International Business, 14e (Daniels et al.

)
Chapter 12 Country Evaluation and Selection

1) Comparing countries in international business is LEAST useful for determining the ________.
Selection of which managers to send to which countries

2) International managers most likely need to understand how to evaluate international geographic
alternatives because ________.
The commitment of resources to one locale may require forgoing projects in other locales

3) Executives at Wilson Enterprises need to determine how to leverage and improve the firm's existing
competencies on a global basis. What are the two most basic questions that they must answer?
Which markets should we serve and where should production be located to serve those markets?

4) A company's overall geographic strategy should be flexible enough to ________.

Respond to new opportunities and withdraw from less profitable ones

5) Elison Enterprises is planning international geographic expansion. A manager at Elison has been
given the task of scanning for locations primarily to _______.
Reduce the number of options available to a manageable number for further detailed analysis

6) Which of the following most accurately compares the techniques of scanning versus detailed analysis
of countries?
Scanning considers a large number of countries so that only the most promising ones undergo a detailed
analysis.

7) Opal Computers is considering international production expansion. After scanning to decide on a few
countries to consider more closely, Opal managers will most likely need to ________.
Travel to the locations to analyze and collect specific data

8) Escalation of commitment is best described as the ________.

Increased likelihood of investing in a country because of having spent considerable time and money in
examining it

9) Sales expansion is probably the most important variable in determining international location
decisions. This statement is most likely based on the assumption that ________.
Increased sales will lead to more profits

10) Dawson Manufacturing produces and sells DVD players and is planning to expand sales
internationally. Dawson has narrowed down the list of potential countries to India and Guatemala. A
Dawson manager has the task of obtaining data regarding the number of DVD players sold annually in
India and Guatemala. If unable to locate this information, she might most likely estimate the sales
potential of these two countries by ________.
Examining the sales history of flat-screen televisions

11) Gucci, a maker of luxury fashion and leather goods, plans to expand its sales market. The firm needs
to compare countries for the market potential of its products. Which of the following is the best indicator
for Gucci to use?
The number of millionaires in each country
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12) When examining economic and demographic variables to compare countries' sales potential for your
product, you should also consider all the following EXCEPT which one?
If countries depend heavily on the import of raw materials, what is the price of elasticity for the
demand?

13) Which of the following is most likely a true statement about companies' acquisition of
resources/assets abroad?
Resource availability limits a firm's production location choices.

14) The ability to compare production costs among countries in an effort to determine where to locate
production is significantly hampered by all of the following EXCEPT ________.
The number of ways the same product can be made

15) In which of the following situations would tax rate differences among countries be most important
for deciding where to place an investment?
Companies want to serve an entire region within a regional trading bloc.

16) Labor cost advantages gained by moving into a country with low wages may be short-lived because
________.
Competitors follow leaders into low-wage areas

17) Which of the following statements is NOT true about risk as it affects companies' choice of locations
for foreign operations?
Companies choose the cheapest location regardless of risks.

18) A company's operations are most likely to be taken over by a host government when ________.
The operations are substantial and have a widespread effect on the country because of the company's
size

19) In terms of political risk, it is most accurate to state that high risk ________.
If avoided, may lead to higher competitive risk

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20) Fidelity Manufacturing is considering expanding its operations into the Phillipines. A manager at
Fidelity has the task of predicting political risk in the Phillipines. Which of the following approaches
should the manager LEAST use to accomplish the task?
Analyzing the market share of competitors in the country

21) The concept of liquidity preference in international operations refers to ________.

