED EXAMINATION COMPARED

Scanning is useful insofar as a company might otherwise consider either too few or too many

possibilities. Through the use of scanning, decision makers can perform a detailed analysis of a

manageable number of geographic locations. Managers can usually complete the scanning

process without having to incur the expense of visiting foreign countries. Instead they rely on

analyzing information found on the Internet and other publicly available sources, as well as

communicating with people familiar with the foreign countries they are interested in. The more

time and money companies invest in examining an alternative, the more likely they are to accept

it regardless of its merits—a phenomenon known as escalation of commitment. Companies

should be careful about taking forced actions based on peer and/or media pressure and should

instead carefully weigh important variables when comparing countries of interest.

2.2 IMPORTANT INFORMATION

Environmental climate—the external conditions in a host country that could significantly affect

an enterprise’s success or failure—reveals both opportunities and risk whose combination should

determine what actions to take.

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A. Opportunities

Opportunities are determined by competitiveness and profitability factors. Variables

weighing heavily on the selection of market and production sites would include market

size, ease and compatibility of operations, costs, resource availability and red tape.

1. Market Size. Market size is determined by sales potential. In some instances, past

and current sales for either an existing product or a similar or complementary

product are available on a country-by-country basis. In addition, data such as GNP,

per capita income, population, income distribution, economic growth rates, and

levels of economic development will also be useful. Other important economic

variables pertaining to market size include:

• Obsolescence and leapfrogging of products. Consumers in some emerging

economies skip entire generations of technology in favor of more recent

technologies, such as Chinese consumers going from having no telephones to

using cellular phones almost exclusively.

• Prices. The relative prices of essential and non-essential good can have a

significant impact on consumption patterns. Higher prices for necessary goods

leave less discretionary income for non-essentials.

• Income elasticity. Market potential can be calculated by dividing the

percentage of change in product demand by the percentage of change in

income in a give country. Income elasticity varies by product and income

level, with demand for necessities being less elastic than demand for luxuries.

• Substitution. Depending on local conditions, consumers in some countries

may be more willing to substitute some products or services for others. For

example, people in high population density areas typically substitute mass

transit for automobiles.

• Income inequality. Even in areas where per capita incomes are low, there may

be middle- and upper-income people with substantial income to spend due to

income inequality.

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• Cultural factors and taste. Countries with similar income levels may exhibit

different demand patterns based on differences in cultural values and tastes.

• Existence of trading blocs. Countries with small populations and/or low per

capita incomes may have a much larger market due to participation in a

regional trading block.

2. Ease and Compatibility of Operations. Companies are naturally attracted to

countries that are located nearby, share the same language and offer market

conditions similar to those in their home countries. Beyond that, proposals may

then be limited to those countries that offer, among other factors, the appropriate

plant size, the local availability of resources, an acceptable percentage of ownership

and the sufficient repatriation of profits.

3. Costs and Resource Availability. Costs are a critical factor in production-location

decisions. Productivity-related factors include the cost of labor, the cost of inputs,

tax rates, and available capital, utilities, real estate, and transportation. When

companies move into emerging economies because of labor cost differences alone,

their advantages may be short-lived. Competitors often follow leaders into low-

wage areas, there is little first-in advantage for low-labor cost production migration,

and the costs can rise quickly as a result of pressure on wage or exchange rates.

The quality of a country’s infrastructure can be very important in location

decisions. Firms often need to locate in an area that will allow them to move

supplies and finished products very efficiently. If a given production site will be

used to serve multiple markets, the cost and ease of moving materials and products

in and out the country will be especially important.

4. Red Tape and Corruption. Red tape includes the difficulty of getting permission

to operate, bringing in expatriate personnel, obtaining licenses to produce and

market goods and satisfying government agencies on matters such as taxes, labor

conditions and environmental compliance. Government corruption may include

requirements of payments to win a contract or receive government services, such as

mail delivery or visa issuance. Although not always a directly measurable cost, red

tape and corruption increase the cost of doing business. 8

B. Risks

Is it ever rational for a firm to invest in a country with high economic and political risk

ratings? Such questions must be carefully weighed when making international

capital-investment decisions.

1. Risk and Uncertainty. Firms usually experience higher risk and uncertainty when

they operate abroad. Firms use a variety of financial techniques to compare

potential investments, including discounted cash flows, economic value added,

payback period, net present value, return on sales, return on equity, return on assets

employed, internal rate of return and the accounting rate of return. Given the same

expected return, most decision makers prefer a more certain outcome to a less

certain one. Companies may reduce risk or uncertainty by insuring, however,

insuring against things such as nonconvertibility of funds or expropriation is likely

to be costly. As part of a feasibility study, the degree of acceptable risk should be

determined so a firm does not incur unacceptable costs.

2. Liability of Foreignness. The liability of foreignness refers to the fact that

foreign firms have a lower rate of survival than local firms for the initial years after

the start of operations. However, those foreign firms that manage to overcome their

initial problems have long-term survival rates comparable to those of local firms.

3. Competitive Risk. A firm’s innovative advantage may be short-lived. When

pursuing a strategy known as imitation lag, a firm moves first to those countries

most likely to adapt and catch up to the advantage. In some instances firms may

seek those countries where they are least likely to confront significant competition;

in others they may gain advantages by moving into countries where competitors are

already present. By being the first major competitor in a market, companies can

more easily gain the best partners, best locations, and best suppliers—a strategy to

gain first mover advantage. Companies may also reduce risk by avoiding

overcrowded markets, or conversely, they may purposely crowd a market to

prevent competitors from gaining advantages therein that they can use to improve

their competitive positions elsewhere, a situation known as oligopolistic reaction.

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Firms may also seek “clusters” like Silicon Valley that attract multiple suppliers,

customers and highly trained personnel in order to gain access to new products,

technologies, and markets.

