Discuss the pros and cons of continuing education in nursing

Pros and cons of mandatory continuing nursing education

Karen DeFilippis, Idalmis Espinosa

Lasharia Graham, Ijeoma Igbokwe

Karan Kortlander, Jessica McGillen

October 01, 2017


Discuss the pros and cons of continuing education in nursing in the following areas:

Impact on competency.

Impact on knowledge and attitudes.

Relationship to professional certification.

Relationship to ANA Scope and Standards of Practice.

Relationship to ANA Code of Ethics.

Impact on competency

Pros: Cons:

Increased personal knowledge Time

Increased use of EBP treatments Cost

Improved patient outcomes

Increased confidence

Developing and maintaining skills

Professional Networking

“Currently in many states, a nurse is determined to be competent when initially licensed and thereafter unless proven otherwise. Yet many believe this is not enough and are exploring other approaches to assure continuing competence in today’s environment where technology and practice are continually changing, new health care systems are evolving and consumers are pressing for providers who are competent” (Whittaker, Carson, & Smolenski, 2000).

“The ultimate outcomes of continuing nursing education (CNE) activities are to improve the professional practice of nursing and thereby the care that is provided by registered nurses to patients” (American Nurses Credentialing Center’, 2014)

Effective workplace learning, based on current evidence, appears to show potential to prevent errors, support health professional reflection on practice and performance, foster ongoing professional development, and sustain improved individual and organization performance outcomes.

Cost- “Continuing education can be costly. For instance, it is costly to pay employees to attend a nursing lecture or conference and to be away from the patients’ bedside. Additionally, purchasing videos or subscribing to magazines does require an associated payment. Lastly, implementing a change is costly it requires training and often new equipment. Without question, cost is a confounding variable” (Ward, 2013)

Time- This can be time away from work and family. For the employer ‘implementing a change in practice does require time, as does completing continuing education credit hours. This could mean time away from the patient which, in most instances, is frowned upon” (Ward, 2013)


Pros of higher education in nursing

Enhance patients’ outcome.

Reduces medication errors.

Update with new trends.

Increased knowledge on technology use.

Treatment evaluation and recovery.

Enhance collaboration and networking.

Widens employment opportunities for nurses (University of Saint Mary,2017).

Higher nursing education prepares nurses to make a difference in delivering safe and effective care to patients, nurses gain the skills needed to safely administer medication while eliminating or reducing medication errors, monitoring and assessing the patient’s response to medications (University of Saint Mary, 2017). Nurses acquire proficiency on the use of new technologies because higher education programs explores the latest technology. Nurses are updated on the new trends in healthcare to keep up with patients’ changing needs. Nurses are able to effectively and proficiently coordinate patients’ care by collaborating and communicating with other health care teams, gain new knowledge through networking; nurses are exposed to seminars where they meet and interact with other healthcare professional.

Nurses are prepared to evaluate patients’ response to treatment and follow up after discharge to improve the quality of patients lives (University of Saint Mary, 2017). Nurses who have higher education certificates have more employment opportunities. Most hospitals requiring nurses to go back to school to get BSN, and preferring to hire nurses who have BSN.


Cons and attitudes of not continuing with higher education in nursing

Limited career opportunities and positions.

Poor patient outcome.

Lack of confidence.

Limited Knowledge, competency and skills.

Lack of opportunities for collaboration.

There are several disadvantage of not pursing higher education in nursing, nurses are most times denied of a job or a position due to the level of their education. Nurses who starts as staff nurses are promoted to a higher position with experience, good performance and continuous education (College Grad, 2017). Studies have linked poor patients outcome to lack of nursing skills and knowledge; Thus to enhance patient’s safety and quality care, nurses are required to go for a higher education or study as recommended in Institute of medicine report . Higher education does not only benefit the patients but also boost the confidence of nurses. Lack of confidence decrease self-esteem, every nurses needs to believe in him/herself to work effectively and efficiently while collaborating with other health care team. Lack of education limits learning new skills and opportunity to grow in knowledge and also could hinder opportunities to fellowship or collaborate effectively with other health care professionals.


Pros of continuing higher education related to the relationship to professional certification

Increases knowledge and quality of care in nursing practice.

Enhances nurses’ ability to compete in the job market.

Develops a nurses’ confidence and professionalism.

Defines nursing practice and attests to ongoing qualifications (Brunt).

The ANA defines certification as an achievement of exemplary nursing knowledge; therefore, continuing education promotes the above noted benefits. The question of mandatory continuing education for nurses has been brewing since the 1960s (Brunt). The National League for Nursing supports that mandatory continuing education should be required for relicensure. Currently, there are more than 68 various certifications available to nurses, and most of them require continuing education programs.



Cons include:

Education does not assure competence.

Continuing education is expensive.

Evaluation tools are ineffective and not always accurate (Brunt).

Continuing education does not show evidence of better patient-care outcomes (Eustace, 2001).

Those opposed to mandatory continuing education maintain that as professionals, nurses are personally responsible to identify and acquire appropriate education (Brunt). Some have pointed out that mandatory continuing education does not necessarily address advanced practice nurses, or those in administration, research, and education. Others argue that it may be difficult to obtain continuing education in remote areas, and that most healthcare practitioners already take part in continuing education on their own (Brunt).



Improves quality of patient care

Expands knowledge and contribute to career growth

Ensures competency in practice

Providing best evidence based nursing care

The scope of practice is defined by the , “who”, “what”, “where”, “when”, “why”, and “how” of nursing practice. The practice of nursing requires specialized knowledge, skills and independent decision making. Every nurse should be knowledgeable and up to date with the latest evidence based practice in order to provide the best care to their patients. With higher education nurses are able to take on leadership roles. Leadership roles are important to help lead change to transform health care, and for “public, private, and governmental health care decision makers at every level” to “include representation from nursing on boards (Campaign for Action, 2014).



Cost of Tuition

Balancing Personal life

Lack of appropriate knowledge on the subject

Lack of a guarantee that the continuing education standards will assist the nurse in the nursing field

The cost of going back to school can be very expensive. There are programs to help pay for some of the cost for tuition, but you still are responsible for a portion of the tuition. Some may not even know about the different programs to help you pay for school. They may be paying out of pocket. And we all know once we graduate, loan repayment will be waiting on us.

Another disadvantage of returning to school is balancing personal life. Some of us work full time jobs and have kids like myself. I also have a part time job as well. It can become very difficult squeezing classes in on top of our already busy schedule. Sometimes I don’t get a chance to do my work until the last minute when its due. I know there were plenty of times I felt like just giving up on classes because I don’t have enough time in a day to get every thing done. Then I start thinking of all the benefits of higher education


CODE OF ETHICS provision 5 related to Continuing Education

As outlined by the ANA, provision 5 includes that nurses owe the same duties to self as others, this includes responsibility to preserve integrity and safety, maintain competence, and to continue personal professional growth (Fowler and American Nurse Association, 2010).