A company's willingness to accept a lower rate of return on investments in countries where it can more
easily sell them and convert the proceeds at a favorable rate

22) Risks to companies from natural disasters and communicable diseases are ________.
Most prevalent in the poorest countries of the world

23) U.S. companies generally put earlier and more sales-seeking emphasis on countries ________.
Where operating conditions seem similar to those at home

24) The lower survival rate of foreign companies in comparison to local firms for many years after they
begin operations is known as ________.
Liability of foreignness

25) Which of the following best explains why U.S. firms typically place earlier and greater emphasis on
expansion into Canada and the U.K.?
Similarities in culture and legal systems

26) Which of the following best explains Blockbuster's failed expansion into Germany?
Laws limiting hours of operation

27) The crowding of a foreign market to prevent competitors' advantages is known as ________.
Oligopolistic reaction

28) Companies are more likely to gain advantages by locating near competitors for all the following
reasons EXCEPT to ________.
Agree with competitors on production limitations

29) An example of a first-mover advantage in international operations is ________.

Lining up the best suppliers and distributors before competitors enter the market

30) Which of the following describes a company's strategy of moving first to those countries where local
competitors are most likely to catch up to the firm's innovative advantage?
Imitation lag strategy

31) A manager has the task of collecting and analyzing data that will help the firm decide where to
locate its international operations. Which of the following best describes how the manager should handle
this task?
Compare the costs of data collection with the probable payoff for the firm in order to budget and
schedule the collection

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32) Which of the following is the LEAST likely reason for inaccuracies in published governmental data?
Translation errors from the host country language

33) Which of the following LEAST explains why inaccuracies appear in published information about
countries?
Poor methodology used in data collection

34) Which of the following is generally the most costly information source for companies?
Individualized reports

35) Top executives at Jordan, a U.S. consulting firm, are debating whether or not to expand into a
country with a great deal of violence by staffing mostly with U.S. personnel. A vice president argues that
Jordan should forego sending its employees there because of the high risk for them of kidnappings in the
region. Which of the following statements best supports the vice president's position?
Violence is a harbinger of additional risks that affect operations negatively.

36) Top executives at Jordan, a U.S. consulting firm, are debating whether or not to expand operations
into a country with a great deal of violence by staffing mostly with U.S. personnel. A vice president
argues that Jordan should send its employees there. Which of the following statements LEAST supports
the vice president's position?
Operating costs are lower in violent areas.

37) Grids are a useful method of comparing countries for international business expansion because they
________.
Set minimum scores for proceeding further

38) A manager needs to prepare a grid to compare countries for location of the firm's international
operations. It would be most useful for the manager to ________.
Use a team made up of people from different functions within the company

39) Which of the following best describes the purpose of using of an opportunity-risk matrix for
comparing countries?
Narrow alternatives so decision makers can make a detailed analysis of the strongest candidates

40) The major use of the matrix as a tool in international location strategy is to ________.
Indicate the relative placement of countries in terms of attributes

41) In a concentration strategy of foreign expansion, a company would go to ________.

One or a few foreign countries and build a strong involvement there before going to other countries

42) In a diversification strategy for international expansion, a company would move ________.
Rapidly into many foreign countries, and then gradually increase its presence in those countries

43) A company should probably use a concentration strategy for international expansion when there are
________.
High growth rate and long competitive lead time

44) The decision-making process for a company's reinvestment choices is often different from those for
new investment choices because ________.
Failure to support an existing investment may jeopardize the firm's operations and competitiveness in
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that country

45) Which of the following is NOT true about the harvesting or divestment of foreign operations?
Companies have tended to divest too soon, rather than working to improve performance.

46) Which of the following best explains why foreign subsidiary managers are often reluctant to propose
divestments in the countries where they are working?
They are afraid of proposing the elimination of their jobs.

47) The origin of investment proposals differs from the origin of divestment proposals in that the
divestment proposals are more likely to come from ________.
Higher up in the organization

48) A go-no-go decision means ________.

An individual project decision is based on whether the project meets threshold criteria

49) Instead of comparing different proposals involving foreign operations, companies often make
decisions by looking at proposals one at a time. All of the following are reasons for this behavior
EXCEPT which one?
A lack of comparable data on different countries renders comparison impossible.