4. Monetary Risk. If a firm’s expansion occurs through foreign-direct investment,

foreign-exchange rates and access to investment capital and earnings are key

considerations. Liquidity preference refers to the theory investors want some of

the holdings to be in highly liquid assets on which they are willing to take a lower

return. Firms must carefully evaluate a country’s present capital controls, recent

exchange-rate stability, balance-of-payments account, inflation rate, and level of

government spending.

5. Political Risk. Political risk reflects the expectation the political climate in a given

country will change in such a way that a firm’s operating position will deteriorate.

It relates to changes in political leaders’ opinions and policies, civil disorder, and

animosity between a home and host country. When evaluating political risk,

decision makers refer to past patterns in a given country, expert opinions and

country analysts. They also look for economic and social conditions that could lead

to political instability, but there is no consensus as to what constitutes dangerous

instability or how it can be predicted.

2.3 MATTER OF GEOGRAPHY

Natural disasters have a huge impact on people and property every year, often hitting the poorest

nations of the world hardest. Companies should take the risk of natural disasters and their

potential impact into account when choosing locations for doing business. The United Nations

Development Programme is developing a Disaster Risk Index that could be used as a tool for

companies to compare and prepare for disaster risk. Natural disasters can also trigger outbreaks

of disease, which should also be considered when choosing locations for global operations.

2.4 COLLECT AND ANALYZE DATA

Firms perform research to reduce uncertainties in their decision processes, to expand or narrow

the alternatives they consider and to assess the merits of their existing programs. The costs of

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data collection should always be weighed against the probable payoffs in terms of revenue gains

or cost savings.

B. Problems with Research Results and Data

Numerous countries have agreed to standards for collecting and publishing various

categories of national data. However, the lack, obsolescence and inaccuracy of data on

other countries can make research difficult and expensive to undertake. Further, data

discrepancies further increase uncertainty in decision-making.

1. Reasons for Inaccuracies. For the most part, incomplete or inaccurate data result

from the inability of governments to collect the needed information. Both economic

and educational factors will affect the quantity and quality of available data. Of

equal concern, however, is the publication of false or purposely misleading

information, as well as the non-reporting or under-reporting of information people

wish to hide or distort.

2. Comparability Problems. Comparability problems result from definitional

differences across countries (e.g., family categories, literacy levels, accounting

rules), differences in base years, distortions in foreign currency conversions, the

measurement of investment flows, the presence of black market activities, etc.

C. External Sources of Information

Both the specificity and cost of information will vary by source.

1. Individualized Reports. Market research and business consulting firms conduct

country studies for a fee. The fact that a firm can specify the information it wants

may make the cost worthwhile.

2. Specialized Studies. Certain research organizations generate specific studies about

countries, regions, industries, issues, etc., that they make available for general

purchase. The price is much lower than for an individualized study.

3. Service Companies. Most international service-related firms publish reports that

are usually geared toward either the conduct of business in a given country or

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region or about some specific subject of general interest, such as tax or trademark

legislation.

4. Government Agencies. Governments and their agencies publish tomes of

information designed to stimulate business activity both at home and abroad.

5. International Organizations and Agencies. The UN, the WTO, the IMF, the

OECD, and the EU are but a few of the multilateral organizations and agencies that

collect and disseminate data. Many of the international development banks even

help fund investment feasibility studies.

6. Trade Associations. Many trade associations collect, evaluate, and disseminate a

wide variety of data dealing with competitive and technical factors in their

industries. Their reports may or may not be available to non-members.

7. Information Service Companies. Certain companies offer information-retrieval

services; they maintain databases from hundreds of sources from which they will

access data for a fee, or sometimes for free at public libraries.

D. Internal Generation of Data

When firms have to conduct studies in foreign countries, they may find traditional data

gathering and analytical methods do not reveal critical insights. In that case, a

researcher must be extremely imaginative and observant. In some instances, useful

information may be found by analyzing indirect or complementary indicators.

2.5 POINT-COUNTERPOINT

POINT: MNEs should not make investments in violent areas because it puts MNE personnel at

risk. MNEs are visible and therefore vulnerable to attack by anti-globalization groups,

kidnappers, groups opposed to foreigners, as well as others. It is unethical to put employees in

excessively dangerous situations. Employees who will take dangerous assignments are usually

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either difficult to control, excessively naïve, or addicted to the thrill of danger. Any country

subject to extreme violence is not the kind of country to do business in.

COUNTERPOINT: Where there’s risk, there are usually rewards. Companies need to take risks,

as they have in the past, to develop markets. Violence is only one of many risks and should not

be looked at in isolation. Risks from activities such as terrorism are the same whether you are in

London, Madrid, Caracas, or New York. All areas have their risks, and many countries

traditionally viewed as risky may actually be less risky than the United States or Britain. Some

industries, such as petroleum, have to operate in violent areas because that is where the resources

are. MNEs should operate anywhere there are opportunities, and develop plans to manage and

react to risks as effectively as possible.

2.6 COUNTRY COMPARISON TOOLS

Two common tools for analyzing information collected via scanning are grids and matrices.

Also, once a firm commits to a location, it will need continuous updates regarding external

conditions that might affect its operations there.

E. Grids

A grid can be used to make country comparisons according to a wide variety of relevant

factors, such as ownership rules, potential returns, and perceived risk. Variables can be

ranked and weighted according to specific criteria that reflect a firm’s situation and

objectives. Although useful for establishing minimum scores and for ranking countries,

grids often obscure interrelationships among countries.

F. Matrices [See Figure 12.7]

One matrix frequently used when doing country comparisons is the opportunity-risk

matrix. When using this matrix, the manager plots a country according to the perceived

value of the opportunity the country offers, on the one hand, and the expected level of

risk associated with operating in that country on the other. Which factors are good

indicators of risk and opportunity and the weight assigned to each must be identified

and assigned by the firm. Once scores are determined for each country being

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considered, they can be plotted and reviewed from a comparative perspective. A useful

application of this technique is to develop both present and future scores for countries

(e.g., five years hence) because a significant shift in a score in the future could have

serious implications with respect to the country selection process.

