Garvin and Bermont (1983) prophetically wrote that the future promises to bring an environment in which the people who know how to acquire, store, access, distribute and control information stand to have more power than they have ever had in the history of mankind.
Incremental differences in companies' abilities to acquire, distribute, store, analyze and invoke actions based on information will determine the winners and losers in the battle for customers (Davidow and Malone 1992).
There are five interrelated phenomena driving the importance of information in today's business environment (Garvin, Berkman and Bermont 1993):
While information is becoming extremely important in every kind of business, it has never been more critical than in today's highly complex and dynamic world of international business. Complex and dynamic because of the many alternative business options that are available as well as the external factors that influence business decisions, many of which the company has limited or no control over.
Companies in the international arena have several operational alternatives including:
Merchandise Exports and Imports
Merchandise exports are tangible goods sent out of a country while merchandise imports are tangible goods brought in. More companies that engage in international business are involved in exporting or importing than in any other type of business transaction.
Services Exports and Imports
Services are not goods that can be seen and are sometimes referred to as invisible exports or imports. These include travel tourism and transportation as well as services such as banking, insurance, rentals, engineering and management services that are performed for a fee. It also includes the use of assets such as trademarks, patents, copyrights or expertise under licensing and franchising agreements.
Investments
Foreign investment involves ownership of foreign property in exchange for financial return. This may be in the form of direct or portfolio investments. Direct investment is one that gives an investor a controlling interest in a foreign company. A portfolio investment is one which gives the investor a non-controlling interest in a company or in ownership of a loan to another party.
Multinational Enterprise
The multinational enterprise is a company that takes a global approach to foreign markets and production. It is usually involved in nearly every type of international business practice. Multinational enterprises may be global companies (which integrate operations that are located in different countries) or multi-domestic companies (which allows each foreign country operation to function independently to cater to local market needs).
The complexity of the international business environment stems from the diversity of global markets in terms of business environment, technological capabilities, customer needs, cultural milieu, user lifestyles, aesthetic preferences and infrastructure availability.
External factors influencing international business decisions include:
It is evident from the above that decision makers in the international business environment operate in a very complex and volatile environment. And to function effectively, they need accurate and up to date information.
The nature of information needed by decision makers dealing with international markets depends on the nature of their operations. Thus, a company involved only in imports or exports of goods would need a different kind of information than one which is considering making a direct investment in another country.
In the early stages of international expansion, the process of country selection may be relatively passive- companies may lack the experience and expertise to devise strategies for selecting countries and instead, respond to opportunities as they present themselves. As they gain more international experience, however, they actively decide which locations to emphasize for sales and production. (Daniels and Radebaugh 1995)
Another variable influencing the need for information is the stage of the decision making process.
The criticality of the need for accurate information is much higher (and the resources available for its collection much lower) in the early stages of the decision making process. An example is when a company is attempting to decide which country to target and/or what product/service to introduce.
Typically, once a company has actually started operations in or decided on a specific country, the resources and infrastructure will be available to generate accurate and reliable information.
It is for this reason the focus of this study is on addressing the information needs in the early stages of the decision making process.
For country selection, many companies first employ some form of scanning technique, comparing countries on the basis of a few broad variables. This allows decision makers to subsequently perform a much more detailed analysis of a limited number of geographic alternatives that look promising. This technique has the advantages of reducing the risk of overlooking promising options as well as avoiding a detailed analysis of too many alternatives.
Nelson (1994) suggests a nine stage screening process for evolving an international business strategy:
The factors that have the most influence on placement of sales and production emphasis (Daniels and Radebaugh 1995) are:
Market Size
Expectations of sales growth is probably the single most important factor influencing country selection. Managers often use data such as GNP, per capita income, growth rates, size of middle class and level of industrialization as indicators.
Geographic, Language and Market Similarities
Companies prefer countries which they perceive as being easier to operate in. Geographic proximity to their home countries, similar legal systems, common languages and market similarities in terms of size and per capita income are some factors that attract companies.
Red Tape
The degree of red tape in a given country frequently influences corporate decisions. The degree of red tape is not something which can be directly measured. But it includes issues such as the difficulty of getting permission to operate, bringing in expatriate personnel, obtaining licenses for production and satisfying government agencies on such matters as taxes, labor conditions and environmental compliance.