50) Assume Company A receives a proposal from Company B to be a joint venture partner abroad.
Company A is most likely to make its decision based on ________.
A go-no-go basis

51) Which of the following reasons most compels companies to make location decisions on one
international opportunity at a time rather than comparing among two or more?
If an important customer develops opportunities in a foreign country, a company may have little
alternative except to follow that customer's lead.

52) Demographers project that the share (percentage of population) of what we now consider the
working-age population in developed countries will decrease up to the year 2050. Which of the
following is the most likely result of this trend?
A higher percentage in per capita GDP in today's developing economies than in today's developed
economies

53) Which of the following is true about projected demographic changes up to the year 2050 that could
affect future production and sales locations?
The growth in per capita GDP should be higher in today's developing economies than in today's
developed economies.

54) We now have technology to allow people to communicate globally without traveling as much.
Leading researchers on urbanization and planning suggest that the most likely consequence of this is
________.
A greater number of self-motivated workers e-mailing and teleconferencing with colleagues

55) All of the following have been predicted to occur in the future as the result of advances in global
communications EXCEPT which one?
In spite of being able to work anywhere, people will choose to live primarily where their employers are
headquartered.
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56) Carrefour has been more successful in Europe than Walmart, whereas Walmart has been more
successful in the United States than Carrefour. What is the most likely reason for these results?
First-mover advantages

57) Carrefour expanded internationally by first ________.

Entering adjacent countries

58) Which of the following best explains why Burger King has developed such a strong presence in
many of the small countries of Latin America and the Caribbean?
These countries are close to a Burger King's headquarters.

59) Because many regional trading groups prohibit companies from producing in more than one member
country, companies need to understand how to evaluate international geographic alternatives.
FALSE

60) Committing resources to one country usually means forgoing or delaying projects in others.
Answer:
TRUE

61) When planning international geographic expansion, decision makers use scanning to reduce the
number of options available to a manageable number for further detailed analysis.
TRUE

62) Good scanning helps managers avoid the need to make a detailed analysis of countries when
deciding where to operate.
FALSE

63) Sales potential is probably the most important variable in determining international location
decisions because consumer demand exceeds supply.
FALSE

64) When comparing economic and demographic variables among countries, one should consider that
consumers in developing countries do not necessarily follow the same historical patterns as those in
more developed countries.
TRUE

65) Although capital intensity is growing in most industries, labor compensation remains a significant
cost for most companies.
TRUE

66) Labor cost advantages gained by moving into a country with low wages may be short-lived because
tax increases cancel out the low-wage advantages.
FALSE

67) Governments that conduct takeovers of foreign companies rarely make formal declarations of their
intent to take over in advance of the action.
FALSE

68) In assessing political risk, the observation of past patterns is problematic because situations may
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change for better or worse.
TRUE

69) Companies are usually willing to accept a lower rate of return on their investments in countries
where they can more easily sell those investments and convert the proceeds at a favorable rate.
TRUE

70) Losses to companies from natural disasters are much less risky than losses from operating in violent
areas.
FALSE

71) U.S. companies generally put earlier and more emphasis on countries where they perceive it's easier
to operate.
TRUE

72) Liability of foreignness refers to the situation in which a government has more stringent legal
operating regulations on foreigners and foreign companies than on its own citizens and companies.
FALSE

73) An advantage of locating operations where there are many competitors is that the cluster of
competing firms attracts multiple suppliers and specialized personnel.
TRUE

74) A company can best benefit from a first-mover advantage by moving into a small country, before
entering a much larger country.
FALSE

75) Published government data is most often inaccurate because of translation errors from other
countries' languages.
FALSE

76) Comparability of economic information among countries is hampered by countries' use of different
definitions for similar terms.
TRUE

77) When choosing international operating locations, companies should outsource the preparation of
grids or matrices to experts rather than preparing them with their own personnel.
FALSE

