SUMMARY
SUMMARY ■ Because companies do not have sufficient resources to exploit all opportuni-
ties apparent to them, two of the major considerations facing firms are (1) which markets to serve and (2) where to locate the production to serve those markets.
■ The market- and production-location decisions are often highly interdependent because of requirements that markets be served from local production, because firms seek nearby outlets for excess capacity, and because firms may be unwilling to invest in those production locations necessary to serve a desired market.
■ Scanning techniques are useful to aid decision makers in considering alternatives that might otherwise have been overlooked. They also help limit the final detailed feasibility studies to a manageable and promising number.
■ The prioritizing of countries is useful for determining the order of entry into potential markets and in setting the allocation and rate of expansion among different markets.
■ Because each company has unique competitive capabilities and objectives, the makeup of factors affecting each geographic expansion pattern will be slightly different for each. Nevertheless, certain variables have been shown to influence most firms, including the relative size of country markets, the ease of operating in the specific foreign countries, the availability and cost of resources, and the perceived relative risk and uncertainty of operations in one country versus another.
■ Some tools frequently used to compare opportunities in various countries are grids that rate country projects according to a number of separate dimensions and matrices on which firms may project one attribute on a vertical axis and another on the horizontal axis, such as risk and opportunity or country attractiveness and company capability.
■ By using a similar amount of internal resources a firm may choose initially to move rapidly into many foreign markets with only a small commitment in each (a diversification strategy) or to make a strong involvement and commitment in one or a few locations (a concentration strategy).
■ The major variables to consider when deciding whether to diversify or concentrate are the response of sales to incremental increases in marketing expenditures, the growth rate and sales stability in each market, the expected lead time over competitors, the degree of need for product and marketing adaptation in different countries, the need to maintain control of the expansion program, and the internal and external constraints facing the company.
■ ROI figures alone do not reveal the full impact a specific foreign investment may have on total corporate performance. Firms must assess such factors as effects on earnings in other countries as well as what advantages competitors would gain in the absence of the investment.
■ Rather than ranking investment alternatives, once a feasibility study is complete, most investors set some minimum criteria and either accept or reject a foreign project on that basis. The reason for this type of decision is that feasibility analyses seldom are finished simultaneously, and there are pressures to act quickly.
■ Reinvestment decisions normally are treated separately from new investment decisions because a reinvestment may be necessary to protect the viability of existing resources and because there are people on location who can better judge the worthiness of proposals.
■ Firms must develop strategies for where new investments will be made and devise the means to deemphasize certain areas and to divest if necessary.
In 1989 Mitsui and the Iran National Petrochemical Industries Company (IRNA) announced the dissolution of a joint venture, the Iran-Japan Petrochemical Company (IJPC), at Bandar Khomeini, Iran (see Map 16.1). The joint venture agreement was signed in 1971. Planning for the project began in 1973 and construction in 1976. A Mitsui-led group of five Japanese firms owned 50 percent of the venture, with the remainder held by IRNA, an Iranian government company. At the time of the disso-
lution, the two companies had invested about $5 billion. The agreed-upon abandonment of the project allowed Mitsui to claim about $1.25 billion in risk insurance from the Japanese government.
Work on the project had been suspended several times. The Iranian revolution first brought work to a halt in March 1979, when it was estimated that completion would be within six months. Construction resumed in the summer of 1980 but was halted again in October because of Iraqi attacks. Although the project escaped extensive damage from the attacks, the facilities were to have depended on naphtha supplies from a refinery in Abadan that was almost totally destroyed. During these early years of construction,
Mitsu add a 1981 fearec pit." 1 sharp sui an 1983 some ownej capita would expert Work ter fur structi estima projeci with tl in 198 govern tives o: The Mitsui be the the wo Iranian total in terms c ing inv of deve smaller and for ada.