2.7 ALLOCATING AMONG LOCATIONS

Over time, most of the value of a firm’s FDI comes from reinvestment. Thus, in deciding

where to invest, firms must consider whether to reinvest or harvest, to what degree there is

interdependence among their locations and whether they should diversify or concentrate

their activities.

G. Reinvestment versus Harvesting

Once a firm makes an initial investment, it will then need to decide whether to continue

investing in that operation or to harvest the earnings (and possibly divest the assets) and

use them elsewhere.

1. Reinvestment Decisions. Reinvestment refers to the use of retained earnings to

replace depreciated assets or to add to a firm’s existing stock of capital. Aside from

competitive factors, a company may need several years of almost total reinvestment

(and often allocation of additional funds) in order to realize its objectives at a given

location.

2. Harvesting. Harvesting or divesting refers to the reduction in the amount of an

investment; a firm may choose to simply harvest the earnings of an operation or

divest the assets there as well. If an operation no longer fits a company’s overall

strategy, or if better opportunities exist elsewhere, it must determine how to exit

that operation. When selling or closing facilities, firms must consider possible

government performance contracts as well as potential adverse publicity, plus the

possible difficulty in re-establishing operations in that country in the future.

H. Interdependence of Locations

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It is often difficult to assess the true impact a particular foreign subsidiary has on other

operations within an MNE if several operations are interdependent. In the case of intra-

firm sales, transfer pricing strategy will definitely affect the relative profitability of one

unit as compared to another. Likewise, the net value of a particular operation may be

similarly distorted for corporate profit maximization purposes.

I. Geographic Diversification versus Concentration

A firm may take different paths en route to gaining a sizable presence in most countries.

At one end of the spectrum is a diversification strategy, whereby a firm moves rapidly

into many foreign countries and then gradually builds its presence in each. At the other

end of the spectrum is a concentration strategy, whereby a firm moves into a limited

number of countries and develops a strong competitive position there before moving

into others. When deciding which strategy, or perhaps some hybrid of the two, is

desirable, a firm must consider a number of variables (see Table 12.3).

1. Growth Rate in Each Market. When the growth rate in each market is high, a

firm will likely concentrate on a few markets because of the cost of keeping up

with market expansion.

2. Sales Stability in Each Market. The more stable sales and profits are within a

single market, the less advantageous a diversification strategy will be.

3. Competitive Lead Time. Sequential entry into multiple markets is more common

than simultaneous entry. If a firm has a long lead time before competitors can copy

or supercede its advantages, then it may be able to follow a concentration strategy

and still beat competitors to other markets.

4. Spillover Effects. Spillover effects represent situations in which a marketing

program in one country results in the awareness of a product in other countries.

When a single marketing program can reach many countries (via cross-country

media, for example), a diversification strategy is advantageous.

5. Need for Product, Communication, and Distribution Adaptation. When

companies find it necessary to alter products, promotion and/or distribution

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strategies in foreign markets, a concentration strategy will be advantageous because

the associated costs cannot be spread over sales in other countries to capture

economies of scale.

6. Program Control Requirements. The more a company needs control over a

foreign operation, the more appropriate a concentration strategy because additional

resources will be required to maintain that control.

7. Extent of Constraints. When a firm is constrained by limited resources, it will

likely follow a concentration strategy because spreading resources too thinly can be

a recipe for failure.

2.8 NONCOMPARATIVE DECISION MAKING

Companies often examine one opportunity at a time rather than ranking a set of foreign operating

proposals using predetermined criteria. This sequential process leads to go-no-go decisions and

is often necessary due to the speed with which companies need to respond to opportunities as

they arise. Decision makers often need to react quickly for both offensive and defensive

motives. The cost of conducting an extensive analysis of multiple opportunities simultaneously

can also sometimes be prohibitive.

2.9 MAKING FINAL COUNTRY SELECTIONS







2.10 LOOKING TO FUTURE



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brightest.

Many expected that the post-apartheid government of South Africa would take revenge against

the previous elites of the country, including foreign companies, and discourage new foreign

investment. Instead, the new government has adopted a largely pro-business attitude and has

actively courted FDI. The results of this policy have been somewhat mixed. Despite enormous

opportunity, many foreign investors have been reluctant to enter the South African market due to

low economic growth rates, continued political instability, and high security risks.

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3. MANAGEMENT OF THE COUNTRY EVALUATIONS

Each evaluation should be managed in-country, led by a National Evaluation Coordinator

appointed by the government. The National Coordinator may wish to “team-up” with a

development partner‟s Evaluation Department to facilitate the evaluation and assure funding and

possibly other support. Whether such an arrangement is made or not, the National Evaluation

Coordinator should be supported by a National Reference Group comprising relevant national

stakeholders and development partners.

The National Evaluation Coordinator, appointed by the Government, is responsible for

managing all aspects of the Country Evaluation process including, most importantly:

1. Setting up and scheduling and convening meetings of the in-country National Reference

Group, expected to include major stakeholders from governments, donors, civil society and

possibly academia;

2. Developing final ToRs for the Country Evaluation in consultation with the National Reference

Group; incorporating the common evaluation matrix for Country Evaluations and (if required) a

module with country-specific evaluation questions;

3. Contracting of the consultants for the Country Evaluation (with selection where possible by

the National Reference Group);

4. Assuring that the evaluation is of acceptable quality in reference to the chosen national,

regional and/or international (DAC) standards and drawing on the pro-active and responsive

services of the Core Evaluation Team and the Evaluation Secretariat.

