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Collect and Analyze DataCompanies undertake business research to reduce uncertaintiesin their decision process, to expand or narrow the alternativesthey consider, and to assess the merits of their existingprograms. Efforts to reduce uncertainties include attempts toanswer such questions as these: “Can qualified personnel behired?” “Will the economic and political climate allow for areasonable certainty of operations?” Alternatives may beexpanded by asking, “Where are possible new sources of fundsor sales?” Or they may be narrowed by querying, “Whereamong the alternatives would operating costs be lowest?”Evaluation and control are improved h-r assessing present andpast performance: “Is the distributor servicing sufficientaccounts? “What is our market share?” Clearly, there arenumerous details that, if a company ascertains them, can beuseful to it in its efforts to achieve its objectives.A company can seldom, fever, gain all the information itsmanagers would like. This is because of time constraints andthe cost of collecting information. Managers should estimatethe costs of data collection and compare them with theprobable payoff from the data in terms of revenue gains or costsavings.

Problems with Research Results and DataThe lack, obsolescence, and inaccuracy of data on many coun-tries make much research difficult and expensive to undertake.Data discrepancies sometimes create uncertainties about locationdecisions. In most industrial countries, such as the UnitedStates, governments collect very detailed demographic andpurchasing data, which are available cheaply to any company orindividual. (But even in the United States, the Census Bureaufirst announced it had undercounted 3 million people and laterthat it had overcounted 1.3 million in the 2000 census.)Using samples based on available information, a company candraw fairly accurate inferences concerning market-segment sizesand locations, at least within broad categories. In the UnitedStates, the fact that so many companies are publicly owned andare required to disclose much operating information enables acompany to learn competitors’ strengths and weaknesses.Further, companies may rely on a multitude of behavioralstudies dealing with U.S. consumer preferences and experience.With this available information, a company can devise question-naires or do some test marketing using a selected sample so thatresponses reflect the behavior of the larger target group towhom the company plans to sell. Contrast this situation to thatof a country whose basic census, national income accounts, andforeign-trade figures are suspect and where no data are collectedon consumer expenditures. In many countries, business isconducted under a veil of secrecy, consumers’ buying behavior isa matter of speculation, market intermediaries are reluctant toanswer questions, and expensive primary research may be

required before meaningful samples and questions can bedeveloped.Many countries have agreed to standards for collecting andpublishing various categories of data on the Internet. Thisagreement through the IMF came about because of a belief thatthe Mexican financial crisis of 1994 may have been averted hadinternational financial authorities had better and more timelyinformation about Mexico’s trade, debt, and foreign exchangereserves.Reasons for Inaccuracies For the most part, incomplete orinaccurate published data result from the inability of manygovernments to collect the needed information. Poor countriesmay have such limited resources that other projects necessarilyreceive priority in the national budget. Why collect precise figureson the literacy rate, the leaders of a poor country might reason,when the same outlay can be used to build schools to improvethat rate?Education affects the competence of government officials tomaintain and analyze accurate records. Economic factors alsohamper record retrieval and analysis, because hand calculationsmay be used instead of costly electronic data-processingsystems. The result may be information that is years old beforeit is made public. Finally, cultural factors affect responses.Mistrust of how the data will be used may lead respondents toanswer incorrectly, particularly if questions probe financialdetails. Of equal concern to the researcher is the publication offalse or purposely misleading information designed to misleadgovernment superiors, the country’s rank and file, or companiesand institutions abroad. For example, an in-house investigationin China’s National bureau of Statistics found over 60,000 casesof statistical misrepresentations that distorted such importantfigures as GNP, economic growth, and energy use. Even ifgovernment and private organizations do not purposelypublish false statements, many organizations may be soselective in the data they include that they create false impres-sions. Therefore, it is useful for managers to consider carefullythe source of such material in light of possible motives orbiases.However, not all inaccuracies are due to government collectionand dissemination procedures. Many studies by academiciansdescribing international business practices are based on broadgeneralizations that may be drawn from too few observations,on nonrepresentative samples, and on poorly designedquestionnaires.People’s desire and ability to cover up data on themselves-suchas unreported income to avoid taxes-may distort publishedfigures substantially. In the United States, illegal income fromsuch activities as the drug trade, theft, bribery, and prostitutionis not included in GNP figures. Worldwide, income fromorganized crime is substantial, but it does not appear in