78) Unlike grids, matrices do not require managers to determine weights for factors that indicate risk.
FALSE

79) In a concentration strategy for international expansion, a company goes first to one or a few
countries and builds up fast there before going to other countries.
TRUE

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80) The more a company needs to alter its products and ways of doing business to be successful abroad,
the more it should rely on a diversification strategy for entering foreign markets.
FALSE

81) Headquarters management often feels that people within an established operation are the best judge
of the operation's investment needs.
TRUE

82) Companies have tended to wait too long to divest poorly performing foreign facilities, trying instead
to improve performance through expensive means.
TRUE

83) A go-no-go decision for foreign expansion means that management reviews existing information and
decides whether more information is needed.
FALSE

84) Profit figures for individual country operations may obscure the real impact those operations have
on total global performance.
TRUE

85) In developed countries, the percentage of the working-age population (using today's standards) is
expected to rise by 2050.
FALSE

86) It is generally agreed that because of technical advancements, managers will not need face-to-face
communication in the future.
FALSE

87) When income inequality is high in a specific country, the per capita GDP figures are more
meaningful.
FALSE

88) The number of computer industry firms located in California's Silicon Valley exemplifies the
concept of agglomeration.
TRUE

89) What is the relationship between a company's international market and its production location
decisions? How do firms benefit from the use of scanning techniques when making location decisions?
If a company develops a product that consumers find attractive, it must still find production and
transportation cost advantages so that it can price the product favorably enough to sell it. These cost
advantages may come from producing near the market, thus allowing the company to sustain a long-
term competitive advantage. To compare countries, managers use scanning techniques based on broad
variables that indicate opportunities and risk. That way, decision-makers can perform a detailed analysis
of a manageable number of geographic locations. Scanning is useful in that a company might otherwise
consider too few or too many possibilities. When scanning, managers will look at external conditions in
a host country that could significantly affect the success or failure of a foreign enterprise. Scanning can
help managers determine whether a company will make a detailed study of the area, as well as the terms
under which it will initiate a project.

90) What is scanning? What opportunities and risks are most relevant to scanning?
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To compare countries, managers use scanning techniques based on broad variables that indicate
opportunities and risk. When scanning, managers will look at external conditions in a host country that
could significantly affect the success or failure of a foreign enterprise. Revenues less costs determine
opportunities. From a broad scanning perspective, there are variables that indicate the amount of
revenue, cost factors, and risk that might be forthcoming from one country to another. The factors that
have the most influence on the placement of marketing and production emphasis are sales expansion,
economic variables, demographic variables, resource acquisition, infrastructure, and the ease of
transportation and communications. Sales potential is probably the most important variable managers
use in determining where and whether to make an investment.
Companies weigh opportunities against risks when making decisions. Political risk may occur because
of changes in political leaders' opinions and policies, civil disorder, and animosity between the host and
other countries, particularly the firm's home country. Changes in exchange rates or the ability to move
funds out of a country may also affect an MNE. Other types of risk that are usually considered include
the risk of disease or natural disaster and the competitive risk that develops from competitors' actions.

91) In a short essay, discuss why simply examining a country's per capita GDP and its population doesn't
necessarily lead to a good estimate for potential demand.
a. Obsolescence and leapfrogging of products: Consumers in emerging economies do not necessarily
follow the same patterns as those in higher-income countries. In many emerging economies, consumers
have leapfrogged the use of traditional telephones by jumping from having no telephones to using
cellular phones exclusively.
b. Prices: If prices of essential products are high, consumers may spend more than what one would
expect based on per capita GDP. The expenditures on food in Japan are higher than would be predicted
by either population or income level because food is expensive and work habits promote eating out.
However, if costs are high for a non-necessity, expenditures will likely be lower.
c. Income elasticity: A common tool to predict total market potential is to divide the percentage of
change in product demand by the percentage of change in income in a given country. The more that
demand increases, the more elastic is the demand in response to income change. Income elasticity varies
by product and by income level.
d. Substitution: Consumers in a given country may have products or services that substitute more
conveniently in some countries than in others for the products that companies would like to sell. For
example, there are fewer automobiles in Hong Kong than one would expect based on income and
population because the crowded conditions make the efficient mass transit system a desirable alternative
to automobiles.
e. Income inequality: Where income inequality is high, the per capita GDP figures are less meaningful,
as most people have very little to spend and some people have substantial income to spend.
f. Cultural factors and taste: Countries with similar per capita GDPs may have different preferences for
products and services because of values or tastes.
g. Existence of trading blocs: Although a country may have a small population and GDP, its presence in
a regional trading bloc gives its output access to a much larger market.