Fair and equal treatment

Safe patient care

Be competent

Be educated to provide the best care

Grow professional and personally

Expand career knowledge and skills


Builds confidence

Helps guide better decision making

Creates trust

Extends positive influence


Personal and professional growth requires a time commitment

Being competent and advancing can include a financial commitment

Growing pains

Feeling out of comfort zone

The Code of Ethics is a public expression of what a nurse commits oneself to when entering the workforce as a nurse. The Code expresses values, duties, and commitments that all nurses will strive for (ANA, 2010). There are many pros and a few cons to nurses agreeing to follow the Code of Ethics. The pros mentioned above can greatly outweigh the cons. As nurses we are here to serve people, we extend ourselves to care for others. In caring for others we must also care for our self in the process. The ANA outlines for professional growth a nurse is responsible for “continued reading, study, observation, and investigation” (2010). All of the above are outlined by the ANA.



Fowler and the American Nurses Association defined provision 7 as, a nurses participation in the advancement of the profession through contributions to practice, education, administration, and knowledge development (2010).



In education

In practices of care

In administration



Having the need to want advancement

Time commitment

Possible financial commitment

Growing pains

Being pushed out of your comfort zone

Nurses are the forefront of advancement for the medical field. We hold many positions from floor nursing, administration and educators within the health care system. For the field of nursing and nurses to continue to grow and advance we all must pledge to participate in advancing the profession with education, and the search of knowledge. Examples of ways that nursing has advanced from the past is nurses now have advanced degrees such as: Master and doctoral level educations and also Nurse Practitioners. The ANA provides specifics on where nurses can advance the profession; be involved in healthcare policy, develop, maintain and implement professional standards in clinical practice, administration and education practices, and apply knowledge development, dissemination and application to practice (2010). As nurses the ANA Code of Ethics provides a pathway to things that will improve nursing practice as a whole.





American Nurses Credentialing Center. (2014). The Importance of Evaluating the Impact of Continuing Nursing Education on Outcomes:Professional Nursing Practice and Patient Care. Retrieved from http://www.nurse.credentialing.org/Accreditation/

Fowler, M. D., & American Nurses Association. (2010). Guide to the code of ethics for nurses: Interpretation and application. Silver Spring, MD: American Nurses Association.

Ward, J. (2013, January 23). The Pros and Cons of Getting Nursing CEUs. Retrieved from Nurse Together: http://


Whittaker, S., Carson , W., & Smolenski, M. C. (2000, September). Assuring Continued Competence – Policy Questions and Approaches: How Should the Profession Respond? Online Journal of Issues in Nursing. Retrieved from : http://www.nursingworld.org/MainMenuCategories/ANAMarketplace/ANAPeriodicals/

Brunt, B. The importance of lifelong learning in managing risks. The Nursing

Risk Management Series(3). Retrieved from http://ana.nursingworld.org/mods/archive/mod311

Eustace, L. (2001). Mandatory continuing education:past, present, and future trends & issues.

The Journal of Continuing Education in Nursing 32(3).


Nursing: Scope and Standard of Practice. Retrieved from www.nursingworld.org

ANA Leadership – American Nurses Foundation. Retrieved from www.anfonline.org

University of Saint Mary. (2017) Higher Nursing Education and its Impact on Patient Safety. Retrieved on September 21st from http://online.stmary.edu/rn-bsn/resources/higher-nursing-education-impact-on-patient-safety

College Grad (2017) Registered nurses. Retrieved September 24th, from https://collegegrad.com/careers/registered-nurses

Should the physician allow Mike to continue making decisions that seem to him to be irrational and harmful to James, or would that mean a disrespect of a patient’s autonomy? Explain your rationale.



In addition to the topic study materials, use the chart you completed and questions you answered in the Topic 3 about “Case Study: Healing and Autonomy” as the basis for your responses in this assignment.


Answer the following questions about a patient’s spiritual needs in light of the Christian worldview.



    1. In 200-250 words, respond to the following:      Should the physician allow Mike to continue making decisions that seem to      him to be irrational and harmful to James, or would that mean a disrespect      of a patient’s autonomy? Explain your rationale.


    1. In 400-450 words, respond to the following: How      ought the Christian think about sickness and health? How should a      Christian think about medical intervention? What should Mike as a      Christian do? How should he reason about trusting God and treating James      in relation to what is truly honoring the principles of beneficence and      nonmaleficence in James’s care?


    1. In 200-250 words, respond to the following: How      would a spiritual needs assessment help the physician assist Mike      determine appropriate interventions for James and for his family or others      involved in his care?



Remember to support your responses with the topic study materials.


While APA style is not required for the body of this assignment, solid academic writing is expected, and documentation of sources should be presented using APA formatting guidelines, which can be found in the APA Style Guide, located in the Student Success Center.


This assignment uses a rubric. You are required to submit this assignment to LopesWrite.




1. Decisions that need to be made by the physician and the father are analyzed from both perspectives with a deep understanding of the complexity of the principle of autonomy. Analysis is supported by the case study, topic study materials, or Topic 3 assignment responses. 20%


2. Decisions that need to be made by the physician and the father are analyzed with deep understanding of the complexity of the Christian perspective, as well as with the principles of beneficence and nonmaleficence. Analysis is supported by the case study, topic study materials, or Topic 3 assignment responses. 20%


3. How a spiritual needs assessment would help the physician assist the father determine appropriate interventions for his son, his family, or others involved in the care of his son is clearly analyzed with a deep understanding of the connection between a spiritual needs assessment and providing appropriate interventions. Analysis is supported by the case study, topic study materials, or Topic 3 assignment responses. 30%


4. Thesis is comprehensive and contains the essence of the paper. Thesis statement makes the purpose of the paper clear. 7%


5. Clear and convincing argument presents a persuasive claim in a distinctive and compelling manner. All sources are authoritative. 8%


6. Writer is clearly in command of standard, written, academic English. 5%


7. All format elements are correct. 5%


8. Sources are completely and correctly documented, as appropriate to assignment and style, and format is free of error. 5%




There are three different parts to this paper:


· Part one deals with Mike’s decision-making capabilities. 


· Part two deals with how to think issues related to sickness and health.


· Part three deals with a spiritual assessment.


Read “Doing a Culturally Sensitive Spiritual Assessment: Recognizing Spiritual Themes and Using the HOPE Questions,” by Anandarajah, from AMA Journal of Ethics(2005).

What is the dollar gross margin earned by Turnadot on the special order for 200 planters?