5. Act as in-country focal point for contact to the Evaluation‟s overall Management and

Reference groups for the evaluation.

6. Bi-monthly reporting to the Evaluation Secretariat on the progress of the evaluation in a

common simple format.

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This management role will require significant inputs of „dedicated management time‟ over the

whole evaluation process, with concentrated effort anticipated during the start-up period,

inception, first draft report and final reporting milestones.

The National Reference Group should include major stakeholders from government, donors,

civil society and possibly academia. The purpose of this group is to ensure stakeholders‟

participation and buy-in to the evaluation process and results and to assure the independence of

the evaluation.

The National Reference Group has the following important functions:

1. Endorsing the design of the country evaluation that comprises a common set of evaluation

questions applicable to all country level evaluations and where desired a module with

supplementary, country-specific evaluation questions.

2. Oversee the recruitment of the members of country evaluation teams, consistent with the

selection criteria and national procurement or tender rules

3. Serving as a resource and to provide advice and feedback to the National Coordinator and

Team

4. Helping to ensure the independence, integrity and quality of the evaluation;

5. Reviewing and commenting on (but not approving) the draft products of the respective

country study

The National Reference Group should also have an important role to play in accessing

information; exerting quality control; linking to government and engaging civil society;

facilitating the necessary wider consultation; and encouraging the use and usefulness of the

evaluations findings.

Each Country Evaluation is expected to develop and implement a „Communication Plan‟

through which stakeholders for the evaluation within the country will be kept informed and

engaged. A variety of channels and activities should be used and opportunities maximized to link

to key points in national strategic and decision-making cycles and with key events in the

international dialogue on aid effectiveness and MDG trends over the coming two years to build

policy engagement with the study and ensure its timely contribution to the debates.

These roles will require a Group with sufficient representation from among key stakeholders,

good credibility and access together with the necessary measure of independence. The tasks will

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imply the need for a series of dedicated inputs of time from the individual members of the

National Reference Group.

Selection of independent evaluation teams

The success of an evaluation depends on the composition of the evaluation team and the

competence and personal abilities of the team members. This applies in particular to the team

leader who should be the one concerned with the overall perspective, able to organize and co-

ordinate the work of the team members, assess the quality and relevance of their contributions,

assure the timely delivery of reports, and the handling of comments and act as a spokesperson for

the team.

Members of the evaluation team should represent relevant professional areas, and reflect gender

balance. A separate guidance note on evaluation team qualifications and procurement is attached

as annex A.

To safeguard impartiality, members of the evaluation team should not have been personally

involved in the activities to be evaluated; as well, companies/organisations conducting

evaluations should not have been involved in the preparation or implementation of those

activities. In the case of the Paris Declaration this may be a difficult requirement to meet for

national experts/companies. It is therefore recommended to combine national with regional or

international experts.

Financing Country Evaluations

Procurement of country evaluation teams should follow national rules and regulations.

The Indicative budget for a country evaluation is € 80.000 or $ 120.000. Concurrent with

developing the country specific Terms of Reference an eye should be kept on cost implications.

Funding for the country evaluations may be obtained from different sources:

1. Countries may finance the country evaluation from own sources or raise funds from donors in

country. This is the preferred option as already existing systems can be used.

2. Country evaluations may be financed from the Core Fund held by the PDE Secretariat at DIIS.

Individual funding agreements will be negotiated between DIIS and the country:

3. Several donors have pledged direct funding for one or more country evaluations. In these

cases funding arrangements will be negotiated between the donor and the country.

20

Quality Assurance and Control

Ultimately, the National Evaluation Coordinator is responsible for assuring that the evaluation is

of acceptable quality before submitting the evaluation report to the Core Team. (The evaluation

report should adequately address the information needs of the commissioning body and other

stakeholders. It should answer all questions included in the Terms of Reference.) The quality

should be assessed against national, regional or international Evaluation Quality Standards (e.g.

the DAC Standards). Preference should be given to national standards where they exist.

Each evaluation team should establish internal quality assurance and control systems. The Team

Leader [or contracted institution for whom the TL works] is accountable for the organization and

co-ordination of the work of the Evaluation Team (and through this ensuring the quality and

relevance of team member contributions) and assuring the delivery of emerging findings,

conclusions and recommendations, as well as a comprehensive final report which meets

evaluation standards, within the contracted timeframe/ specifications.

The National Reference Group has an important role to play in supporting the National

Evaluation Coordinator by assessing the draft inception and final reports for validity and

reliability of information, clarity of analysis (that conclusions are substantiated by findings,

which are consistent with data collected and that recommendations and lessons learnt follow

from the conclusions) and any disagreements among the members of the evaluation team or

between the evaluation team and relevant partners that are significant to conclusions and

recommendations are reflected in the report, either in the form of comments in the text, footnotes

or as a special section.

Quality assurance and control should not be mixed up with acceptance of the conclusions of the

evaluation. The evaluation team has the final responsibility for the contents of the report.

The Core Evaluation Team will work both pro-actively and responsively to engage with and

support the Country Evaluations. In addition to important arrangements for indirect support, face

to face opportunities will be utilized to help lay solid foundations and clear directions for

Country Evaluations to follow, support continuing adherence to evaluation standards, provide

guidance if/ where evaluation teams run into problems, and facilitate sharing and learning among

country teams. The Core Team will provide and document its quality review feedback to the

Country Teams and Reference Groups, as well as the Secretariat and Management Group.

21

4. INTERNATIONAL MARKET ENTRY EVALUATION PROCESS

How to Enter a Foreign Market

This lesson gives an outline of the way in which an organization should select which foreign to

enter. The International Marketing Entry Evaluation Process is a five stage process, and its

purpose is to gauge which international market or markets offer the best opportunities for our

products or services to succeed. The five steps are Country Identification, Preliminary

Screening, In-Depth Screening, Final Selection and Direct Experience. Let's take a look at each

step in turn.