LESSON 33OPERATION LOGISTIC ACTIVITIES- COLLECTION ANALYZE DATA

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national income accounts, or it appears in other economicsectors because of money laundering.Comparability Problems Countries publish censuses, outputfigures, trade statistics, and base-year calculations for differenttime periods. So companies need to compare country figures byextrapolating from those different periods.There also are numerous definitional differences amongcountries. For example, a category as seemingly basic as “familyincome” may include only the nuclear family-parents andchildren-in some countries, but it may include the extendedfamily-the nuclear family plus grandparents, uncles, andcousins-elsewhere. Similarly, some countries define literacy assome minimum level of formal schooling, others as attainmentof certain specified standards, and still others as simply theability to read and write one’s name. Further, percentages maybe published in terms of either adult population (with differentages used for adulthood) or total population. The definitionsof accounting rules such as depreciation also differ, resulting innoncomparable net national product figures.Countries vary in how they measure investment inflows. Theymight record the total value of the project (regardless of whatportion may be locally owned or financed), the value of foreigncapital invested, or the percentage of the project owned byforeign interests.Figures on national income and per capita income are particu-larly difficult to compare because of differences in activitiestaking place outside the market economy-for example, withinthe home, which do not, therefore, show up in income figures.The extent to which people in one country produce for theirown consumption (for example, grow vegetables, bake bread,sew clothes, or cur hair) will distort comparisons with othercountries where different portions of people buy theseproducts and services.Another comparability problem concerns exchange rates, whichmust be used to convert countries’ financial data to somecommon currency. A 10-percent appreciation of the Japaneseyen in relation to the U.S. dollar will result in a 10-percentincrease in the per capita income of Japanese residents whenfigures are reported in dollars. Does this mean that the Japaneseare suddenly 10 percent richer? Obviously not, because their yenincome, which they use for about 85 percent of their purchasein the Japanese economy, is unchanged and buys no more.Even if changes in exchange rates are ignored, purchasing powerand living standards are difficult to compare, because costs areso affected by climate and habit. Exchange rates, even whenusing PPP, are a very imperfect means of comparing nationaldata.

External Sources of InformationAlthough we have indicated variables that may be useful formaking locational decisions, it is impossible to include acomprehensive list of information sources. There are simplytoo many. A routine search on the Internet often yieldsthousands of sources, and Lexis/Nexis gives full-text citationsfrom thousands of sources. The following discussion high-lights the major types of information sources in terms of theircompleteness, reliability, and cost.

Individualized Reports Market research and business consult-ing companies will conduct studies for a fee in most countries.Naturally, the quality and the cost of these studies vary widely.They generally are the most costly information source becausethe individualized nature restricts prorating among a numberof companies. However, the fact that a company can specifywhat information it wants often makes the expense worth-while.Specialized Studies Some research organizations prepare fairlyspecific studies that they sell to any interested company at costsmuch lower than those for individualized studies. Thesespecialized studies sometimes are printed directories ofcompanies that operate in a given locale, operate with financialor other information about the companies. They also may beabout business in certain locales, forms of business, or specificproducts. They may combine any of these elements as well. Forexample, a study could deal with the market for imported autoparts in Germany.Service Companies Most companies that provide services tointernational clients-for example, banks, transportation agencies,and accounting firms-publish reports. These reports usually aregeared toward either the conduct of business in a given area orsome specific subject of general interest, such as tax or trade-mark legislation. Because the service firms intend to reach a widemarket of companies, their reports usually lack the specificity acompany may want for making a final decision. However, muchof the data give useful background information. Some servicefirms also offer informal opinions about such things as thereputations of possible business associates and the names ofpeople to contact in a company.Government Agencies Governments and their agencies areanother source of information. Different countries’ statisticalreports vary in subject matter, quantity, and quality. When agovernment or government agency wants to stimulate foreignbusiness activity, the amount and type of information it makesavailable may be substantial. For example, the U.S. Departmentof Commerce not only compiles such basic data as news aboutand regulations in individual foreign countries and product-location-specific information in the National Trade Data Bank,but it will also help set up appointments with businesspeopleabroad.International Organizations and Agencies Numerousorganizations and agencies are supported by more than onecountry. These include the UN, the WTO, the IMF, the OECD,and the EU. All of these organizations have large research staffsthat compile basic Statistics as well as prepare reports andrecommendations concerning common trends and problems.Many of the international development banks even help financeinvestment-feasibility studies.Trade Associations Trade associations connected to variousproduct lines collect, evaluate, and disseminate a wide variety ofdata dealing with technical and competitive factors in theirindustries. Many of these data are available in the trade journalspublished by such associations; others mayor may not beavailable to nonmembers.