Mea comple so billic that coi Iranian Mitsui' would with Ja Japane that tht supplie
Mitsui was called upon on several occasions to add as much as $60 million to the project. In 1981 Mitsui finally stopped work because it feared the plant would become a "bottomless pit." This led to two years of exhaustive and sharp negotiations and exchanges between Mitsui and the Iranian government. By the end of 1983 the Iranian government agreed to put up some additional funds, provided that the future ownership share would be adjusted to reflect the capital contribution and assuming that Mitsui would send a survey team of 100 engineers and experts to the site to get the project rolling again. Work did resume but stopped again in 1984 after further Iraqi attacks. Late that same year construction began anew, when the completion was estimated to be in three and a half years at a project cost in excess of $4 billion as compared with the original budget of $500 million. Then in 1987 Iraq attacked again, and the Iranian government put the site off limits to representatives of Mitsui or the Japanese government.
The scope of the project was significant for Mitsui, Iran, and Japan. If completed, it would be the largest foreign investment anywhere in the world by Japanese interests. For Mitsui, the Iranian venture was a substantial portion of its total investment and even more significant in terms of its foreign assets. At the time of becoming involved in Iran, Mitsui was at an early stage of developing foreign production with only new smaller projects for Chinese coal development and for natural gas in Southeast Asia and Canada.
Meanwhile, Iran put a very high priority on completion of the facility. Of the Shah's dozen or so billion-dollar projects, it was the only one that continued under the regime of Khomeini. Iranian governmental officials indicated that Mitsui's decisions on its future participation would affect Iran's overall economic relations with Japan. The Iranian prime minister told a Japanese government survey team in Tehran that the Iranian government would ensure stable supplies of crude oil to Japan if the project was
completed. The question of oil supplies was a very sensitive issue because of Japan's dependence on foreign sources for over 99 percent of its needs. Japan depended more on Iran than on any other single oil source, but Japan also was dependent on Iraq. An official of Japan's Ministry of International Trade and Industry said, "The project will decide the destiny of the fiduciary relations between Japan and the Middle East and eventually, the destiny of Japan's energy security."
Mitsui insured against war damage with the Japanese government's export insurance program. This insurance covered the cost of equipment that originated in Japan as well as losses caused by discontinuation of work, but it was originally due to expire in 1987. Prior to the expiration, Mitsui could apply for the war loss; however, without the ability to inspect the site, settlement could be much less than the damage. This would also mean abandoning ownership in the project. Alternatively, Mitsui could apply for discontinuation of work for six months at an even lower settlement, but keeping its asset ownership. Finally, Mitsui could stall for settlement; however, if the site were to be attacked after the insurance expired but before inspection, it could be claimed that the insurance would not cover the damage. In the meantime, the Japanese government wanted Mitsui to withhold claims because of its relationship with Iran and because the claims could wipe out Japan's export insurance program. Furthermore, a payment to Mitsui for withdrawal required an agreement between the governments of Iran and Japan, and Iran still wanted to see the project completed. Given the interest of Iran and Japan, Mitsui was able to negotiate an insurance extension until the end of 1989.
In 1988 Iran and Iraq agreed to a cease-fire. After inspecting the facility, Mitsui refused to invest any more money. Mitsui claimed that the damage from bombing and corrosion would require at least the same amount of investment expenditures as had been incurred up until that
time. These costs would make the plant uneconomical. The Iranian view was that the project could be completed for only 35 percent of the original cost. This disagreement led to nearly two years of negotiations on the terms of cancellation and how to divide the losses incurred on the project.
After agreement was reached between Mitsui and Iran, the Iranian government negotiated with Hyundai and Daewoo from Korea to put $2 billion into the Bandar Khomeini project. This was part of a larger deal in which the two companies would build tankers for Iran to be paid for with crude oil.
Meanwhile a Mitsui publication said, "The experience that we have gained through this project (IJPC) will be put to full use in our future business activities." The same report indicated that the plan is "to make Mitsui a truly global enterprise" with Europe and Asia the current "major focuses of our globalization policy."
ties apparent to them, two of the major considerations facing firms are (1) which markets to serve and (2) where to locate the production to serve those markets.