Step One - Country Identification

The World is your oyster. You can choose any country to go into. So you conduct country

identification - which means that you undertake a general overview of potential new markets.

There might be a simple match - for example two countries might share a similar heritage e.g.

the United Kingdom and Australia, a similar language e.g. the United States and Australia, or

even a similar culture, political ideology or religion e.g. China and Cuba. Often selection at this

stage is more straightforward. For example a country is nearby e.g. Canada and the United

States. Alternatively your export market is in the same trading zone e.g. the European Union.

Again at this point it is very early days and potential export markets could be included or

discarded for any number of reasons.

22

Step Two - Preliminary Screening

At this second stage one takes a more serious look at those countries remaining after undergoing

preliminary screening. Now you begin to score, weight and rank nations based upon macro-

economic factors such as currency stability, exchange rates, level of domestiv consumption and

so on. Now you have the basis to start calculating the nature of market entry costs. Some

countries such as China require that some fraction of the company entering the market is owned

domestically - this would need to be taken into account. There are some nations that are

experiencing political instability and any company entering such a market would need to be

rewarded for the risk that they would take. At this point the marketing manager could decide

upon a shorter list of countries that he or she would wish to enter. Now in-depth screening can

begin.

Step Three - In-Depth Screening

The countries that make it to stage three would all be considered feasible for market entry. So it

is vital that detailed information on the target market is obtained so that marketing decision-

making can be accurate. Now one can deal with not only micro-economic factors but also local

conditions such as marketing research in relation to the marketing mix i.e. what prices can be

charged in the nation? - How does one distribute a product or service such as ours in the nation?

How should we communicate with are target segments in the nation? How does our product or

service need to be adapted for the nation? All of this will information will for the basis of

segmentation, targeting and positioning. One could also take into account the value of the

nation's market, any tariffs or quotas in operation, and similar opportunities or threats to new

entrants.

Step Four - Final Selection

Now a final shortlist of potential nations is decided upon. Managers would reflect upon strategic

goals and look for a match in the nations at hand. The company could look at close competitors

or similar domestic companies that have already entered the market to get firmer costs in relation

to market entry. Managers could also look at other nations that it has entered to see if there are

any similarities, or learning that can be used to assist with decision-making in this instance. A

23

final scoring, ranking and weighting can be undertaken based upon more focused criteria. After

this exercise the marketing manager should probably try to visit the final handful of nations

remaining on the short, shortlist.

Step Five - Direct Experience

Personal experience is important. Marketing manager or their representatives should travel to a

particular nation to experience firsthand the nation's culture and business practices. On a first

impressions basis at least one can ascertain in what ways the nation is similar or dissimilar to

your own domestic market or the others in which your company already trades. Now you will

need to be careful in respect of self-referencing. Remember that your experience to date is based

upon your life mainly in your own nation and your expectations will be based upon what your

already know. Try to be flexible and experimental in new nations, and don't be judgemental - it's

about what's best for your company - happy hunting.

24

5. EVALUATING COUNTRY RISK FOR INTERNATIONAL INVESTING

Many investors choose to place a portion of their portfolios in foreign securities. This decision

involves an analysis of various mutual funds, exchange-traded funds (ETF), or stock and bond

offerings. However, investors often neglect an important first step in the process of international

investing. When done properly, the decision to invest overseas begins with a determination of the

riskiness of the investment climate in the country under consideration. Country risk refers to the

economic, political and business risks that are unique to a specific country, and that might result

in unexpected investment losses. This article will examine the concept of country risk and how it

can be analyzed by investors.

5.1 ECONOMIC AND POLITICAL RISK

The following are two main sources of risk that need be considered when investing in a foreign

country.

Economic risk: This risk refers to a country's ability to pay back its debts. A country with

stable finances and a stronger economy should provide more reliable investments than a

country with weaker finances or an unsound economy.

Political risk: This risk refers to the political decisions made within a country that might

result in an unanticipated loss to investors. While economic risk is often referred to as a

country's ability to pay back its debts, political risk is sometimes referred to as the

willingness of a country to pay debts or maintain a hospitable climate for outside

investment. Even if a country's economy is strong, if the political climate is unfriendly

(or becomes unfriendly) to outside investors, the country may not be a good candidate for

investment.

5.2 MEASURING ECONOMIC AND POLITICAL RISK

Just as corporations in the U.S. receive credit ratings to determine their ability to repay their

debt, so do countries. In fact, virtually every investable country in the world receives ratings

from Moody's, Standard & Poor's (S&P), or the other large rating agencies. A country with a

higher credit rating is considered a safer investment than a country with a lower credit rating.

Examining the credit ratings of a country is an excellent way to begin the analysis of a potential

25

http://www.investopedia.com/terms/p/politicalrisk.asp

http://www.investopedia.com/terms/c/countryrisk.asp

http://www.investopedia.com/terms/e/etf.asp

investment.

Another important step in deciding on an investment is to examine a country's economic and

financial fundamentals. Different analysts prefer different measures, but almost everyone looks

at a country's gross domestic product (GDP), inflation and Consumer Price Index (CPI) readings

when considering an investment. Investors will also want to carefully evaluate the structure of

the country's financial markets, the availability of attractive investment alternatives, and the

recent performance of local stock and bond markets.

5.3 SOURCES OF INFORMATION ON COUNTRY RISK

There are many excellent sources of information on the economic and political climate of foreign

countries. Newspapers, such as the New York Times, the Wall Street Journal and the Financial

Times dedicate significant coverage to overseas events. There are also many excellent weekly

magazines covering international economics and politics; the Economist is generally considered

to be the standard bearer among weekly publications.