1. Turnadot & Sons is a small wholesaler of decorative cast iron objects. The following events, related to a special customer order, occur as described below:
• August 5, 2005: Turnadot receives the special order for 200 outdoor planters at a selling price of $50 each, including delivery at a future convenient time and location. The customer, with whom Turnadot has had a long-term, trouble-free relationship, pays $3,000 as a deposit and agrees to pay the rest on delivery. Turnadot immediately orders $4,000 worth of planters from its supplier and pays a $1,000 deposit for them.
• August 27, 2005: Turnadot pays $3,000 balance due to the supplier upon delivery of the planters to its warehouse.
• September 5, 2005: The customer calls for delivery of the planters, and pays the balance of $7,000 when they arrive at the customer site.
What is the dollar gross margin earned by Turnadot on the special order for 200 planters?
• $2,000
• $7,000
• $9,000
• $6,000

2. The next 6 questions refer to Quentin Company’s December 31, 2004 Balance Sheet.
Quentin began 2004 with the following non-current asset balances: Plant and equipment (net) $59,000; Patent (net) $28,000. No long-term assets were purchased or sold during the year. How much amortization and depreciation expense did Quentin record during 2004?
• $3,000
• $4,000
• $7,000
• Cannot be estimated

3. Quentin’s 2004 net income was $5,000. No dividends were declared or paid during 2004. What was Quentin’s retained earnings balance on December 31, 2003?
• $39,000
• $49,000
• $34,000
• Cannot be estimated

4. Quentin’s current ratio on December 31, 2004 is:
• 1.25
• 0.80
• 0.53
• 1.125

1. Quentin’s total debt to equity ratio on December 31, 2004 is:
• 2.12
• 1.52
• 1.19
• 0.53

2. Quentin Company’s year-end 2004 total assets equals its year-end 2004 total liabilities and owners’ equity. This is most likely the result of the company following the:
• Historical Cost concept
• Dual-aspect concept
• Materiality concept
• Money measurement concept

3. Quentin’s December 31, 2003 inventory T-account debit balance was also $56,000. During 2004, its inventory purchases amounted to $25,000, and there were no inventory-related write-downs or losses. What was Quentin’s 2004 cost of goods sold expense?
• $5,000
• $67,000
• $20,000
• $45,000

4. The next 6 questions refer to Carlita Company’s 2004 Income Statement.
Carlita’s 2004 gross margin percentage is:
• 50%
• 33%
• 30%
• 25%

1. During 2004, Carlita’s competitor Farside had double the sales of Carlita, but it also earned a gross margin of $30,000. Farside’s 2004 gross margin percentage was:
• 25%
• 50%
• 12.5%
• Insufficient information; cannot be calculated

2. Carlita began 2004 with a retained earnings account balance of $132,000. During 2004, it declared and paid dividends of $5,000. Its December 31, 2004 retained earnings account balance is:
• $132,000
• $120,000
• $139,000
• Cannot be calculated

3. Carlita’s 2004 return on sales percentage is:
• 25%
• 16.67%
• 15%
• 10%

4. Carlita began 2004 with an interest payable account balance of $13,000. During 2004, it paid $5,000 in interest to its lenders. On December 31, 2004, its interest payable account balance is:
• $15,000
• $10,000
• $13,000
• Cannot be calculated


1. Carlita began 2004 with a taxes payable account balance of $3,000. On December 31, 2004, its taxes payable account balance is $7,000. How much did Carlita pay to the tax authorities during the year?
• $2,000
• $6,000
• $4,000
• Cannot be calculated

2. On January 1, 2005, Jon Sports has a bond payable of $200,000. During 2005, it pays off $20,000 of the outstanding bond principal and issues a new $70,000 bond. There are no other transactions related to the bond payable account.
What is Jon Sports’ December 31, 2005 bond payable balance?
• A debit balance of $250,000
• A credit balance of $150,000
• A debit balance of $150,000
• A credit balance of $250,000

3. The next 7 questions are based on Panjim Trading Company’s cash T-account for 2005.
Based on Panjim’s 2005 cash T-account, which one of the following statements must be true?
• During 2005, Panjim’s total merchandise sales were $60,000
• During 2005, Panjim’s total merchandise purchases were $44,000
• During 2005, Panjim issued $75,000 of debt
• Panjim did not record any tax expense for 2005

4. Panjim began 2005 with salaries payable balance of $75,000. It had 2005 salary expense of $80,000. Its 2005 ending salaries payable balance must be:
• $95,000
• $55,000
• $155,000
• $105,000



How many degrees are in the angle between the hour and minute hand?

Web Development Test   This page has a initial time limit of 0:30:00 Would you like to disable all future page timer notifications?       Test      True or False: HTML and CSS are front end technology. * This question is required.  True  False       What is the difference between HTML and CSS? * This question is required.  CSS is a markup language unlike HTML  HTML is a backend technology and CSS is a front end technology  HTML focuses on a web page’s structure and CSS focuses on its presentation  As of HTML5 there is no difference       In a proper webpage, which tag holds all of a webpages visible HTML? * This question is required.  html  head  body  link  script  doctype       Alphabet for your reference:  A B C D E F G H I J K L M N O P Q R S T U V W X Y Z   If the code for CAT is ECV  what is the code for DOG? * This question is required.  FQI  BIT  FDW  GRJ       The sum of two consecutive numbers is 37.  What are they? * This question is required.  18, 19  7, 30  20, 17  36, 1               It’s 3 PM. How many degrees are in the angle between the hour and minute hand? * This question is required.  90  60  15  25  180       What does the following code alert?   var person = {    name: “Mike”,    age: 25,    favoriteFood: “pizza”  };   alert(“My best friend’s name is” + person.name + “,he’s ” + person.age + ” years old and his favorite food is ” + person.favoriteFood);    * This question is required.  My best friend’s name isMike,he’s 25 years old and his favorite food is pizza  My best friend’s name is Mike, he’s 25 years old and his favorite food is pizza.  My best friend’s name isMike ,he’s 25 years old and his favorite food is pizza.  My friend’s best name isMike,he’s 25 years old and his favorite food is pizza.       What language(s) MUST be used to display a bare-minimum web page?    HTML, SQL, Node.js  HTML  JavaScript & PHP  SQL       What is the best image format for our website if we needed our image to have a transparent background?    JPEG  JPG  GIF  PNG  PSD  TIFF  None of these       Which one of these is the most different?    JavaScript  PHP  Ruby  Python  MySQL       Which of these statements is true?    Agile is a programming language  SQL is a database language  HTML stands for “Hypertext Markup Link”  Java is short for JavaScript               It’s 2 PM. How many degrees are in the angle between the hour and minute hand?    90  60  15  25  180             The following HTML and CSS is COMPLETELY CORRECT. This code makes up a web page. When the following code renders onto the screen, which paragraph appears bolded?    The Wonder Years is an American television comedy-drama created by Neal Marlens and Carol Black.  It ran on ABC from 1988 until 1993.  The pilot aired on January 31, 1988, following ABC’s coverage of Super Bowl XXII.  All of the above       Which operation could we perform in order to find the number of milliseconds in a year?    60 * 60 * 24 * 7 * 365  1000 * 60 * 60 * 24 * 365  24 * 60 * 100 * 7 * 52  1000 * 60 * 24 * 7 * 52  None of these       You are facing North. Turn 90 degrees left. Turn 180 degrees right. Reverse direction. Turn 45 degrees left. Reverse direction. In which direction are you now facing?     North  West  South West  South East  North West  North East       Albert thought of a number, added 5, multiplied the result by 2, took away 6 and then divided by 2 to give an answer of 8.    5  6  3  4       If you’re driving one and a half miles per minute, slow down by 15 miles per hour, and then reduce your speed by one third, how fast are you going now?    90 miles per hour  60 miles per hour  50 miles per hour  75 miles per hour  45 miles per hour       What is the value of ?????  ???? + ???? = 10;  ???? + ???? = 6;  ???? + ???? = 5;    6  9  7  8  1       Which CSS attribute would change an element’s font color to blue?    font-color: blue;  background: blue;  color: blue;  background-color: blue;  font: blue;       What is the largest number that can be produced by multiplying any three individual numbers from the following list.   [-2, 1, 3, -8, 5, 9, -9, 4, 7, -7, 8]    648  504  732  888