■ The market- and production-location decisions are often highly interdependent because of requirements that markets be served from local production, because firms seek nearby outlets for excess capacity, and because firms may be unwilling to invest in those production locations necessary to serve a desired market.
■ Scanning techniques are useful to aid decision makers in considering alternatives that might otherwise have been overlooked. They also help limit the final detailed feasibility studies to a manageable and promising number.
■ The prioritizing of countries is useful for determining the order of entry into potential markets and in setting the allocation and rate of expansion among different markets.
■ Because each company has unique competitive capabilities and objectives, the makeup of factors affecting each geographic expansion pattern will be slightly different for each. Nevertheless, certain variables have been shown to influence most firms, including the relative size of country markets, the ease of operating in the specific foreign countries, the availability and cost of resources, and the perceived relative risk and uncertainty of operations in one country versus another.
■ Some tools frequently used to compare opportunities in various countries are grids that rate country projects according to a number of separate dimensions and matrices on which firms may project one attribute on a vertical axis and another on the horizontal axis, such as risk and opportunity or country attractiveness and company capability.
■ By using a similar amount of internal resources a firm may choose initially to move rapidly into many foreign markets with only a small commitment in each (a diversification strategy) or to make a strong involvement and commitment in one or a few locations (a concentration strategy).
■ The major variables to consider when deciding whether to diversify or concentrate are the response of sales to incremental increases in marketing expenditures, the growth rate and sales stability in each market, the expected lead time over competitors, the degree of need for product and marketing adaptation in different countries, the need to maintain control of the expansion program, and the internal and external constraints facing the company.
■ ROI figures alone do not reveal the full impact a specific foreign investment may have on total corporate performance. Firms must assess such factors as effects on earnings in other countries as well as what advantages competitors would gain in the absence of the investment.
■ Rather than ranking investment alternatives, once a feasibility study is complete, most investors set some minimum criteria and either accept or reject a foreign project on that basis. The reason for this type of decision is that feasibility analyses seldom are finished simultaneously, and there are pressures to act quickly.
■ Reinvestment decisions normally are treated separately from new investment decisions because a reinvestment may be necessary to protect the viability of existing resources and because there are people on location who can better judge the worthiness of proposals.
■ Firms must develop strategies for where new investments will be made and devise the means to deemphasize certain areas and to divest if necessary.
In 1989 Mitsui and the Iran National Petrochemical Industries Company (IRNA) announced the dissolution of a joint venture, the Iran-Japan Petrochemical Company (IJPC), at Bandar Khomeini, Iran (see Map 16.1). The joint venture agreement was signed in 1971. Planning for the project began in 1973 and construction in 1976. A Mitsui-led group of five Japanese firms owned 50 percent of the venture, with the remainder held by IRNA, an Iranian government company. At the time of the disso-
lution, the two companies had invested about $5 billion. The agreed-upon abandonment of the project allowed Mitsui to claim about $1.25 billion in risk insurance from the Japanese government.
Work on the project had been suspended several times. The Iranian revolution first brought work to a halt in March 1979, when it was estimated that completion would be within six months. Construction resumed in the summer of 1980 but was halted again in October because of Iraqi attacks. Although the project escaped extensive damage from the attacks, the facilities were to have depended on naphtha supplies from a refinery in Abadan that was almost totally destroyed. During these early years of construction,
Mitsu add a 1981 fearec pit." 1 sharp sui an 1983 some ownej capita would expert Work ter fur structi estima projeci with tl in 198 govern tives o: The Mitsui be the the wo Iranian total in terms c ing inv of deve smaller and for ada.