For those seeking more in-depth coverage of a particular country or region, two excellent sources

of objective, comprehensive country information are the Economist Intelligence Unit and the

Central Intelligence Agency (CIA) World Fact Book. Either of these resources provides an

investor with a broad overview of the economic, political, demographic and social climate of a

country. The Economist Intelligence Unit also provides ratings for most of the world's countries.

These ratings can be used to supplement those issued by Moody's, S&P, and the other

"traditional" ratings agencies.

Finally, the internet provides access to a host of information, including international editions of

many foreign newspapers and magazines. Reviewing locally produced news sources can

sometimes provide a different perspective on the attractiveness of a country under consideration

for investment.

5.4 DEVELOPED MARKETS, EMERGING MARKETS AND FRONTIER MARKETS

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https://www.cia.gov/library/publications/the-world-factbook/

http://www.eiu.com/index.asp?rf=0

http://www.investopedia.com/terms/c/consumerpriceindex.asp

http://www.investopedia.com/terms/g/gdp.asp

When considering international investments, there are three types of markets from which to

choose.

Developed markets consist of the largest, most industrialized economies. Their economic

systems are well developed, they are politically stable, and the rule of law is well

entrenched. Developed markets are usually considered the safest investment destinations,

but their economic growth rates often trail those of countries in an earlier stage of

development. Investment analysis of developed markets usually concentrates on the

current economic and market cycles; political considerations are often a less important

consideration. Examples of developed markets include the U.S., Canada, France, Japan

and Australia.

Emerging markets experience rapid industrialization and often demonstrate extremely

high levels of economic growth. This strong economic growth can sometimes translate

into investment returns that are superior to those that are available in developed markets.

However, emerging markets are also riskier than developed markets; there is often more

political uncertainty in emerging markets, and their economies may be more prone to

excessive booms and busts. In addition to carefully evaluating an emerging market's

economic and financial fundamentals, investors should pay close attention to the

country's political climate and the potential for unexpected political developments. Many

of the fastest growing economies in the world, including China, India and Brazil, are

considered emerging markets. (For related reading, see What Is An Emerging Market

Economy?)

Frontier markets represent "the next wave" of investment destinations. Frontier markets

are generally either smaller than traditional emerging markets, or are found in countries

that place restrictions on the ability of foreigners to invest. Although frontier markets can

be exceptionally risky and often suffer from low levels of liquidity, they also offer the

potential for above average returns over time. Frontier markets are also not well

correlated with other, more traditional investment destinations, which mean that they

provide additional diversification benefits when held in a well-rounded investment

portfolio. As with emerging markets, investors in frontier markets must pay careful

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http://www.investopedia.com/terms/d/diversification.asp

http://www.investopedia.com/terms/l/liquidity.asp

http://www.investopedia.com/articles/03/073003.asp

http://www.investopedia.com/articles/03/073003.asp

http://www.investopedia.com/terms/b/boom.asp

http://www.investopedia.com/terms/e/emergingmarketeconomy.asp

attention to the political environment, as well as to economic and financial developments.

Examples of frontier markets include Nigeria, Botswana and Kuwait.

5.5 IMPORTANT STEPS WHEN INVESTING OVERSEAS

Once country analysis has been completed, there are several investment decisions that need to be

made. The first choice is to decide where to invest, by choosing among several possible

investment approaches, including:

Investing in a broad international portfolio

Investing in a more limited portfolio focused on either emerging markets or developed

markets

Investing in a specific region, such as Europe or Latin America

Investing only in a specific country(s)

It is important to remember that diversification, which is a fundamental principle of domestic

investing, is even more important when investing internationally. Choosing to invest an entire

portfolio in a single country is not prudent. In a broadly diversified global portfolio, investments

should be allocated among developed, emerging and perhaps frontier markets. Even in a more

concentrated portfolio, investments should still be spread among several countries in order to

maximize diversification and minimize risk.

After the decision on where to invest has been made, an investor has to decide what investment

vehicles he or she wishes to invest in. Investment options include sovereign debt, stocks or bonds

of companies domiciled in the country(s) chosen, stocks or bonds of a U.S.-based company that

derives a significant portion of its revenues from the country(s) selected, or an internationally

focused exchange-traded fund (ETF) or mutual fund. The choice of investment vehicle is

dependent upon each investor's individual knowledge, experience, risk profile and return

objectives. When in doubt, it may make sense to start out by taking less risk; more risk can

always be added to the portfolio at a later date.

In addition to thoroughly researching prospective investments, an international investor also

needs to monitor his or her portfolio and adjust holdings as conditions dictate. As in the U.S.,

economic conditions overseas are constantly evolving, and political situations abroad can change 28

http://www.investopedia.com/terms/e/etf.asp

quickly, particularly in emerging or frontier markets. Situations that once seemed promising may

no longer be so, and countries that once seemed too risky might now be viable investment

candidates.

Overseas investing involves a careful analysis of the economic, political and business risks that

might result in unexpected investment losses. This analysis of country risk is a fundamental step

in the process of building and monitoring an international portfolio. Investors that use the many

excellent sources of information available to evaluate country risk will be better prepared when

constructing their international portfolios.

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6. CHOOSING FOREIGN MARKETS FOR EXPANSION

ABSTRACT

The present study proposes a unique model of evaluating and selecting host markets for

international business expansion by small and medium sized companies. Since the present status

of the international business literature is based largely on multinational companies, it cannot be

easily applied to small firms wishing to globalize their operations and seek new markets. The

contribution of this paper is though the development of a market selection and appraisal model

applicable to small and medium enterprises (SMEs) utilizing information derived from the

company, related industries, and macro environmental variables. Such information is critical to

the firm’s selection of target countries.

INTRODUCTION

Country selection is an important component of the firm’s internationalization efforts because

there are over 192 countries in the world and entering all of them is practically impossible.

Furthermore, not all countries have the same market potential. Companies, thus, need to choose

where to expand their effort and their limited resources.

