Assess the National Business Environment

If the business environments of all countries were the same, deciding where to market or produce products would be rather straightforward. Managers could rely on data that report the performance of the local economy and analyze expected profits from proposed investments. But as we saw in earlier chapters, countries differ significantly in their cultures, politics, laws, and economies. International managers must work to understand these differences and to incorporate their understanding into market- and site-selection decisions. Let’s examine how domestic forces in the business environment actually affect the location-selection process.

Cultural Forces

Although countries display cultural similarities, they differ in language, attitudes toward business, religious beliefs, traditions, customs, and countless other ways. Some products are sold in global markets with little or no modification. These products include industrial machinery such as packaging equipment, consumer products such as toothpaste and soft drinks, and many other types of goods and services. Yet many other products must undergo extensive adaptation to suit local preferences, such as books, magazines, ready-to-eat meals, and other products.

Cultural elements can influence what kinds of products are sold and how they are sold. A company must assess how the local culture in a candidate market might affect the salability of its product. Consider Coca-Cola’s (www.cocacola.com) experience in China. Many Chinese take a traditional medicine to fight off flu and cold symptoms. As it turns out, the taste of this traditional medicine—which most people do not find appealing—is similar to that of Coke. Because of Coca-Cola’s global marketing policy of one taste worldwide, the company had to overcome the aversion to the taste of Coke among Chinese consumers. It did so by creating a marketing campaign that associated drinking a Coke with experiencing a piece of American culture. What initially looked like an unattractive market for Coke became very successful through a carefully tailored marketing campaign.

Cultural elements in the business environment can also affect site-selection decisions. When substantial product modifications are needed for cultural reasons, a company might choose to establish production facilities in the target market itself. Yet serving customers’ special needs in a target market must be offset against any potential loss of economies of scale due to producing in several locations rather than just one. Today companies can minimize such losses through the use of flexible manufacturing methods. Although cellular phone manufacturer Nokia (www.nokia.com) produces in locations worldwide, it ensures that each one of its facilities can start producing any one of its mobile phones for its different markets within 24 hours.

A qualified workforce is important to a company no matter what activity it is to undertake at a particular site. Also, a strong work ethic among the local workforce is essential to having productive operations. Managers must assess whether an appropriate work ethic exists in each potential country for the purposes of production, service, or any other business activity. An adequate level of educational attainment among the local workforce for the planned business activity is also very important. Although product-assembly operations may not require an advanced education, R&D, high-tech production, and certain services normally will require extensive higher education. If the people at a potential site do not display an appropriate work ethic or educational attainment, the site will be ruled out for further consideration.

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