Fit with Company Capabilities
A country which offers size, technology and other factors familiar to company personnel are likely to be preferred. Also, ease of repatriation of profits and higher degree of ownership are attractive for companies.
Costs and Resource Availability
A company must examine costs of labor, raw material inputs, capital, taxes and transfer costs in relation to productivity in order to determine a least-cost location. Employee compensation is probably the single most important cost of operating abroad and current labor costs, trends in these costs and unemployment rates are useful for estimating cost differences between countries. If precise data is not available, proxies on operating conditions may be used- for example, if the country already turns out competitive products embodying inputs similar to those required for the production being considered, labor costs probably will be sufficiently low.
Besides the above factors, companies also need to consider risk factors such as the following (Daniels and Radebaugh 1995):
Competitive Risk
In order to maximize their advantage, companies must develop strategies to find countries where there is least likely to be significant competition for the maximum duration of time. Indicators include local availability of technology and freight costs- if technology exists in a country, local competition may start up well before international competition arrives; if freight costs are high to a country, local production, despite inefficiencies may enjoy a cost advantage.
Monetary Risk
If expansion into international markets occurs through direct investment abroad, access to the invested capital, convertibility of the local currency and the exchange rate on its earnings will be key considerations.
Political Risk
A major concern of international corporations is that the political climate will change and cause their operating position to deteriorate. Political actions that may adversely affect a company include governmental takeovers of property (with or without compensation), operational restrictions and damage to property or personnel resulting from political instability.
From the discussion in the preceding section, it is clear that companies involved in international business have the need for a wide range of information on prospective countries.
Information sources may be classified as primary or secondary (Garvin, Berkman and Bermont 1993). Primary information is that derived from the original source providing the data. Examples are a focus group interview, answers to a political survey or observations from someone examining traffic patterns. Secondary information is a compilation of primary research, often edited and combined with other data. For example, a textbook describing political surveys would be a secondary source.
Information sources may also be classified as internal or external (Garvin, Berkman and Bermont 1993). In the business context, internal information is that which deals with ones own company such as sales, number of clients, destinations of shipments etc. and is usually used for evaluation of performance. External information, on the other hand, is about the world external to the company and is used mostly for planning and decision making.
Since the focus of this study is on the need for information in the early stages of the decision making process, this section discusses only the external sources of secondary information. It has been assumed that in the later stages of the decision making process, once a company has actually started operations in or decided on a specific country, the resources and infrastructure will be available to generate accurate and reliable information from primary sources, if needed.
Some of the major sources of international business information are:
Individualized Reports
These are reports prepared by a market research or business consulting firm for a fee which is often based on the time and effort actually spent (rather than on a specified result). These are usually the most expensive because of the fact that they are individualized. However, the fact that the company can specify the information needed may make it worthwhile. These also offer the maximum competitive advantage because they are not available to competitors.
Specialized Studies
These studies are prepared by some research organizations and sold to any interested company at costs that are much lower than for individualized reports. These are often organized in the form of directories or indices. An example relevant to international business is The Ernst and Young Resource Guide to Global Markets 1991 (Valentine, Lew and Poor 1991) which provides basic country data on the "Triad" (North America, European Community and Pacific Rim) as well as contacts and pointers to sources of more information.
On-line Information Services
A large number of companies and organizations have information retrieval services that maintain databases which are available for a fee. Many of these on-line databases are also available in print, CD-ROM and other formats. Examples of such services are DIALOG, Dow Jones News Retrieval and Lexis-Nexis. A very large number of on-line databases is available, dealing with a wide range of subjects- the Directory of Online Databases (Marcaccio et al. 1992) lists almost 5000 databases organized alphabetically and by subject.
Most of these require membership and are accessed by direct dial-up. A subscription fee is often involved and additional charges are usually based on connect time. Some databases also charge separately for information actually retrieved.
Another category of on-line information sources are those which are accessible through the Internet. These sources are discussed in a subsequent chapter.
