2 - Country Factors: National Differences in Culture Flashcards
(44 cards)
ch. 2.1 Elements of “Country Attractiveness” (hard facts)
Overview.
What we analyze?
How we analyze?
- Analysis of Foreign Markets: Model (PESTEL)
- Analyzing country attractiveness: Country analysis (hard facts)
- Benefits, costs and risks
- Evaluating Country Differences
ch. 2.1 Elements of “Country Attractiveness”
Analysis of Foreign Markets: Model (PESTEL)
P – Political E – Economic S – Social T – Technological E – Environmental L – Legal
More in depth:
Political and regulatory:
- Government Stability
- Taxation Policy
- Foreign Trade Regulations
Economical and Legal:
- Disposable Income
- Inflation and Interest Rates
- Unemployment Rate
- Laws and regulations
Socio-cultural
- Population Demographics
- Lifestyle changes
- Education Levels
Technological
- Government Spending on basic research
- Speed of technology transfer
- Technology spillovers from other industries
Environmental
Industry and competitive Environment
ch. 2.1 Elements of “Country Attractiveness”
Conceptualization of Country analysis
- Analyzing relevant country factors using professional tools
- Identifying those countries that offer the highest probability of success with regard to potential foreign activities of the corporation.
Two perspectives:
- Economic perspective
- identifying those countries that offer highest marginal benefit at a given level of resource deployment
- Contingency-theoretical perspective
- Identifying those countries where the strategic goals of the corporation’s internationalization can be realized best
ch. 2.1 Elements of “Country Attractiveness”
Steps of Country analysis
- Dimensions and elements of country attractiveness
- Collecting relevant information
- Tools for assessing country factors
- Decision making
ch. 2.1.1
What are the dimensions and elements of country attractiveness?
What dimensions should we minimize/maxime?
Enumerate some elements of each dimension.
3 dimensions:
- Benefits (Maximize)
- Costs (Minimize)
- Risks (Minimize)
Elements of the dimensions:
Benefits:
- Market growth
- Market size
- Profitability
- Price level
Costs
- Corruption
- Lack of infrastructure
- Legal costs
Risks
- Commercial Risk
- Currency Risk
- Country Risk
- Cross-Cultural Risk
ch. 2.1.1
What are the sources of Country Risk?
Political and Legal System.
Political System: A set of formal institutions that constitute a government - Government - Political parties - Legislative bodies - Lobbying groups - Trade unions - Other political institutions
Legal System: A system for interpreting and enforcing laws, regulations, and rules that aim to: - Ensure order in commercial activities - Resolve disputes - Protect intellectual property - Tax economic output
ch. 2.1.2 Evaluating Country Differences
Overview
- Collecting relevant information
- Tools for assessing country factors
- Example Checklist: The use of checklists to assess country factors
- Example Scoring Model: Business Environment Risk Index (BERI)
- Example Scoring Model: International Country Risk Guide (ICRG)
Criticism of Scoring Models - Example Sequential Appraisal: Assessment of Country Factors
- Decision making
ch. 2.1.2 Evaluating Country Differences
Types of information
- Qualitative
- Quantitative
- Objective
- Subjective
ch. 2.1.2 Evaluating Country Differences
Sources for country qualitative information
Official/state institutions
- Chamber of Foreign Trade
- Department of Foreign Affairs
- OECD, etc.
Private institutions:
- market research agencies (e.g. Germany Trade and Invest, Cologne),
- Industry survey institutes (e.g. FAZ-Institute)
ch. 2.1.2 Evaluating Country Differences
Sources for country quantitative information
Key indicators about GDP-development, inflation rates, trade balances, etc, compiled by:
- Census Bureau
- UNPD
- UNCTAD
Objective data compiled by e.g.
- Census Bureau,
- UNPD
- UNCTAD
Subjective data compiled by e.g.
