International Business

Strategy, Country
Evaluation and Selection
Dr. (Mrs.) Vijaya Katti
DEAN
Indian Institute of Foreign Trade
New Delhi

Session Date: 30 June 2019

Session for: CPEIM on Campus (GBE)
Objectives of Presentation
• Whether the aspiring international business is
large, midsize, or small, the analysis done before
venturing into foreign markets is crucial for
success
• The analysis of national economies is an ongoing
process.
• In order to respond in a timely manner, a solid
foundation of understanding of the various
markets is vital.
 International Strategy:
Definition :
• It may be defined as internationally scattered
subsidiaries act independently and operate as
if they were local companies, with minimum
interference from the parent company
 International Strategy:
Need
• Growth or expansion
• To include foreign clients
• Reduction of overheads;
thereby increasing profitability
• Tax Havens
• Depletion of resources/ideas in
the parent country

Increase Profits &

Grow Exponentially
HOW DO FIRMS GO INTERNATIONAL?
– ENTRY STRATEGIES

• Foreign market entry strategies differ in degree of risk they

present, the control and commitment of resources they
require and the return on investment they promise. There
are two major types of entry modes:
– 1) non-equity mode, which includes export and contractual
agreements,
– 2) equity mode, which includes joint venture and wholly
owned subsidiaries.
• The market-entry technique that offers the lowest level of
risk and the least market control is export and import.
 International Strategies:
Types
1. Exporting and importing
2. Licensing
3. Franchising
4. Joint Ventures
5. Strategic Alliances
6. Direct Investments
7. International alliances/Collaboration
 International Strategies: Types

1. Exporting and Importing

- Most common
- Exporting is the process of selling goods or services
produced in one country to other countries
- Direct exports
- Indirect exports (not an international strategy)
 International Strategies

2. Licensing
- Limited degree of risk
- The international licensing firm gives the licensee patent
rights, trademark rights, copyrights or know-how on
products and processes
- In return, the licensee will: produce the licensor’s products,
market these products in his assigned territory and pay the
licensor fees and royalties usually related to the sales
volume of the products
- Generally welcomed by foreign public authorities because it
brings technology into the country
 International Strategies

3. Franchising
- Very similar to licensing
- Franchisees pay fees and
royalties to a parent company (franchiser) in return for
the right to become identified with its trademark, to sell
its products or services, and often to use its business
format and system
- low political risk, low cost and allows simultaneous
expansion to the different parts of the world
- franchisees may turn into future competitors, a wrong
franchisee may ruin the company’s name and reputation
in the market and possibility of making bad choices
 International Strategies

4. Joint Ventures
- Very similar to licensing
- The international firm has an equity position; a
partnership between host- and home-country firms
is formed, usually resulting in the creation of a third
firm
- Gives the international firm better control over
operations and also access to local market
knowledge
- The presence of the local firm facilitates the
integration of the international firm in a foreign
environment
 International Strategies

5. Strategic Alliances
- A variety of cooperative agreements between different
firms, such as shared research, formal joint ventures, or
minority equity participation
- Usually between firms in high industrialized nations
- The focus is often on creating new products and
technologies rather than distributing existing ones
(major objective)
- Often only created for short term durations
- Biggest risk is the risk of competitive collaboration
 International Strategies

6. Direct Investments
- An international firm makes a direct investment in a
production unit in a foreign market( 100% ownership)
- Can be done either by an acquisition or by developing
own facilities( Greenfield investment)
- Acquisition – more popular, easy to do, less risky,
outcomes more predictable
- Greenfield investment – complex, potentially costly,
potential to provide above average return and time
consuming
 Different Strategies

