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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 firms 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 firms 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 firms 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 companys 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.
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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 todays emerging economies than in todays 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 importantespecially 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 meritsa 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 climatethe external conditions in a host country that could significantly affect
an enterprises success or failurereveals 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 countrys 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.
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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 firms 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 suppliersa 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 firms 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 countrys 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 firms 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 nave, 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 theres 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 firms 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 firms 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 firms 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 companys 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
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.

2.10 LOOKING TO 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
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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 todays emerging economies than in todays 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 importantespecially among the best and
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 partners 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 Evaluations 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.

21

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.

22

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.

23

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
24

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.


25

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
investment.
26


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
When considering international investments, there are three types of markets from which to
choose.
27

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
attention to the political environment, as well as to economic and financial developments.
Examples of frontier markets include Nigeria, Botswana and Kuwait.
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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
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
29

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.


30

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 firms selection of target countries.

INTRODUCTION
Country selection is an important component of the firms 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
Welsh (2001) reported about the potential for US SMEs in developing countries, such as India,
31

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 $4 million per
year and employs 65 people. While about 80% of the companys 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 companys objectives is to change the sales
distribution to a 50/50 ratio between government and commercial applications.
The companys 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
manufacturers reps and the company has little information on the capabilities and performance
of individual manufacturers reps. This lack of information can lead to sub-optimal evaluation
and selection of new manufacturers 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.
32

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 companys product line, (2) the companys website analysis, and
(3) internationalization of the companys 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.

33

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 companys 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 Mobils oil/gas production was used as a proxy to
measure the potential for oil/gas drilling. The companys 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).
34

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 companys known
international sales, and (3) in one top tier market Taiwan the company recently signed up an
agent.

Combining Market Potential with Companys Capabilities
While Table 2 shows the market potential of selected markets, these opportunities must be
viewed in the context of the firms 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:


35

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 documentations schedule B. This is an excellent indicator of market
export potential because it is directly related to the companys products.
Some researchers suggested that government programs promoting international business may
divert the SMEs attention away from its core capabilities in product innovation (Acs, Morck,
and Yeung, 2001). This is because the SMEs resources are scarce and by entering the value
36

chain of already-established multinational enterprises they are at a competitive disadvantage. For
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 companys 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 companys 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
37

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.
(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.


38

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.
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.
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 todays emerging economies than in todays 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 importantespecially among the best and
brightest.

39

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.

Internet Resources:
http://www.dcstrategy.com.au/articles/international-articles/country-selection-art-or-science/
http://www.essayzone.com/essays/a_level/business_studies/chapter-twelve-country-
evaluation-and-selection-671
http://www.oecd.org/dataoecd/24/6/44220035.pdf
http://marketingteacher.com/lesson-store/lesson-international-marketing-entry-evaluation-
process.html
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