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TInformation Service Companies A number of companieshave information-retrieval services that maintain databases fromhundreds of different sources, including many of those alreadydescribed. For a fee, or sometimes for free at public libraries, acompany can obtain access to such computerized data andarrange for an immediate printout of studies of interest.The Internet Printed publications are quickly being trans-formed into archives that are older than information one mayfind on the Internet. This is because Internet changes appearimmediately, whereas changes for periodicals must be printed,disseminated, cataloged, and shelved before they are available.The amount of materials available on the Internet and WorldWide Web is expanding very rapidly; however, finding thesematerials is still somewhat haphazard because of catalogingmethods. As with other sources, one must be concerned aboutthe reliability of information gathered from Internet sources.

Internal Generation of DataMNEs may have to conduct many studies abroad themselves.Sometimes the research process may consist of no more thanobserving keenly and asking many questions. Investigators cansee what kind of merchandise is available, can see who is buyingand where, and can uncover the hidden distribution points andcompetition. In some countries, for example, the competitionfor ready-made clothes may be from seamstresses working inprivate homes rather than from retailers. The competition forvacuum cleaners may be from servants who clean with mopsrather than from other electrical-appliance manufacturers.Surreptitiously sold contraband may compete with locallyproduced goods. Traditional analysis methods would not revealsuch facts. In many countries, even bankers have to rely moreon clients’ reputations than on their financial statements.Shrewd questioning may yield very interesting results. But suchquestioning is not always feasible. For example, Bass thinks thatwomen consume most of its Barbicon Malt with Lemon,which sells well in Saudi. Arabia. But it cannot be sure becausein that country it cannot hold focus groups to discuss products,rely on phone books for random surveys, stop strangers on thestreet, or knock on the door of someone’s house.Often a company must be extremely imaginative, extremelyobservant, or both. For example, one soft-drink manufacturerwanted to determine its Mexican market share relative to that ofits competitors. Management could not make reliable estimatesfrom the final points of distribution because sales were sowidespread. So the company hit on two alternatives, both ofwhich turned out to be feasible: The bottle cap manufacturerrevealed how many caps it sold to each of its clients, andcustoms supplied data on each competitor’s soft drink concen-trate imports.

Country Comparison ToolsOnce companies collect information on possible locationsthrough scanning, they need to analyze the information. Twocommon tools for analysis are grids and matrices. However,once companies commit to locations, they need continuous

updates, which they commonly make through environmentalscanning. We shall now discuss grids, matrices, and environ-mental scanning.

GridsA company may use a grid to compare countries on whateverfactors it deems important. Table 9.2 is an example of a gridwith information placed into three categories. The companymay eliminate certain countries immediately from considerationbecause of characteristics it finds unacceptable. These factors arein the first category of variables, in which country I is elimi-nated. The company assigns values and weights to othervariables so that it ranks each country according to attributes itconsiders important. For example, the table graphically pin-points country II as high return-low risk, country III as lowreturn-low risk, country N as high return-high risk, and countryV as low return-high risk.Both the variables and the weights will differ by product andcompany depending on the company’s internal situation and itsobjectives. The grid technique is useful even when a companydoes not compare countries because it can set the minimumscore needed for either investing additional resources orcommitting further funds to a more detailed feasibility study.Grids do tend to get cumbersome, however, as the number ofvariables increases. Although they are useful in ranking coun-tries, they often obscure interrelationships among countries.

MatricesGenerally, managers may use two matrices when comparingcountries: opportunity-risk matrices and country attractiveness-company strength matrices.Opportunity-Risk Matrix To show more clearly the summaryof data, we can plot risk on one axis and opportunity on theother, a technique many companies use. Figure 11.4 is asimplified example that includes only six countries. The matrixshows that the company has current operations in four of thecountries (all except countries A and E). Of the two nonex-ploited countries, A has low risk but low opportunity and Ehas low risk and high opportunity. If resources are to be spentin a new area, E appears to be a better bet than A. Of the otherfour countries, there are large commitments in D and F,medium ones in C, and a small one in B. In the future timehorizon being examined, it appears that F will have low risk andhigh opportunity. D’s situation is expected to improve duringthe studied period, C’s situation is deteriorating, and B’sappears mixed (it will have better opportunity but more risk).Note that the world averages being used for comparison alsoshift during the period under consideration. The matrix isimportant as a reflection of the placement of a country incomparison to other countries.