Textbooks of international business often feature a simplistic approach to market selection that is

based on environmental analysis and traditional models. As such, markets possessing a large

economy, political stability, and favorable labor and legal conditions are preferred, ceteris

paribus. The existing models using macro data tend to favor large developed countries over

emerging markets due to their market size and limited risk. While this seems to be a suitable

strategy for multinational companies, small high-technology companies often encounter

wellentrenched

firms competing in their niche market within the industrialized countries. Many small companies

have niche (and sometimes mature) products for which much of the potential is in emerging

markets, ones possessing a higher level of political risk and macroeconomic fluctuations (Welsh

and Alon, 2001). For example, Turkey can be an excellent market for a small company in the

microelectronics industry due to the modernization efforts in the 1990s, the establishment of a

large military sector, and government support for hightechnology (Murillo, 2000). Alon and

30

Welsh (2001) reported about the potential for US SMEs in developing countries, such as India,

China and Brazil. Apparently, less developed and emerging nations often exhibit pent-up

demand for high technology products manufactured in the industrialized world.

BACKGROUND ON THE COMPANY

Started in 1965, Celectronics (pseudonym) currently has a sales volume of about $4½ million per

year and employs 65 people. While about 80% of the company’s sales are to the U.S.

government and military, 20% are to commercial buyers including the oil and gas industry,

aerospace and satellite manufacturers. One of the company’s objectives is to change the sales

distribution to a 50/50 ratio between government and commercial applications.

The company’s specialization includes niche high-voltage, high temperature capacitors. Since

the product is mature, the company is pursuing both new product development by designing

more complex modules and system-level electronics, and new market development by seeking

foreign markets and new applications for their existing products.

International sales account for approximately 15% of total sales. In order to lessen the domestic

business and political cycles inherent in its industry, the company wants to increase foreign sales

to about 30% of its sales within 5 years.

The company currently exports its products to Australia, Austria, Canada, France, Germany,

Israel, Italy, Japan, Norway, Sweden, and the United Kingdom. The company has nine domestic

and six international manufacturing representatives located in the United Kingdom, Germany-

Austria, Israel, Canada, Italy, and Taiwan.

International manufacturing reps were selected ad hoc over time by reacting to opportunities in

the marketplace. Therefore, the company never developed a systematic method for evaluating

manufacturer’s reps and the company has little information on the capabilities and performance

of individual manufacturer’s reps. This lack of information can lead to sub-optimal evaluation

and selection of new manufacturer’s reps.

Celectronics International Markets

Table 1 ranks the top five Celectronics’ foreign markets in order of importance. Total 2000

foreign bookings were down 40% from 1999.

31

The High Technology Electronics Sector

In a study of the internationalization of high-technology SMEs, Karagozoglu and Lindell (1998)

found that internationalization was often a function of perceived strategic opportunities in the

host market followed by inquiries from abroad. The domestic market in the high-technology

sector also played a factor in the internationalization of the firm: first, some companies

experienced insufficient domestic demand for competitiveness; second, some companies

experienced domestic market saturation and could not longer cultivate future growth in the

segment in which they were operating. Their study did not differentiate between large and

medium firms; however, it is logical to assume that smaller firms are more likely to experience

insufficient domestic demand, while larger ones are more likely to experience domestic market

saturation, ceteris paribus. Celectronics has experienced insufficient domestic market demand to

stay competitive and in full capacity.

Wolff and Pett (2000) found that small firms’ size impacts the competitive pattern used in their

exporting practices. The larger of the small firms have a greater resource base and are, thus,

more competitive internationally, but no difference exists in their export intensity.

COUNTRY SELECTION AND EVALUATION FRAMEWORK

Three levels of analyses were performed in order to prioritize the markets for Celectronics: (1)

international penetration of the company’s product line, (2) the company’s website analysis, and

(3) internationalization of the company’s main buyers. US Department of Commerce data,

company specific documents relating to website hits, and information on industries related to

Celectronics’ customer profile were utilized for this analysis.

32

Product Line Internationalization

To identify the most promising foreign markets for Celectronics Inc., we used the US

Department of Commerce export data using Schedule B numbers corresponding to Celectronics’

products. The local Chamber of Commerce provided us with these numbers. The data aggregate

both custom and standardized components in each product category and needs to be interpreted

in this context. Thus, Celectronics’ products are only a small fraction and, thus, the rank order

can only give a rough proxy for the potential demand.

International Website Hit Analysis

The data on website hits are indicative of Internet inquiries from abroad about Celectronics. We

used four different dates to show the longevity of the results and compiled the results by country

of origin.

Internationalization of Potential Buyers

We also used data about the internationalization of large potential buyers of Celectronics. This

data provide another crude measure of market potential. The company’s two primary commercial

markets are the aerospace and oil drilling industries. We used information from the US

Department of Commerce about total exports and imports in the Aerospace industry and ranked

the countries by the total volume of exports and imports.

As a leading oil producing company, Exxon Mobil’s oil/gas production was used as a proxy to

measure the potential for oil/gas drilling. The company’s output exceeds that of any OPEC

country. Again the data was ranked by country.

Measuring Potential in Foreign Markets

Based on the above results we divided markets into four categories, by counting the number of

times each country made it to the top 10 of each list. 28 unique observations emerged from the

data with Canada having the highest score (9 out of 11) followed by the UK (8 out of 11). All

other countries’ scores fell between 1 and 7. Four tiers are established arbitrarily based on the

above scoring method (See Table 2).

33

We felt comfortable with the results validity and reliability because (1) four out of the five

markets in which Celectronics has representation were in the top and second tier markets, (2) two

of the top international markets – UK and Canada – consist of 78% of the company’s known

international sales, and (3) in one top tier market – Taiwan – the company recently signed up an

agent.