Mea comple so billic that coi Iranian Mitsui' would with Ja Japane that tht supplie
Mitsui was called upon on several occasions to add as much as $60 million to the project. In 1981 Mitsui finally stopped work because it feared the plant would become a "bottomless pit." This led to two years of exhaustive and sharp negotiations and exchanges between Mitsui and the Iranian government. By the end of 1983 the Iranian government agreed to put up some additional funds, provided that the future ownership share would be adjusted to reflect the capital contribution and assuming that Mitsui would send a survey team of 100 engineers and experts to the site to get the project rolling again. Work did resume but stopped again in 1984 after further Iraqi attacks. Late that same year construction began anew, when the completion was estimated to be in three and a half years at a project cost in excess of $4 billion as compared with the original budget of $500 million. Then in 1987 Iraq attacked again, and the Iranian government put the site off limits to representatives of Mitsui or the Japanese government.
The scope of the project was significant for Mitsui, Iran, and Japan. If completed, it would be the largest foreign investment anywhere in the world by Japanese interests. For Mitsui, the Iranian venture was a substantial portion of its total investment and even more significant in terms of its foreign assets. At the time of becoming involved in Iran, Mitsui was at an early stage of developing foreign production with only new smaller projects for Chinese coal development and for natural gas in Southeast Asia and Canada.
Meanwhile, Iran put a very high priority on completion of the facility. Of the Shah's dozen or so billion-dollar projects, it was the only one that continued under the regime of Khomeini. Iranian governmental officials indicated that Mitsui's decisions on its future participation would affect Iran's overall economic relations with Japan. The Iranian prime minister told a Japanese government survey team in Tehran that the Iranian government would ensure stable supplies of crude oil to Japan if the project was
completed. The question of oil supplies was a very sensitive issue because of Japan's dependence on foreign sources for over 99 percent of its needs. Japan depended more on Iran than on any other single oil source, but Japan also was dependent on Iraq. An official of Japan's Ministry of International Trade and Industry said, "The project will decide the destiny of the fiduciary relations between Japan and the Middle East and eventually, the destiny of Japan's energy security."
Mitsui insured against war damage with the Japanese government's export insurance program. This insurance covered the cost of equipment that originated in Japan as well as losses caused by discontinuation of work, but it was originally due to expire in 1987. Prior to the expiration, Mitsui could apply for the war loss; however, without the ability to inspect the site, settlement could be much less than the damage. This would also mean abandoning ownership in the project. Alternatively, Mitsui could apply for discontinuation of work for six months at an even lower settlement, but keeping its asset ownership. Finally, Mitsui could stall for settlement; however, if the site were to be attacked after the insurance expired but before inspection, it could be claimed that the insurance would not cover the damage. In the meantime, the Japanese government wanted Mitsui to withhold claims because of its relationship with Iran and because the claims could wipe out Japan's export insurance program. Furthermore, a payment to Mitsui for withdrawal required an agreement between the governments of Iran and Japan, and Iran still wanted to see the project completed. Given the interest of Iran and Japan, Mitsui was able to negotiate an insurance extension until the end of 1989.
In 1988 Iran and Iraq agreed to a cease-fire. After inspecting the facility, Mitsui refused to invest any more money. Mitsui claimed that the damage from bombing and corrosion would require at least the same amount of investment expenditures as had been incurred up until that
time. These costs would make the plant uneconomical. The Iranian view was that the project could be completed for only 35 percent of the original cost. This disagreement led to nearly two years of negotiations on the terms of cancellation and how to divide the losses incurred on the project.
After agreement was reached between Mitsui and Iran, the Iranian government negotiated with Hyundai and Daewoo from Korea to put $2 billion into the Bandar Khomeini project. This was part of a larger deal in which the two companies would build tankers for Iran to be paid for with crude oil.
Meanwhile a Mitsui publication said, "The experience that we have gained through this project (IJPC) will be put to full use in our future business activities." The same report indicated that the plan is "to make Mitsui a truly global enterprise" with Europe and Asia the current "major focuses of our globalization policy."
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