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Table 9.2Simplified Grid To Compare Countries For Market Panetration

Managers may choose which variables to include in the grid; this table is merely an example. Note also that managers may weight some variables as more important than others. Here, country I is immediately eliminated because the company will go only where 100-percent ownership is permitted. Countries II and IV are estimated to have the highest return; and countries II and III are estimated to have the lowest risk. COUNTRY ——————————————— VARIABLE WEIGHT I II III IV V 1.Acceptable (A), Unacceptable (U) factors a. Allows 100-percent ownership - U A A A A b. Allows licensing to majority-owned subsidiary - A A A A A 2. Return (higher number=preferred rating) a. Size of investment needed 0-5 - 4 3 3 3 b. Direct costs 0-3 - 3 1 2 2 c. Tax rate 0-2 - 2 1 2 2 d. Market size, present 0-4 - 3 2 4 1 e. Market size, 3-10 years 0-3 - 2 1 3 1 f. Market Share, immediate potential, 0-2 years 0-2 - 2 1 2 1 g. Market Share, 3-10 years 0-2 - 2 1 2 0 Total 18 10 18 10 3. Risk (lower number=preferred rating) a. Market loss, 3-10 years (if no present penetration) 0-4 - 2 1 3 2 b. Exchange problems 0-3 - 0 0 3 3 c. Political-unrest potential 0-3 - 0 1 2 3 d. Business laws, present 0-4 - 1 0 4 3 e. Business laws, 3-10 years 0-2 - 0 1 2 2 Total 3 3 14 13

But how are values plotted on such a matrix? The companymust determine which factors are good indicators of its risk andopportunity and weight them to reflect their importance. Forinstance, on the risk axis, a company might give 40 percent (0.4)of the weight to expropriation risk, 25 percent (0.25) to foreign-exchange controls, 20 percent (0.2) to civil disturbances andterrorism, and 15 percent (0.15) to exchange-rate change, for atotal allocation of 100 percent. It would then rate each countryon a scale, such as 1 to 10, for each variable (with 10 indicatingthe best score and 1 the worst) and multiply each variable by theweight if allocates to it. For instance, if the company givescountry A a rating of 8 on the expropriation-risk variable, the 8would be multiplied by 0.4 for a score of 3.2. The companywould then sum all of country A’s risk-variable scores to place iton the risk axis. The company would use a similar procedure toplot the location of country A on the opportunity axis. Oncethe scores are determined for each country, management candetermine the average scores for all countries’ risks and oppor-tunities and divide the matrix into quadrants.A key element of this kind of matrix-and one that is not alwaysincluded in practice-is the projection of the future countrylocation. Such a placement’s usefulness is obvious if theprojections are realistic. Therefore, it is helpful to have forecast-ers who are knowledgeable not only about the countries butalso about forecasting methods.Figure 11.4 Opportunity-Risk Matrix

= No operations in the country = Current operations (size of square represents size ofcompany operation in the country) O = Future placement (such as five years from present)——=World average rating, present …= World average rating, futureCountry Attractiveness-Company Strength Matrix Anothermatrix highlights company’s specific product advantage on acountry-by-country basis. Figure 11.5 illustrates this type ofmatrix for market expansion before countries are plotted. Thecompany should attempt to concentrate its activities in thecountries that appear in the top left corner of the matrix and totake as much equity as possible in investments there. In thisposition, county attractiveness is the highest, and the companyhas the best competitive capabilities to exploit the opportuni-ties. In the top right corner, the country attractiveness is alsohigh, but the company has a weak competitive strength forthose markets, perhaps because it lacks the right product. If thecost is not too high, the company might attempt to gain greaterdomination in those markets by remedying its competitiveweakness. Otherwise, it might consider either divestment(reducing its investment) or strengthening its position throughjoint-venture operations with another company whose assetsare complementary. A company might; divest in countries in thebottom right corner or “harvest” by pulling out all possiblecash it could generate while at the same time not replacingdepreciated facilities. It could also license, thereby generatingsome income without needing to make investment outlays. Inother areas, the company must analyze situations individually inorder to decide which approach to take. These are marginal areasthat require specific judgment.Although this type of matrix may serve to guide decision-making, managers must use it with caution. First, it is oftendifficult to separate the attractiveness of a country from acompany’s position. In other words, the country may seemattractive because of the company’s fit with it. Second, some ofthe recommended actions take a defeatist attitude with regard toa company’s competitive position. There are simply manyexamples of companies that built competitive strength inmarkets that competitors “had previously dominated of thatbuilt profitable positions without being the competitive leader.Third, a company ma; choose to stay in a market to preventcompetitors from using their dominance there to fundexpansion elsewhere.

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TFigure 11.5 Country Attractiveness Strength Matrix

Environmental ScanningInternational companies rely on environmental scanning, whichis the systematic assessment of external conditions that mightaffect their operations. For example, a company might assesssocietal attitudes that could foreshadow legal changes. MostMNEs employ at least one executive to conduct environmentalscanning continuously. The most sophisticated of thesecompanies tie the scanning to the planning process andintegrate information on a worldwide basis. Companies aremost likely to seek economic and competitive information intheir scanning process, and they depend heavily on managersbased abroad to supply them with information.

Notes -