92) In a short essay, discuss liquidity preference as it relates to monetary risk.

If a company's expansion occurs through direct investment abroad, exchange rates on and access to the
invested capital and earnings are key considerations. Liquidity preference is the theory that investors
usually want some of their holdings to be in highly liquid assets, on which they are willing to take a
lower return. Liquidity is needed in part to make near-term payments, such as paying out dividends; in
part to cover unexpected contingencies, such as stockpiling materials if a strike threatens supply; and in
part to be able to shift funds to even more profitable opportunities, such as purchasing materials at a
discount during a temporary price depression.

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93) What is meant by liability of foreignness? How might this influence location and allocation
decisions?
Liability of foreignness describes the situation in which foreign companies have a lower survival rate
than local companies for many years after they begin operations. When a company operates abroad, it
usually has higher uncertainty than at home because the foreign operations are in environments with
which the company is less familiar. As a company gains experience in operating in a particular country
or in similar countries, it improves its assessments of consumer, competitor, and government actions—
thereby reducing its uncertainty. Companies may reduce the risk of liability of foreignness by moving
first to countries more similar to their home countries. Alternatively, they may contract with experienced
companies to handle operations for them, limit the resources they commit to foreign operations, and
delay entry to many countries until they are operating successfully in one or a few.

94) Compare the advantages of locating foreign operations to avoid where competitors have gone versus
locating where competitors are.
By being the first major competitor in a market, a company can gain the best partners, locations, and
suppliers. However, companies may gain other advantages by locating where competitors already are.
To begin with, the competitors may have performed the costly task of evaluating locations, so a follower
may get a "free ride." Moreover, clusters of competitors in various locations attract suppliers, buyers,
and specialized labor.

95) What problems are common with the published data available about different countries?
For the most part, incomplete or inaccurate published data result from the inability of many governments
to collect the needed information. Poor countries may have such limited resources that other projects
necessarily receive priority in the national budget. Economic factors also hamper record retrieval and
analysis. The result may be information that is years old before it is made public. Cultural factors affect
responses. Mistrust of how the data will be used may lead respondents to answer incorrectly, particularly
if questions probe financial activities. However, not all inaccuracies are due to governmental collection
and dissemination procedures. People's desire and ability to cover up data on themselves—such as
unrecorded criminal activity—may distort published figures. Finally, researchers may use poor
collection and analysis methods.

96) What are the major types of published data that managers can use to compare countries? Describe
the tools available to managers for making country comparisons.
Market research and business consulting companies conduct studies for a fee in most countries.
Some research organizations prepare fairly specific studies that they sell to any interested company at
costs much lower than for individualized studies. Most companies that provide services to international
clients publish reports. These reports usually are geared toward either the conduct of business in a given
area or some specific subject of general interest, such as tax or trademark legislation. Governments and
their agencies are another source of information. Different countries' statistical reports vary in subject
matter, quantity, and quality. Numerous organizations and agencies are supported by more than one
country. These include the United Nations, the World Trade Organization, the International Monetary
Fund, the Organization for Economic Cooperation and Development, and the European Union. All of
these organizations have large research staffs that compile basic statistics as well as prepare reports and
recommendations concerning common trends and problems. Trade associations connected to various
product lines collect, evaluate, and disseminate a wide variety of data dealing with technical and
competitive factors in their industries. A number of companies have information-retrieval services that
maintain databases from hundreds of different sources. For a fee, or sometimes for free at public
libraries, a company can obtain access to such computerized data and arrange for an immediate printout
of studies of interest.