Combining Market Potential with Company’s Capabilities

While Table 2 shows the market potential of selected markets, these opportunities must be

viewed in the context of the firm’s resources, skills and abilities. Since Celectronics is a

relatively small firm with modest resources and limited international experience, we suggest that

the company will first focus on countries with little cultural and physical distance and with a

similar business environment to the one in the United States. Therefore, Celectronics should

examine the market potential via country specific business plans in the following order:

English-speaking countries (limited linguistic differences)

Western European countries (similar socioeconomic structure)

Developed countries elsewhere (high income)

Promising emerging markets (future growth)

We crossed referenced ease of entry with market potential to arrive at the highest potential

markets for near-term entry and divided them by region as follows:

34

Europe

France

Netherlands

Finland

Norway

Asia

Singapore

Australia

Hong Kong

South America

Mexico

Brazil

Argentina

Since this analysis was performed, the company has begun negotiation with an agent in Brazil

and an alliance with a competitor in France. Specific international business plans need to be

developed for each of the above markets in order to analyze the business conditions in these

markets.

CONCLUSION

The experience of Celectronics is not unique. That is, many SMEs are confronted with potential

overseas and need to evaluate their foreign opportunities in order to prioritize their markets and

distribute scarce resources (e.g., financial, managerial, time).

This article proposed a 6-step model that can be used by small high technology firms for

selecting foreign target markets:

(1) Examining the product exports

Celectronics used government figures on product exports based on commodity numbers taken

directly from the export documentation’s schedule B. This is an excellent indicator of market

export potential because it is directly related to the company’s products.

Some researchers suggested that government programs promoting international business may

divert the SME’s attention away from its core capabilities in product innovation (Acs, Morck,

and Yeung, 2001). This is because the SME’s resources are scarce and by entering the value

chain of already-established multinational enterprises they are at a competitive disadvantage. For 35

Celectronics, the US Department of Commerce was very useful in terms of providing relevant

and useable information as well as other assistance through programs promoting international

trade.

(2) Analyzing website hits

At the nexus of globalization and advances in technology is the Internet. Accessible to the world,

the company’s website can increasingly and more effectively be used to promote and manage its

international operations. Most exporting companies today, especially hightechnology firms, are

likely to have websites that can convey information about the country of origin of its users.

While this measure can be volatile, over time it can provide a rich source of data on the countries

that show most interest in the company’s products.

Celectronics’ website provides both information and interaction, but not transaction or

webenabled business. Transactions are handled through the manufacturing rep. Also, the website

is only in (American) English. For Celectronics enhancing the website can greatly develop its

international outreach. A more comprehensive Internet-based international business strategy is

thus needed.

(3) Following at the customers’ globalization

One can look at the customers and/or competitors to find relevant foreign markets. Since

competitors of Celectronics tend to be other small firms, not publicly trade or known, little

information existed on competitors.

Celectronics, despite its small volume of sales, is the largest in its segment. The company is

competing in a niche market of the electronics industry, where there was no obvious competition

from the multinational companies. In fact, some of the multinationals were potential customers

since they have outsourced some of the manufacturing functions in which they do not have a

competency. Examining the internationalization of the industry as a whole or the

internationalization of large multinational companies proved to be helpful. However, finding the

local buying centers of the multinational companies was challenging.

(4) Ranking markets in terms of market potential

Once a list of potential markets is developed, there is a need to prioritize these markets and

categorize them according to their potential. During this stage, weights can be given to specific

variables. For example, a high technology internet-intensive company may want to give more

weight to information collected through its website. For simplicity and brevity, markets in our

study were divided into 4 groups according to their potential for sales.36

(5) Dividing markets in terms of easy of entry

Not all foreign markets are the same in terms of ease of entry. Clearly, foreign markets similar to

the United States, that spoke English, and that had a familiar socio-economic environment are

more convenient. Celectronics divided markets in the following order of ease: (1) English

speaking, (2) Western Europe, (3) Other Developed, (4) Emerging.

(6) Evaluating and prioritizing the most promising markets

At this stage, step four and five need to be evaluated in conjunction. The company should first

explore countries in which it missed to see a large potential, but in which doing business is not

prohibitively expensive. At the same time, the company may wish to diversify its geographical

scope and go into unexplored territories. Risk tolerance and desired diversification will dictate

this decision.

37

CONCLUSION

Because companies lack the resources to take advantage of all international opportunities they

identify, they must determine both the order of country entry as well as the rates of resource

allocation across countries. In choosing geographic sites, a firm must determine both where to

market and where to produce. The answer can be one and the same place if transportation costs

are high and/or government regulations make local production a necessity. In many industries,

facilities must be located near foreign customers; in others, market and production sites are

continents away. Developing a site location strategy that helps a firm maximize its resources and

competitive position is very challenging, given that many estimates and assumptions about

factors such as future costs and prices and competitors’ reactions must be made.


















brightest.

38

BIBLIOGRAPHY

Books and Journals:

Alon, Ilan and Dianne Welsh, eds. (2001), International Franchising in Emerging Markets:

China, India and Other Asian Countries, Washington DC: CCH Inc. Publishing.

Karagozoglu, Necmi and Martin Lindell (1998), “Internationalization of Small and Medium-

Sized Technology-Based Firms: An Exploratory Study,” Journal of Small Business

Management, 44-59.

Murillo, Luis (2000), “Economic Opening, Strategic Alliances, and the Military: the

Development of the High-Technology Sector in Turkey,” European Business Review, 12 (3),

157-159.

Welsh, Dianne and Ilan Alon, eds. (2001), International Franchising in Emerging Markets:

Central and Eastern Europe and Latin America, Washington DC: CCH Inc. Publishing.

Wolff, James A. and Timothy L. Pett (2000), “Internationalization of Small Firms: An

Examination of Export Competitive Patterns, Firm Size, and Export Performance,” Journal of

Small Business Management, (April), 34-47.

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Documents

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