A group of medical schools conducted a study on very premature babies—those born between 24 and 27 weeks of gestation (instead of the normal 40 weeks). These children face a high risk of blindness and death. The goal of the study was to determine which level of oxygen in a baby’s incubator produced the best results. Before enrolling families in the study, the investigators did not tell them that being in the study could increase their child’s risk of blindness or death. The study made some important discoveries: the level at which too much oxygen increased the risk of blindness and level at which too little increased the risk of death. What would Mill and Kant say about this decision not to tell the families?




Please post your answers  in detail to:


Chapter 2 assignment : Essay questions with citing.


#1,2,3,4- page 47


Chapter 5 assignment: Essay questions  1,2,3,4 page 132-133


1. The Senate recently released a report on wrongdoing at JP Morgan Chase. It found that bank executives lied to investors and the public. Also, traders, with the knowledge of top management, changed risk limits to facilitate more trading and then violated even these higher limits. Executives revalued the bank’s investment portfolio to reduce apparent losses. JP Morgan’s internal investigation failed to find this wrongdoing. Into what ethics traps did these JP Morgan employees fall? What options did the executives and traders have for dealing with this wrongdoing?


2. Located in Bath, Maine, Bath Iron Works builds high tech warships for the Navy. Winning Navy contracts is crucial to the company’s success—it means jobs for the community and profits for the shareholders. Navy officials held a meeting at Bath’s offices with its executives and those of a competitor to review the specs for an upcoming bid. Both companies desperately wanted to win the contract. After the meeting, a Bath worker realized that one of the Navy officials had left a folder on a chair labeled: “Business Sensitive.” It contained information about the competitors’ bid that would be a huge advantage to Bath. William Haggett, the Bath CEO, was notified about the file just as he was walking out the door to give a luncheon speech. What should he do? What pitfalls did he face? What result if he considered Mill, Kant, or the Front Page test?


3. A group of medical schools conducted a study on very premature babies—those born between 24 and 27 weeks of gestation (instead of the normal 40 weeks). These children face a high risk of blindness and death. The goal of the study was to determine which level of oxygen in a baby’s incubator produced the best results. Before enrolling families in the study, the investigators did not tell them that being in the study could increase their child’s risk of blindness or death. The study made some important discoveries: the level at which too much oxygen increased the risk of blindness and level at which too little increased the risk of death. What would Mill and Kant say about this decision not to tell the families?


4. Because Raina processes payroll at her company, she knows how much everyone earns, including the top executives. This information could make for some good gossip, but she has kept it all completely secret. She just found out, however, that her boss knew that it is against company policy for her to do payroll for C-level employees. Yesterday, the CEO went to her boss to confirm that he, the boss, was personally doing the processing for top management. Her boss lied to the CEO and said that he was. Then he begged Raina not to tell the truth if the CEO checked with her. Raina just got a message that the CEO wants to see her. What does she say if he asks about the payroll?


1. YOU BE THE JUDGE WRITING PROBLEM Scott Fane was a CPA licensed to practice in New Jersey and Florida. He built his New Jersey practice by making unsolicited phone calls to executives. When he moved to Florida, the Board of Accountancy there prohibited him (and all CPAs) from personally soliciting new business. Fane sued. Does the First Amendment force Florida to forgo foreclosing Fane’s phoning? Argument for Fane: The Florida regulation violates the First Amendment, which protects commercial speech. Fane was not saying anything false or misleading, but was just trying to secure business. This is an unreasonable regulation, designed to keep newcomers out of the marketplace and maintain steady business and high prices for established CPAs. Argument for the Florida Board of Accountancy: Commercial speech deserves—and gets—a lower level of protection than other speech. This regulation is a reasonable method of ensuring that the level of CPA work in our state remains high. CPAs who personally solicit clients are obviously in need of business. They are more likely to bend legal and ethical rules to obtain clients and keep them happy, and will lower the standards throughout the state.


2. President George H. W. Bush insisted that he had the power to send American troops into combat in the Middle East, without congressional assent. Yet before authorizing force in Operation Desert Storm, he secured congressional authorization. President Bill Clinton stated that he was prepared to invade Haiti without a congressional vote. Yet he bargained hard to avoid an invasion, and ultimately American troops entered without the use of force. Why the seeming doubletalk by both Presidents?


3. In the landmark 1965 case of Griswold v. Connecticut, the Supreme Court examined a Connecticut statute that made it a crime for any person to use contraception. The majority declared the law an unconstitutional violation of the right of privacy. Justice Black dissented, saying, “I do not to any extent whatever base my view that this Connecticut law is constitutional on a belief that the law is wise or that its policy is a good one. [It] is every bit as offensive to me as it is to the majority. [There is no criticism by the majority of this law] to which I cannot subscribe—except their conclusion that the evil qualities they see in the law make it unconstitutional.” What legal doctrines are involved here? Why did Justice Black distinguish between his personal views on the statute and the power of the Court to overturn it?


4. Gilleo opposed American participation in the war in the Persian Gulf. She displayed a large sign on her front lawn that read, “Say No to War in the Persian Gulf, Call Congress Now.” The city of Ladue prohibited signs on front lawns and Gilleo sued. The city claimed that it was regulating “time, place, and manner.” Explain that statement, and decide who should win.

Which items are necessary in calculating the net present value of a project?