The major limitation of the on-line databases is that most of them are specialized by subject. There is no single database that caters to the diverse information needs of international business. Additionally, their search interfaces are not very intuitive and it is often necessary to hire the services of an expert to search them effectively (particularly critical when charges are based on usage time). Most of these databases do not deliver the information in a format convenient for printing or saving for subsequent use.
Service Companies
Most companies that provide services to international companies (such as banks, transportation agencies and accounting firms) publish reports that are available to potential clients. Since these are meant for a wide range of companies, they usually lack specificity.
Governmental Agencies
Governments and their agencies often provide significant amounts of data in order to promote international business activity. These are often available through the country's embassies or consulates, though some are published only in the home countries in their native languages. Another problem is that not all countries provide the same quantity or quality of information.
For example, the US Department of Commerce compiles and makes available information (including news and regulations) about individual countries. Many other US Government agencies provide on-line information though most of it would not be relevant to international business- Washington Online: How to Access the Government's Electronic Bulletin Boards (Maxwell 1996) lists over 220 bulletin board systems (which include traditional bulletin boards as well as databases, dial-in systems and Internet sites) operated by federal agencies, departments and courts.
International Organizations
International agencies such as the UN and the World Bank often provide useful information. Examples are the Statistical Yearbook published by the UN (which contains international trade data on products and information on exports and imports by country), and the World Atlas published by the World Bank (which provides general data on population, growth trends and GNP).
Country specific reports may also be available from international agencies. For example, the Guidebook on Trading with the People's Republic of China is published by the UN's Economic and Social Commission for Asia and the Pacific.
Trade Associations
Associations such as world trade clubs and domestic and international chambers of commerce can provide valuable information on local markets. For example, Trade Point USA provides access (both free and charge based) to information aimed at helping businesses involved in international trade.
Useful information can also be obtained from industry associations. However, the information provided may be general in nature because of the wide clientele served.
Business research is undertaken in order to reduce the uncertainties in the decision making process and to expand or narrow the alternatives under consideration and it is therefore important that the data be accurate and reliable. However, a company can rarely get all the information that its managers would like due to time constraints and the cost of obtaining information.
There is usually a trade-off between the quality of information and the cost involved in its collection. It is therefore necessary to consider the factors influencing the quality and cost of information.
Quality of Information
No source of information is perfect and some are more likely to have reliability problems than others. Errors in information can be a result of many different factors.
For example, company directory data is often inaccurate because, for a variety of motivations ranging from tax to establishing credit, businesses will sometimes overstate or understate sales figures. Market size and forecast reports can be inaccurate because of the survey methodologies. Census information may not be updated frequently enough or may have missed significant numbers of the populace. GNP figures can often be understated because of the limitations of the data collection method. Data may not be comparable because of differences in definitions between countries- a category as basic as "family income" may mean different things depending on the definition of "family". Varying exchange rates can distort country financial data.
Having said this, it should be noted that it is rarely (if ever) possible to verify the accuracy of every piece of information used to support decision making. It is therefore necessary to use limited criteria to determine the usability of a specific piece of information. The most commonly used method for determining the authenticity of information is to look at the source of the data. Looking at who originally collected the data, the purpose of the data collection and how the data was collected often gives indications of how reliable the information is. Another consideration is the date when the data was collected.
Cost of Information
In order to assess the real cost of information, it is necessary to consider three aspects: time, money and ultimate gain (Garvin, Berkman and Bermont 1993). The cost of acquisition of information in terms of time and money has to be weighed against its benefit to the organization.
Of these, the money aspect is the easiest to estimate. In the case of conventional media, it is the actual cost of acquisition. In the case of on-line sources, it is a combination of subscription and usage charges.
The time cost is usually more difficult to determine since it can be very difficult to actually estimate or measure the time spent in collecting information. But it would appear that the time cost can be very high, particularly in the area of international business, because of the wide range of information needed as well as the range of sources (discussed earlier) that have to be tapped to get the necessary information.
The ultimate gain for a company from a specific piece of information is probably the most difficult to estimate because it is highly contextual. A piece of information may be of tremendous value to one company but worthless to another. Also, the value of information may depend to a great extent on the costs of not having it.