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Two common tools for analysis are grids and matrices. A company may use a grid to compare countries
on whatever factors it deems important. The grid technique is useful even when a company does not
compare countries because it can set a minimum score necessary for either investing additional
resources or committing further funds to a more detailed feasibility study. An opportunity-risk matrix is
important as a reflection of the placement of a country in comparison to other countries. The companies
must determine which factors are good indicators of its risk and opportunity and weigh them to reflect
their importance.

97) In a short essay, compare the strategies of diversification versus concentration and provide examples
of situations in which each would be used.
Ultimately, a company may gain a sizable presence and commitment in most countries; however, there
are different paths to that position. Although any move abroad means some geographic diversification,
the term diversification in the context of location is when the company moves rapidly into many foreign
markets, gradually increasing its commitments within each. At the other extreme, with a concentration
strategy, the company will move to only one or a few foreign countries until it develops a very strong
involvement and competitive position there.

When the growth rate in each market is high, a company usually should concentrate on a few markets
because it will cost a great deal to expand output sufficiently in each market. The more stable sales and
profits are within a single market, the less advantage there is to be gained from a diversification strategy.
Similarly, the more interrelated markets are, the less smoothing is achieved by selling in each. If a
company determines that it has a long competitive lead time, it may be able to follow a concentration
strategy and still beat competitors into other markets. When marketing programs reach many countries,
such as by cable television or the Internet, a diversification strategy has advantages. Companies may
have to alter products and their marketing to sell in foreign markets, a process that, because of cost,
favors a concentration strategy. The more a company needs to control its operations in a foreign country,
the more it should develop a concentration strategy. If a company is constrained by the resources it
needs to expand internationally compared to the resources it can muster, it will likely follow a
concentration strategy.

98) Why do companies often treat foreign reinvestment decisions differently than new foreign
investment decisions?
Companies treat decisions to replace depreciated assets or add to the existing stock of capital from
retained earnings in a foreign country somewhat differently from original investment decisions. Once
committed to a given locale, a company may find it doesn't have the option of moving a substantial
portion of the earnings elsewhere—to do so would endanger the continued success of an operation in a
given foreign location. Aside from competitive factors, a company may need several years of almost
total reinvestment and allocation of new funds to one area in order to meet its objectives. Another reason
a company treats reinvestment decisions differently is that once it has experienced personnel within a
given country, it may believe they are the best judges of what is needed for that country, so headquarters
managers may delegate certain investment decisions to them.

99) Why do companies engage in international harvesting or divestment?

Companies commonly reduce commitments in some countries because those countries have poorer
performance prospects than do others, a process known as harvesting or divesting. Companies may
divest by selling or closing facilities. They usually prefer selling because they receive some
compensation. A company that considers divesting because of a country's political or economic situation
may find few potential buyers except at very low prices. In such situations, the company may try to
delay divestment, hoping the situation will improve. If it does, the firm that "waits out" the situation
generally is in a better position to regain markets and profits than one that forsakes its operations.
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100) Why do most companies examine expansion proposals one at a time rather than comparing various
expansion proposals? Do you think this is effective? Why or why not?
Three major factors restricting companies from comparing investment opportunities are cost, time, and
the interrelation of operations. Clearly, some companies cannot afford to conduct many investigations
simultaneously. If they are conducted simultaneously, they are apt to be in various stages of completion
at a given time. Further, in many cases they need to respond quickly to an opportunity they had not
anticipated, such as an unsolicited proposal or limited offer from a government.

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