1. Which items are necessary in calculating the net present value of a project?      I. Investment outlays      II. Discount rate      III. Incremental cash flow      IV. Time period for the project I, II and IV I, II and III II, III and IV All of the above

2—- Operating cash flow is generated by a company’s daily operations related to production and sales of goods and/or services. True False

3. Scenario analysis is a way of testing forecasts by changing one assumption at a time. True False


. Suppose a riskless project requires an initial investment of $10 and will generate a one-time cash inflow of $30 two years later. Assuming a risk-free interest rate of 5%, which of the following statements about the project is NOT true? The net present value of the project is positive. The IRR is greater than 50 percent. The accounting rate of return on the project is positive. The payback period is less than 2 years

5—-Analysis of a company’s financial statements: Below are simplified versions of the balance sheet and income statement for Toys by Tom, Inc. Use this information to answer the following question.

Toys by Tom, Inc. has a current ratio of ____, suggesting ________.

Top of Form


9.6; reasonable ability to cover interest expense


0.57; potential illiquidity


0.21; potential collection problems


1.75; reasonable liquidity

Bottom of Form

6—It is possible for a company to grow faster than its sustainable growth rate.

Top of Form





Bottom of Form

7—Selecting investment projects according to rules based either on project NPV or IRR results in maximizing firm value.

Top of Form





Bottom of Form

8—Analysis of a company’s financial statements: Below are simplified versions of the balance sheet and income statement for Toys by Tom, Inc. Use this information to answer the following question.

What is Toys by Tom, Inc. return on assets (ROA)?

Top of Form





Bottom of Form

9—Which of the following is commonly used in preparing pro forma statements:

Top of Form


Historical financial statements


Projected sales


Efficiency ratios


All of the above

Bottom of Form

10—-For which of the following generic businesses would you expect a combination of high asset turnover and low profit margins?

Top of Form






Software developers



Bottom of Form

11—-A company can shorten its cash cycle by:

Top of Form


Reducing inventory turnover


Reducing account payables


Reducing days receivable


None of the above

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12—For a levered firm, EBIT is equivalent to:

Top of Form


Net income


Pro forma earnings


Operating profit


Net income before taxes

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13—-The amount by which a project increases the value of the firm is given by the project’s ______.

Top of Form


accounting rate of return


net present value (NPV)


internal rate of return (IRR)


present value

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14—-A dollar today is worth more than a dollar tomorrow.

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15—The NPV rule, which says companies should invest in projects for which NPV is greater than 0, depends on the assumption of value maximization.

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16—A company has a retention rate of 50%, sales of $25,000, beginning equity of $50,000 and profit margins of 10%, an asset turnover ratio of .75 and debt of $10,000. What is its sustainable growth rate?

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Not enough information given

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17—Common-size financial statements are constructed in order to:

Top of Form


Adjust for inflation and risk


Facilitate comparisons of different-sized companies


To comply with SEC requirements


All of the above

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18—Leverage and liquidity generally rise or fall together.

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19—Which of the following ratios uses sales in the denominator?

Top of Form


Days in inventory


Receivables turnover


Cash ratio


Average collection period

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20–What is the present value of a perpetuity of $100 given a discount rate of 5%?

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21—Compute the net present value of an investment with 5 years of annual cash inflows of $100 and two cash outflows, one today of $100 and one at the beginning of the second year of $50. Use a discount rate of 10 percent.

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] What is the payback period



Page 305

Question 1. Calculating Payback[LO2] What is the payback period for the following set of cash flows?

Year Cash Flow
0 −$7,600
1  1,900
2  2,900
3  2,300
4  1,700

Question 3. Calculating Payback[LO2] Siva, Inc., imposes a payback cutoff of three years for its international investment projects. If the company has the following two projects available, should it accept either of them?.

Year Cash Flow (A) Cash Flow (B)
0 −$45,000 −$ 55,000
1  16,000  13,000
2  21,000  15,000
3  15,000  24,000
4  9,000  255,000


Question 4.  Calculating Discounted Payback[LO3] An investment project has annual cash inflows of $2,800, $3,700, $5,100, and $4,300, for the next four years, respectively. The discount rate is 14 percent. What is the discounted payback period for these cash flows if the initial cost is $5,200? What if the initial cost is $5,400? What if it is $10,400


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Question6. Calculating AAR[LO4] You’re trying to determine whether to expand your business by building a new manufacturing plant. The plant has an installation cost of $15 million, which will be depreciated straight-line to zero over its four-year life. If the plant has projected net income of $1,754,000, $1,820,500, $1,716,300, and $1,097,400 over these four years, what is the project’s average accounting return (AAR)?

Question 7.  Calculating IRR[LO5] A firm evaluates all of its projects by applying the IRR rule. If the required return is 14 percent, should the firm accept the following project?

Year Cash Flow
0 −$26,000
1  11,000
2  14,000
3  10,000

Question 8. Calculating NPV[LO1] For the cash flows in the previous problem, suppose the firm uses the NPV decision rule. At a required return of 11 percent, should the firm accept this project? What if the required return is 24 percent?

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Question 15. Calculating Profitability Index[LO7] What is the profitability index for the following set of cash flows if the relevant discount rate is 10 percent? What if the discount rate is 15 percent? If it is 22 percent?

Year Cash Flow
0 −$15,300
1  9,400
2  7,600
3  4,300

Question 16.Problems with Profitability Index[LO1,7] The Sloan Corporation is trying to choose between the following two mutually exclusive design projects:

Year Cash Flow (I) Cash Flow (II)
0 −$51,000 −$14,400
1  24,800  7,800
2  24,800  7,800
3  24,800  7,800

1.  If the required return is 10 percent and the company applies the profitability index decision rule, which project should the firm accept?

2.  If the company applies the NPV decision rule, which project should it take?

3.  Explain why your answers in (a) and (b) are different.


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Question 17.   Comparing Investment Criteria[LO1,2,3,5,7] Consider the following two mutually exclusive projects:

Year Cash Flow (A) Cash Flow (B)
0 −$455,000 −$65,000
1  58,000  31,000
2  85,000  28,000
3  85,000  25,000
4  572,000  19,000

Whichever project you choose, if any, you require a return of 11 percent on your investment.

1.  If you apply the payback criterion, which investment will you choose? Why?

2.  If you apply the discounted payback criterion, which investment will you choose? Why?

3.  If you apply the NPV criterion, which investment will you choose? Why?

4.  If you apply the IRR criterion, which investment will you choose? Why?

5.  If you apply the profitability index criterion, which investment will you choose? Why?

6.  Based on your answers in (a) through (e), which project will you finally choose? Why?


Question 19. MIRR[LO6] RAK Corp. is evaluating a project with the following cash flows:

Year  Cash Flow
0 −$41,000
1  15,700
2  19,400
3  24,300
4  18,100
5  −9,400

The company uses an interest rate of 10 percent on all of its projects. Calculate the MIRR of the project using all three methods.