7. International alliances/Collaboration
- Generally between companies of same sector
- Combines partner resources to develop new businesses
or reduce investment – 10 pharma majors created a $
45 million joint research consortium to study variations
in human DNA.
- To eliminate risks – Renault, General Motors and
DaimlerChrysler have bought stakes in Nissan, Fuji
Heavy Industries and Mitsubishi Motors, respectively
- To learn – Mazda has helped Ford to improve its
emissions testing
The Purpose and Methodology of
Country Evaluation & Selection
– Targeting a new country either as a market or
as a manufacturing location must be preceded
by a detailed analysis of the country’s past,
present, and future economic situation.
– Emerging trends also must be analysed to
develop an estimate of how the corporation
should respond.
• Country analysis takes many forms
depending on the type of information
sought, the objectives, the required
depth and detail, the time frame being
considered, and so on. In general, four
broad categories serve as starting
points.
1. Leading economic indictors at a particular
point in time.
2. Trends in different economic indicators
3. Trends in various specific sectors
4. Analysis of specific areas or sectors of the
economy.
• Preliminary Economic Indicators
– There are certain general economic criteria
that are almost invariably considered.
– The most important of these criteria follow.
• Size of the Economy
– The size of the economy is a basic measure of
a country’s potential as a maket.
• Income Levels
– Income levels of the citizens of a country are a
very important economic indicator.
• Income Distribution
– In most developing countries there are sharp
inequalities of wealth, and a large percentage
of the country’s total wealth is concentrated in
the hands of a fairly small percentage of the
population.
– The size of the very high income group in the
total population would reveal the country’s
potential as a market
for luxury goods, such
as designer clothes and
luxury automobiles.
• Important indicator of market potential is the size
of the middle income groups within the overall
income distribution.
• In the developed countries, the middle income
groups are usually the largest proportion of the
population, which implies the existence of big
markets for a wide range of mass-produced
consumer products.
• Personal Consumption
– In addition to the income distribution patterns
prevalent in a country, the prevailing
consumption patterns influence a country’s
potentional as a market.
• Growth and Stability Patterns
– The size of the economy, income levels and
distribution, and personal consumption are
static indicators, in as much as they represent
the position of a country at a particular point
of time.
• Countries seeking rapid rates of growth
aim to achieve this largely by increases in
industrialization levels, by the
modernization of existing industries, and
by the introduction of new industries and
new technologies.
• Rapidly growing economies are also
characterized by the development of a
professional middle class, which evens out
the distribution of income relative to that
in previous years and provides a market
base for an MNC’s consumer products.
Population
• The population of a country
represents an important statistic. It is
an important factor in influencing the
size of market potential for a large
number of goods and services,
especially goods for personal
consumption.
• Population density (the number of
persons living per square mile) is a
particularly relevant factor.
• Geographical distribution of the population
is also important.
• The educational level of the population is
also extremely important.
• The rate of population growth is another
trend worth watching.
• The age structure of a population should
also be considered. In developed
countries, large proportions of the
po9pulation tend to be over the age of
eighteen, and there are a sizable number
of people in the over sixty age group.
Sector Analysis
• It is also important to analyze different sectors of the country’s
economy, to identify the particular areas that could offer
business opportunities.
• On a broader level, sector analylsis suggests the state of a
country’s overall economic development. From a
macroeconomic standpoint, economic activity is divide into
three broad categories. The primary sector incorporates
traditional economic activities, such as agriculture. The
secondary sector comprises primarily manufacturing and
industrial activity. The tertiary sector refers to services and
related industries.
• Industrialized and developed countries are characterized by
a high proportion of their economic activity in the
secondary and tertiary sectors.
Inflationary Trends
• Local inflationary trends must also be closely watched
• Inflation is the increase in prices over time measured
against a certain benchmark, usually known as the base
year. Different indices, consisting of different commodities
at different market levels, are constructed to gauge the
overall degree of price increases in a country. High inflation
can have severe economic consequences.
• Increased inflation in a particular overseas
manufacturing location would also bave
serious effects on the competitiveness of
the products produced in that location if
they were to be exported to overseas
markets.
External Financial Position: Extent of
Debt
– The primary indicator of the strength of a
country’s external sector is its balance of
payments position.
– Analysis of current and future trnds is perhaps
more important in this area than in any other,
as the balance of payments scenario changes
quite rapidly.
Exchange-Rate Levels and Policies
• Exchange-rate trends are another vital
consideration for MNCs contemplating overseas
direct investment.
Banking and Financial Markets
• Finance is a crucial resource to any business
operation.
• The banking sector must be well developed and
able to provide the needed working capital and
term financing for meeting the MNC’s operational
requirements within the investee country.
• Comparison of Similar Economies
• Tax Systems
– A very important constituent of the analysis is
the prevailing tax system.
– Tax systems and tax rates vary considerably
across the world.
• Fiscal and Monetary Policy Situations
– The fiscal and monetary situation of any
country is a key indicator of its economic
health and the direction of future economic
trends.
 – Any analysis has to bear in mind the
current and indicative future effects of
the continued deficits of a country.
• Economic Planning Ideology and
Practices
• Market Demand Forecasting
• Purposes
– Market demand forecasting is usually a secondary stage
in the analysis of a country as a potential market and is
attempted after the overall macroeconomic environment
and business climate are found conducive to a
marketing effort.
– The basic objective is to obtain reliable, current
information to fashion a successful marketing program.
– This data can also be used to weigh the costs of
exporting products to foreign countries against the
prospective benefit of manufacturing these goods in
those markets.
 Country Selection for doing
business

• Country selection is a difficult task.

• There are more than 200 countries in the

world.

• Not all countries have the same market

potential. 31
 How to Proceed ??
• First step:- Undertake an environment analysis, which
means gathering information on potential locations
and evaluating this information under several criteria .
• Multiple Criteria Decision Analysis can be done using a
computer software.
• The results can be subjected to Sensitivity Analysis to
know the potential impact of any change that may
take place.

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 Important Perspectives
Selecting
Best Country
to venture
into

Political
Cultural Economic Perspective Legal
Perspective Perspective Perspective
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Data Collection & Analysis
• Data Collection and Sources
• Primary Research
• Areas of Research
• Designing Initial market Strategy
– Firms use the tools and procedures for
identifying economic trends and market
demand to develop an overall marketing plan,
which incorporates the firm’s objectives into a
strategy for approaching new markets
successfully or for evaluating existing
operations in foreign markets.
• One method of viewing the exiting
situation in foreign markets is to compare
estimate of market demand and company
share with actual company performance.
• Though such a comparison, the firm can
identify competitive gaps in the market
between its potential and actual shares of
markets, which it can actively attempt to
narrow through increases in sales and
expanded market coverage.
• If the company is absolutely intent
on marketing in the new country and
expects to reap large benefits in
terms of increased sales and profits,
it might be wise to spend resources
to conduct primary research in that
market area.
 Different ways of Data Collection

• Primary data
Primary data is data that writer collects himself, specifically
for the current research, using such methods as direct
observation, surveys, interviews and logs

• Secondary Data
Secondary data is collected from external sources such as:
1. Journals
• TV, radio, internet
• Magazines, Newspapers
• Reviews
• Research articles
• Stories told by people writer

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 International Business
Marketing Strategy

• Brand and product strategy

• Distribution
• Promotion

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 Environmental Analysis
• Culture
• Language
• Education
• Religion
• Political system
• Legislation
• Economy
• Government
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 Local Adaptation

• Product strategy

• Distribution strategy

• Promotion strategy

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