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Chapter Objectives
1. To understand company strategies for sequencing the penetration of countries 2. To understand some simplifying tools for helping decide where to operate 3. To understand managers’ approach to strategy development 4. To understand types of entry modes in IB
Country Selection and Entry Strategy

When Considering International Operation…
•

All companies with limited resources need to make careful decisions on:
a. Where to locate production, and administrative/auxiliary services b. The amount of resources to be allocated in different countries c. The sequence for entering different countries

Country Evaluation and Selection

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Carrefour - background
• from 1960 in France, Inventor of “hypermarket”
• Hypermarket: a combination of dept. store and supermarket, typically

Carrefour’s Intl. Expansion
• Key strategy
•

Local partnership, locally produced goods (90% of their sales)

330,000 sq. feet (vs. 40,000 sq. feet for dept. store)

• No.1 in Europe and Latin America & 2nd largest hypermarket in the world (15,000 stores and 495,000 employees in 2009) • French government put restrictions on no. of hypermarket stores =>A motivation for international expansion for new opportunities • Intl. expansion via “company-owned outlet”



Choice of countries
- _________________ - _______________

• Great success but failure in some countries
• US, UK (due to economic transitions, different consumer preferences ) • Asian countries (Japan, Korea) (difficulties in finding local partnership)

• Changes in market structure and competition
• E-commerce, deep discount merchants like Aldi • Consumers’ preferences to smaller stores being more-accessible

(Belgium, Spain…..S. Korea, Singapore…….China, India (2010))

Scanning ->Detailed analysis (Daniels et al. 2010)
Scanning (Step 1)
• To compare countries on broad indicators of opp. and risks
c.f.,) Without scanning, a company may overlook opportunities and risks

Scanning - Opportunities
a. Sales expansion using economic & demographic variables
• Obsolescence and leapfrogging of products (e.g., China – cell phone) • Prices (e.g., High food price in Japan – eating out trend) • Income elasticity (e.g., demand for necessities vs. for discretionary

products)
• Substitution (e.g., fewer automobiles in HK due to efficient mass

Detailed analysis (Step 2)
• Once narrowing their consideration sets, managers compare the feasibility and desirability of each
c.f.,) “_______________________” : the more time and money companies invest in examining an alternative, the more likely they are to accept it, regardless of its merits

transit system)
• Cultural factors (e.g., in India – Hindu pop. Vs. non-Hindu or non-

vegetarian)
• Trading blocs (e.g., Uruguay w/ small domestic market but it has duty

free access to 3 other countries in Southern Common Market (MERCOSUR))

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Scanning - Opportunities
b. Resource acquisition: Cost considerations of resource acquisition
• Labor (e.g., education level, compensations, skills etc) • Infrastructure • Transportation and communications
 communication with suppliers and new consumers  benefit of having R & D centers in developed countries

Scanning - Risks
a. Political risk : philosophies toward private business or toward foreign countries
 Analyzing past patterns (e.g. boycotts or buycotts)  Analyzing opinions

• Government incentives and disincentives (e.g., regulations)

Scanning - Risks
b. Monetary risk
 Exchange rate changes
 Differences in the exchange rates can create gains/losses

Scanning -Risks
c. Competitive risk
 Making operations compatible is challenging
 e.g., choose countries with similar biz environment

 Mobility of funds
 Liquidity (the ability to get funds out of the country) varies  _____________________: investors usually want some of their holdings to be in highly liquid assess - to cover