Which of the following expresses the value of a levered firm (VL) in the Static Tradeoff model of optimal capital structure? [Note: VU denotes the value of the unlevered firm; CFD denotes expected costs of financial distress; and PV denotes present value.]

The cost of debt is generally lower than the cost of equity.

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M&M’s Proposition I states that a company’s value is independent of its capital structure.

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A higher level of leverage generally reduces managerial discretion.

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The Pecking Order Theory of capital structure implies a unique optimum capital structure.

Top of Form





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As EBIT drops, the return on equity (ROE) of a levered firm drops ______ the ROE of an otherwise identical unlevered firm.

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the same as


relatively more than


relatively less than


more or less than (it cannot be determined)

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Shareholders prefer high risk projects when facing a high probability of bankruptcy because

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High risk projects usually bring high rewards.


Shareholders have the residual claim on a company.


Creditors have the residual claim on a company, and therefore bear the risk.


There is a good chance the government will rescue them in bankruptcy.

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The _________ states that the value of the firm is determined solely by the value of its assets.

Top of Form


Static Tradeoff Model


M&M proposition I


The Pecking Order Model


Agency Theory

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Which of the following expresses the value of a levered firm (VL) in the Static Tradeoff model of optimal capital structure? [Note: VU denotes the value of the unlevered firm; CFD denotes expected costs of financial distress; and PV denotes present value.]

Top of Form


VL = PV(Tax Shield) – PV(CFD)


VL = VU + PV(Tax Shield) / PV(CFD)


VL = VU + PV(Tax Shield) – PV(CFD)


VL = VU + PV(Tax Shield)

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A example of indirect costs of bankruptcy is

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Court costs


Attorney and advisor fees


Lost sales due to costumers and suppliers lost trust


All of the above

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Which of the following are equivalent under M&M proposition I?

Top of Form


Maximizing firm value and maximizing firm profit


Maximizing firm value and minimizing the cost of capital


Minimizing firm’s cost of capital and minimizing firm’s debt burden


Maximizing profit and minimizing taxes

Bottom of Form

Identify the main sources of secondary international data and explain their usefulness. 4 Describe the main methods used to conduct primary international research.

Read the following chapters from : Wild, John J., Kenneth L. Wild & Jerry C.Y. Han. International Business: The Challenges of Globalization, 5th Edition. Pearson Learning Solutions

12 Analyzing International Opportunities

Learning Objectives

After studying this chapter, you should be able to

1 Explain each of the four steps in the market- and site-screening process.

2 Describe the three primary difficulties of conducting international market research.

3 Identify the main sources of secondary international data and explain their usefulness.

4 Describe the main methods used to conduct primary international research.


Chapter 11 showed us how companies plan and organize themselves for international operations. We explored the different types of strategies and organizational structures that international companies use to accomplish their strategic goals.


This chapter begins with an explanation of how managers screen potential new markets and new sites for operations. We then describe the main difficulties of conducting international market research. We also identify the information required in the screening process and where managers can go to obtain such information.


Chapter 13 describes the selection and management issues surrounding the different entry modes available to companies going international. We examine the importance of an export strategy for exporters and the pros and cons of each entry mode.

Global Buzz Over Starbucks

Osaka, Japan — Starbucks (www.starbucks.com) began its global journey in 1996 with its first coffeehouse in Tokyo, Japan. Pictured below is a Starbucks located in the Japanese city of Osaka. Today Starbucks has around 1,500 coffeehouses in 43 markets outside North America. Although it has closed some underperforming stores, Starbucks still creates a buzz worldwide.

Starbucks brought European-style coffee to the United States and then took its American-style coffeehouses to Europe. The coffee giant was right that paper-cupped lattes and nonsmoking venues could take on Europe’s traditional cafés. Although in Britain since the late 1990s, Starbucks waited patiently before steaming into Zurich, Switzerland, in 2001 and into Paris, France, in 2004. Starbucks carefully researched Europe’s markets before opening its first European café in Zurich, and then branching out to other nations. With its multicultural and multilingual population, the Swiss market gave Starbucks a “tremendous opportunity to learn how to operate elsewhere in Europe,” revealed Mark McKeon, president of Starbucks Europe, Middle East, and Africa.

Source: © Andy Rain/CORBIS. All Rights Reserved.

At the same time, Starbucks introduced a coffee culture to tea lovers in China. Starbucks is encouraged by the fact that one-third of all Chinese households keep a jar of instant coffee on hand. Starbucks is trying to make coffee the drink of choice for the average 18- to 45-year-old Chinese consumer. “Per capita consumption of coffee in China is very small,” admitted Howard Behar, president of Starbucks Coffee International. “But what you have is a tremendous amount of people, so the market will grow.”

Starbucks founder and CEO, Howard Schultz, says that an integral component of Starbucks’ strategy is its image as a fair-trading multinational, which it acquired by promoting its “fair trade” coffee. As you read this chapter, consider how companies research, analyze, and select the international markets they will enter.1

Companies traditionally become involved in international business by choosing to enter familiar, nearby countries first. Managers feel comfortable entering nearby markets because they likely have already interacted with the people of those cultures and have at least some understanding of them. Companies in Canada, Mexico, and the United States often gain their initial international experiences in one another’s markets. Likewise, businesses in Asia often seek out opportunities in one another’s markets before pursuing investment opportunities outside the region.

Yet companies today find themselves bridging the gaps presented by space and culture far more often than in the past. For one thing, technological advances in communication and transportation continue to open markets around the globe. Some companies can realistically consider nearly every location on earth as either a potential market or as a site for business operations. The expansion of regional markets (such as the European Union) also causes companies to analyze opportunities farther from home. Businesses locate production facilities within regional markets because producing in one of a region’s countries provides duty-free access to every consumer in the trade bloc.

The rapidly changing global marketplace forces companies to view business strategies from a global perspective. Businesses today formulate production, marketing, and other strategies as components of integrated plans. For example, to provide a continuous flow of timely information into the production process, more and more firms locate research and development (R&D) facilities near their production sites abroad. Managers also find themselves screening and analyzing locations as potential markets and as potential sites for operations simultaneously. When Mercedes (www.mercedes.com) introduced the M-class sport utility vehicle to the U.S. market, executives also decided to build the vehicle there. The company did not merely estimate the size of the potential market for the vehicle, but simultaneously selected a suitable production site.

This chapter presents a systematic screening process for both markets and sites. After describing important cultural, political, legal, and economic forces affecting the screening process, we explain the difficulties of conducting international research. We then explore the central sources of existing market data and the prime methods for conducting international research firsthand.