- country rankings by Moody’s
- Standard&Poor
ch. 2.1.2 Evaluating Country Differences
Tools for assessing country factors
- Checklists
- Scoring models
- Sequential appraisal
- Portfolio analysis
ch. 2.1.2 Evaluating Country Differences
Tools for assessing country factors: Checklists
Catalog of decision-relevant criteria which have to be fulfilled in a specific country for launching corporate activities
Differentiate between
- environmental-geographic,
- social-cultural,
- political-legal,
- economic
- indicators with major effect on the firms internationalization process
ch. 2.1.2 Evaluating Country Differences
Tools for assessing country factors: Example for Checklists
Natural-geographic conditions
- Size of country
- Geographic location of the country
- Climate
- Natural resources
- …
Socio-cultural conditions
- Language(s) and symbols
- Education level
- Attitude towards foreigners
- Lifestyle(s)
- …
Political-legal conditions
- Political system
- Legal system and legal practice
- Level of corruption
- Political stability
- …
Economic conditions
- Economic system
- Infrastructure
- Per-capita-income
- Market volume
- …
ch. 2.1.2 Evaluating Country Differences
Tools for assessing country factors: Scoring models
Weighted assessment, scoring, ordering, evaluation:
- Assess country factors by using a composition of weighted evaluation criteria
- Allocate scores according to a country’s individual characteristics
- Rank the countries according to their scores to get them in a factually correct order
- Use evaluation criteria which are both critical for firms foreign performance and easy to detect
Criticism of Scoring Models
Selection of criteria is subjective
Weighting of coefficients is subjective
Evaluation of factors is subjective
Determination of boundary values is subjective
Not all variables are independent of each other
Examines only global factors and no industry-specific factors
Not available for every country
Expensive
Additional analysis is IMPORTANT
Nevertheless scoring models will assist the firm in identifying risks to businesses in unknown and increasingly complex environment
ch. 2.1.2 Evaluating Country Differences
Example for scoring models
- Business Environment Risk Index (BERI)
- Operations Risk Index (ORI)
- Political Risk Index (PRI)
- Remittance and Repatriation Factor (R-Factor)
- International Country Risk Guide (ICRG)
- Political Risk Index
- Financial Risk Index
- Economic Risk Index
ch. 2.1.2 Evaluating Country Differences
Tools for assessing country factors: Sequential appraisal
Country elimination through thresholding:
Filter countries in some selection state. Start with lots of them, and gradually eliminate them.
For further stages, the more information is needed to apply elimination
- Build a ranking of criteria that evaluate the advantageousness of corporate activities in a foreign country
- Define a critical min/max-threshold for each criterion
- Rank the criteria according to their relevance and evaluate each country according to its individual
characteristics - Dismiss countries piecewise who exceed a threshold
ch. 2.1.2 Evaluating Country Differences
Sequential appraisal example
A sequential three-stage evaluation model:
- Selection Stage:
Markets that are filtered out by restrictions (must-have) - Selection Stage
Markets that are filtered out by several pre-defined selection criteria - Selection Stage
Markets that remain for further market cultivation
ch. 2.1.2 Evaluating Country Differences
Tools for assessing country factors: Portfolio analysis
General assumption of a connection between the
opportunities and risks of corporate activities in a foreign country
Select two key criteria;
- one that stands for a critical source of risk and
- one that indicates a mayor source of opportunity for the corporation s foreign activities
Form a 2x2-matrix and allocate the countries into the fields according to their individual risk/opportunity-profile
ch. 2.1.2 Evaluating Country Differences
Portfolio analysis example
Growth-potential versus risks of Asian markets
That Graph of:
Yearly growth rate x Investment risk x GDP
ch. 2.1.2 Evaluating Country Differences
Decision making
The adoption of tools for assessing country factors offers an important point of reference for the corporation’s internationalization decision
In order to come to a final conclusion and decision which country qualifies best for going international, further determinants are to consider
Beside country culture issues (soft facts), for the final decision making a systematic consideration of the firm s external environment as well as its internal resources is particularly required:
- External strategic analysis
- Internal strategic analysis
ch. 2.1.2 Evaluating Country Differences
External strategic analysis
Analysis of the firm s external environment that can be structured into:
- Macro-environment (all factors in a market that directly or indirectly restrict the scope of actions and cannot be influenced or controlled by the firm) via the PESTEL-Analysis
- Industry structure (via the Porter s 5-Forces)
- Competitors and industry dynamics (via strategic groups)
ch. 2.1.2 Evaluating Country Differences
Internal strategic analysis
Analysis of the firm s value creation and firm specific-resources using:
- Value Chain Model to identify potential competencies within the firm s value chain architecture
- Network Analysis Techniques to identify potential competencies at value chain interfaces
- VRIO-Concept to evaluate core competencies and to identify firm-specific strength and weaknesses
ch. 2.2 Country Factors: National Differences in Culture (soft facts)
Overview
Culture analysis (soft facts)
- Relevance of Culture and its Terminology
- Components and Dimensions of Culture
- Cross-Cultural Study of Hofstede
can be organized in four steps:
- Defining culture & relevance of culture
- Assessing relevant determinants of culture
- Assessing pos./neg. cultural effects
- Decision making
ch. 2.2.1 Relevance of Culture and its Terminology Overview
- Culture as an Important Contextual Factor for International Management
- What is Culture
- Culture is consist of several Layers: “The Culture-Onion”
- Determinants of Culture