Screening Potential Markets and Sites

Two important issues concern managers during the market- and site-screening process. First, they want to keep search costs as low as possible. Second, they want to examine every potential market and every possible location. To accomplish these two goals, managers can segment the screening of markets and sites into the following four-step process (see Figure 12.1):

1. Identify basic appeal

2. Assess the national business environment

3. Measure market or site potential

4. Select the market or site

This screening process involves spending more time, money, and effort on the markets and sites that remain in the later stages of screening. Expensive feasibility studies (conducted later in the process) are performed on a few markets and sites that hold the greatest promise. This approach creates a screening process that is cost effective yet does not overlook potential locations. Let’s now discuss each of the four steps above in detail.

Step 1: Identify Basic Appeal

We have already seen that companies go international either to increase sales (and thus profits) or to access resources. The first step in identifying potential markets is to assess the basic demand for a product. Similarly, the first step in selecting a site for a facility to undertake production, R&D, or some other activity is to explore the availability of the resources required.

FIGURE 12.1 Screening Process for Potential Markets and Sites

Determining Basic Demand

The first step in searching for potential markets means finding out whether there is a basic demand for a company’s product. Important in determining this basic appeal is a country’s climate. For example, no company would try to market snowboards in Indonesia, Sri Lanka, or Central America because they receive no snowfall. The same product, on the other hand, is well suited for markets in the Canadian Rockies, northern Japan, and the Swiss Alps. Although this stage seems simple, it cannot be taken too lightly. A classic example is when, during its initial forays into international business, Wal-Mart (www.walmart.com) found ice-fishing huts in its Puerto Rico inventory and no snowshoes at its stores in Ontario, Canada.

Certain countries also ban specific goods. Islamic countries, for instance, forbid the importation of alcoholic products, and the penalties for smuggling are stiff. Although alcohol is available on the planes of international airlines such as British Airways (www.ba.com) and KLM (www.klm.com), it cannot leave the airplane and consumption cannot take place until the plane has left the airspace of the country operating under Islamic law.

Determining Availability of Resources

Companies that require particular resources to carry out local business activities must be sure they are available. Raw materials needed for manufacturing must either be found in the national market or imported. Yet imports may encounter tariffs, quotas, or other government barriers. Managers must consider the additional costs of importing to ensure that total product cost does not rise to unacceptable levels.

The availability of labor is essential to production in any country. Many companies choose to relocate to countries where workers’ wages are lower than they are in the home country. This practice is most common among makers of labor-intensive products—those for which labor accounts for a large portion of total cost. Companies considering local production must determine whether there is enough labor available locally for production operations.

Companies that hope to secure financing in a market abroad must determine the availability and cost of local capital. If local interest rates are too high, a company might be forced to obtain financing in its home country or in other markets in which it is active. On the other hand, access to low-cost financing may provide a powerful inducement to a company that is seeking to expand internationally. British entrepreneur Richard Branson opened several of his Virgin (www.virgin.com) Megastores in Japan despite its reputation as a tough market to crack. One reason for Branson’s initial attraction to Japan was a local cost of capital that was roughly one-third its cost in Britain.

Markets and sites that fail to meet a company’s requirements for basic demand or resource availability in step 1 are removed from further consideration.

Step 2: 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.

Political and Legal Forces

Political and legal forces also influence the market and site-location decision. Important factors include government regulation, government bureaucracy, and political stability. Let’s take a brief look at each of these factors.


As we saw in earlier chapters, a nation’s culture, history, and current events cause differences in attitudes toward trade and investment. Some governments take a strong nationalistic stance, whereas others are quite receptive to international trade and investment. A government’s attitude toward trade and investment is reflected in the quantity and types of restrictions it places on imports, exports, and investment in its country.

Government regulations can quickly eliminate a market or site from further consideration. First of all, they can create investment barriers to ensure domestic control of a company or industry. One way in which a government can accomplish this is by imposing investment rules on matters such as business ownership—for example, forcing foreign companies into joint ventures. Governments can extend investment rules to bar international companies entirely from competing in certain sectors of the domestic economy. The practice is usually defended as a matter of national security. Economic sectors commonly declared off-limits include television and radio broadcasting, automobile manufacturing, aircraft manufacturing, energy exploration, military-equipment manufacturing, and iron and steel production. Such industries are protected either because they are culturally important, are engines for economic growth, or are essential to any potential war effort. Host governments often fear that losing control in these economic sectors means placing their fate in the hands of international companies.

Second, governments can restrict international companies from freely removing profits earned in the nation. This policy can force a company to hold cash in the host country or to reinvest it in new projects there. Such policies are normally rooted in the inability of the host-country government to earn the foreign exchange needed to pay for badly needed imports. For instance, Chinese subsidiaries of multinational companies must convert the local currency (renminbi) to their home currency when remitting profits back to the parent company. Multinationals can satisfy this stipulation only as long as the Chinese government agrees to provide it with the needed home-country currency.

Third, governments can impose very strict environmental regulations. In most industrial countries, factories that produce industrial chemicals as their main output or as byproducts must adhere to strict pollution standards. Regulations typically demand the installation of expensive pollution-control devices and close monitoring of nearby air, water, and soil quality. While protecting the environment, such regulations also increase short-term production costs. Many developing and emerging markets have far less strict environmental regulations. Regrettably, some companies are alleged to have moved production of toxic materials to emerging markets to take advantage of lax environmental regulations and, in turn, lower production costs. Although such behavior is roundly criticized as highly unethical, it will occur less often as nations continue cooperating to formulate common environmental protection policies.

Finally, governments can also require that companies divulge certain information. Coca-Cola actually left India when the government demanded that it disclose its secret Coke formula as a requirement for doing business there. Coca-Cola returned only after the Indian government dropped its demand.


A lean and smoothly operating government bureaucracy can make a market or site more attractive. Yet a bloated and cumbersome system of obtaining approvals and licenses from government agencies can make it less appealing. In many developing countries, the relatively simple matter of obtaining a license to establish a retail outlet often means acquiring numerous documents from several agencies. The bureaucrats in charge of these agencies generally are little concerned with providing businesses with high-quality service. Managers must be prepared to deal with administrative delays and a maze of rules. For example, country managers for Millicom International Cellular (www.millicom.com) in Tanzania needed to wait 90 days to get customs clearance on the monthly import of roughly $1 million in cellular telephone equipment. Millicom endured this bureaucratic obstacle because of the local market’s potential.

Companies will endure a cumbersome bureaucracy if the opportunity is sufficient to offset any potential delays and expenses. Companies entering China cite the patience needed to navigate a maze of government regulations that often contradict one another and complain about the large number of permissions required from different agencies. The trouble stems from the fact that China is continually revising and developing its system of business law as its economy develops. But an unclear legal framework and inefficient bureaucracy are not deterring investment in China because the opportunities for both marketers and manufacturers are simply too great to ignore.

Stability can attract international business but social unrest can severely disrupt operations and drive out international firms. Here, a man jumps over burning tires during a riot in Paranaque City south of the capital Manila in the Philippines. Riots erupted as hundreds of families who claimed they were legally allowed to occupy land resisted the demolition teams. Illegal demolition is frequent in these urban centers where many impoverished rural workers reside.

Source: © Dennis M. Sabangan/epa/CORBIS. All Rights Reserved.


Every nation’s business environment is affected to some degree by political risk. As we saw in Chapter 3, political risk is the likelihood that a society will undergo political changes that negatively affect local business activity. Political risk can threaten the market of an exporter, the production facilities of a manufacturer, or the ability of a company to remove profits from the country in which they were earned.

The key element of political risk that concerns companies is unforeseen political change. Political risk tends to rise if a company cannot estimate the future political environment with a fair degree of accuracy. An event with a negative impact that is expected to occur in the future is not, in itself, bad for companies because the event can be planned for and necessary precautions taken. It is the unforeseen negative events that create political risk for companies.

Managers’ perceptions of a market’s political risk are often affected by their memories of past political unrest in the market. Yet managers cannot let past events blind them to future opportunities. International companies must try to monitor and predict political events that threaten operations and future profits. By investigating the political environment proactively, managers can focus on political risk and develop action plans for dealing with it.

But where do managers get the information to answer such questions? They may assign company personnel to gather information on the level of political risk in a country, or they may obtain it from independent agencies that specialize in providing political-risk services. The advice of country and regional specialists who are knowledgeable about the current political climate of a market can be especially helpful. Such specialists can include international bankers, political consultants, reporters, country-risk specialists, international relations scholars, political leaders, union leaders, embassy officials, and other local businesspeople currently working and living in the country in question.

Economic and Financial Forces

Managers must carefully analyze a nation’s economic policies before selecting it as a new market or site for operations. The poor fiscal and monetary policies of a nation’s central bank can cause high rates of inflation, increasing budget deficits, a depreciating currency, falling productivity levels, and flagging innovation. Such consequences typically lower investor confidence and force international companies to scale back or cancel proposed investments. For instance, India’s government finally reduced its restrictive trade and investment policies and introduced more open policies. These new policies encouraged investment by multinationals in production facilities and R&D centers, especially in the computer software industry.

Currency and liquidity problems pose special challenges for international companies. Volatile currency values make it difficult for firms to predict future earnings accurately in terms of the home-country currency. Wildly fluctuating currency values also make it difficult to calculate how much capital a company needs for a planned investment. Unpredictable changes in currency values can also make liquidating assets more difficult because the greater uncertainty will likely reduce liquidity in capital markets—especially in countries with relatively small capital markets, such as Bangladesh and Slovakia.

In addition to their home government’s resources, managers can obtain information about economic and financial conditions from institutions such as the World Bank, the International Monetary Fund, and the Asian Development Bank. Other sources of information include all types of business and economic publications and the many sources of free information on the Internet.

Other Forces

Transport costs and country image also play important roles in the assessment of national business environments. Let’s take a brief look at each of these forces.


The cost of transporting materials and finished goods affects any decision about where to locate manufacturing facilities. Some products cost very little to transport through the production and distribution process, yet others cost a great deal. Logistics refers to management of the physical flow of products from the point of origin as raw materials to end users as finished products. Logistics weds production activities to the activities needed to deliver products to buyers. It includes all modes of transportation, storage, and distribution.


Management of the physical flow of products from the point of origin as raw materials to end users as finished products.

To realize the importance of efficient logistics, consider that global logistics is a $400 billion industry. We often think of the United States as an efficient logistics market because of its extensive interstate road system and rail lines that stretch from east to west. But because of overcrowded highways, 2 billion people-hours are lost to gridlock each year. That translates into $48 billion in lost productivity. Transport companies and cargo ports strenuously advertise their services precisely because of the high cost to businesses of inefficient logistics.


Because country image embodies every facet of a nation’s business environment, it is highly relevant to the selection of sites for production, R&D, or any other activity. For example, country image affects the location of manufacturing or assembly operations because products must typically be stamped with labels identifying where they were made or assembled—such as “Made in China” or “Assembled in Brazil.” Although such labels do not affect all products to the same degree, they can present important positive or negative images and boost or dampen sales.

Products made in relatively developed countries tend to be evaluated more positively than products from less developed countries.2 This relation is due to the perception among consumers that the workforces of certain nations have superior skills in making particular products. For example, consumer product giants Procter & Gamble (www.pg.com) and Unilever (www.unilever.com) have manufacturing facilities in Vietnam. But Vietnamese consumers tend to shun these companies’ locally made Close-Up toothpaste and Tide detergent, and instead they seek the identical products and brands produced in neighboring countries, such as Thailand. As one young Vietnamese shopper explained, “Tide from Thailand smells nicer.” A general perception among Vietnamese consumers is that goods from Japan or Singapore are the best, followed by Thai goods. Unfortunately for Procter & Gamble and Unilever in Vietnam, many goods from other countries are smuggled in and sold on the black market, thereby denying the companies local sales revenue.

A country’s image can be positive in one product class but negative in another. For example, the fact that Volkswagen’s (www.volkswagen.com) new Beetle is made in Mexico for the U.S. market has not hurt the Beetle’s sales. But would affluent consumers buy a hand-built Rolls-Royce (www.rolls-roycemotorcars.co.uk) automobile if it were produced in Mexico? Because Rolls-Royce buyers pay for the image of a brilliantly crafted luxury car, the Rolls-Royce image probably would not survive intact if the company were to produce its cars in Mexico.

Finally, note that country image can and does change over time. For example, “Made in India” has traditionally been associated with low-technology products such as soccer balls and many types of textile products. But today world-class computer software companies increasingly rely on the software-development skills of engineers located in and around Madras and Bangalore in southern India.

Throughout our discussion of step 2 of the screening process (assessing the national business environment), we have presented many factors central to traditional business activities. To explore issues specific to entering international markets successfully over the Internet, see the Global Manager’s Briefcase titled, “Conducting Global e-Business.”

GLOBAL MANAGER’S BRIEFCASE Conducting Global e-Business

Generating sales in new geographic markets over the Internet is an increasingly popular method of expansion for large multinationals and entrepreneurs alike. Here are some issues managers should consider when entering new markets using the Internet.

Market Access

Infrastructure. Before investing heavily in e-business, investigate whether your potential customers have easy access to the Internet. Determine whether their government is developing advanced digital networks.

Content. Companies must be informed about the different policies of each country through which their information travels in order to avoid liability. Key topics are truth in advertising; fraud prevention; and violent, seditious, or graphic materials.

Standards. It’s not always entirely clear which country has the power to establish standards of operations for e-business. Standards might be set up as trade barriers to keep international companies out of a domestic market.

Legal Issues

Privacy. One strength of e-business is that consumer data can be collected easily and used to generate sales. But consumer groups in some countries view the collection of such data as an invasion of privacy. Consumers are particularly vehement if they are unaware