The decision has been made to expand internationally. The reasons for this can be diverse. Rarely is a specialist for the target market consulted up to this point; the entry is decided internally and is set. Please also take a look at our Market Entry Framework. Often, the company is not only successful but also a price leader or technology leader in its field. Help is often sought only in the background for language barriers, e.g., in China or Brazil. The cultural differences and challenges are almost always underestimated. Due to success in the home market, one thing is rarely considered: That the expansion could fail.

What Can Be Learned from the Decision Tree in the Oil Industry. To Drill or Not?

The insights from the well-known book “Decisions Under Uncertainty: Drilling Decisions By Oil and Gas Operators” are taught in many MBA courses. Decision trees and Expected Monetary Value (EMV) are powerful tools in decision analysis that have their roots in the oil industry and have since found wide application in finance and other fields. These concepts were developed to help decision-makers navigate complex choices in uncertain environments. Decision trees emerged in the 1960s as a graphical method for representing and analyzing sequential decision-making under uncertainty. They provide a structured approach to breaking down complex problems into a series of smaller, more manageable decisions.

By visually mapping out different scenarios, their probabilities, and potential outcomes, decision trees allow for a clearer understanding of the available options and their possible consequences. Expected Monetary Value (EMV) is a key concept used in conjunction with decision trees. It provides a way to quantify and compare different options by calculating the average outcome of a decision, taking into account the probabilities of various scenarios. The EMV is computed by multiplying each possible outcome by its probability and then summing these products.

The oil industry played a pivotal role in the development and refinement of decision tree analysis and EMV concepts. In the 1960s, oil companies faced high-stakes decisions about where to conduct exploratory drilling. They needed a systematic method to evaluate geological uncertainties and potential returns. Decision trees allowed them to map out drilling scenarios and calculate EMVs to compare options, which helped optimize exploration strategies and capital allocation.
The principles developed in the oil industry were soon recognized for their broader applicability and adopted in the financial sector. Financial experts recognized the value of using decision trees and EMV for various applications, including investment decisions, risk management, portfolio optimization, and option pricing. The finance industry built upon the foundational work from oil exploration, incorporating more complex probability distributions, developing sophisticated software tools for analysis, and integrating these concepts with other financial models and theories.

In the financial world, decision trees and EMV have become invaluable tools for structuring problems, quantifying uncertainties, and making data-driven decisions. They are used to evaluating projects, analyze potential outcomes of different strategies, optimize asset allocation decisions, and model the value of financial options. This evolution from oil exploration to finance demonstrates how powerful analytical tools can be adapted and refined across industries to address similar challenges in decision-making under uncertainty.

Today, the principles of decision trees and EMV are applied in various fields beyond oil and finance, including healthcare, technology, and public policy. Their enduring relevance speaks to the universal need for structured approaches to decision-making in complex, uncertain environments. As data analysis and computational capabilities continue to advance, these tools are likely to evolve further, maintaining their importance in helping individuals and organizations make more informed and effective decisions.

Chances of Success

The chances of success for a successful market entry are much lower than most companies assume. Don’t forget, even the billion-dollar corporation Walmart failed with its market entry in Germany. And Walmart certainly didn’t fail due to lack of financial power or lack of knowledge of how to do business. The owner of a German medium-sized chemical company that was close to sinking a double-digit million amount in the USA once said that 9 out of 10 market entry attempts in the USA would fail. One can discuss this number for a long time. But the chances of success are certainly not above 50%. And success prospects of at most 50% are not particularly good. You should be clear about three things: 1. The odds are against you. 2. You must do everything that increases the chances of success. And 3. The market entry could fail.

This decision tree uses the concept of Expected Monetary Value (EMV) to make a data-driven decision about whether to hire a consultant for entering a foreign market. Let’s break down the analysis:

Hiring a Consultant:

• The probability of success is higher (70%) due to the consultant’s expertise.
• The potential revenue is higher ($1,000,000) as the consultant may help identify better opportunities.
• The costs of failure are lower ($200,000) as the consultant can help mitigate risks.
• The consultant’s fee is assumed to be $50,000.

Not Hiring a Consultant:

• The probability of success is lower (40%) without expert guidance.
• The potential revenue is lower ($800,000) due to potentially missed opportunities.
• The costs of failure are higher ($300,000) due to increased risks.
• The EMV calculations show that hiring a consultant has a significantly higher expected value ($590,000) compared to not hiring one ($140,000). This suggests that despite the additional cost for the consultant, the increased probability of success and potentially higher revenues make this option more attractive.

This decision tree analysis provides a clear framework for decision-making and takes into account both the costs and potential benefits of hiring a consultant. It shows that the relatively low cost of the consultant is outweighed by the significantly increased chances of success and potential revenues. Keep in mind that while this analysis provides valuable insights, it should be combined with other factors such as company strategy, risk tolerance, and qualitative considerations before a final decision is made.
We provide a sample analysis in UML diagram format instead of the usual event fork and activity fork conventions.

The numbers are just examples; you can now play through this at any time with your own probabilities.

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Expansion of Manufacturing Network

Apple’s growth in India is attributed to several key factors:

• Local Subsidies: The Indian government has provided incentives to encourage manufacturing, which has played a crucial role in Apple’s expansion efforts.
• Skilled Workforce: India offers a large pool of skilled labor, essential for high-quality production.
• Technological Advancements: Improvements in India’s technological infrastructure have facilitated the manufacturing process.

Three major suppliers are instrumental in this growth:

• Foxconn Technology Group: Based near Chennai, Foxconn is the leading supplier, responsible for approximately half of India’s iPhone exports.
• Pegatron Corp.: Another Taiwanese manufacturer contributing to the assembly operations in India.
• Tata Electronics: Recently acquired Wistron’s facility and exported around $1.7 billion worth of iPhones from Karnataka during this period.

Impact on India’s Export Economy

The rise in iPhone exports has significantly impacted India’s overall export landscape. Smartphones have emerged as the top export category to the United States, totaling $2.88 billion in the first five months of this fiscal year—an impressive leap from just $5.2 million five years ago. This shift underscores Apple’s role in transforming India into a vital hub for smartphone manufacturing.

Retail Expansion and Revenue Growth

In addition to manufacturing, Apple is also enhancing its retail presence in India. Following the opening of its first stores in Mumbai and New Delhi last year, the company reported record annual revenue of $8 billion in India through March 2024. This expansion aligns with the growing middle class’s aspirations for premium products.

Geopolitical Context

Apple’s pivot towards India comes amid increasing geopolitical tensions between the United States and China, prompting the company to diversify its supply chain. While China remains a crucial manufacturing base, Apple’s strategy aims to mitigate risks associated with over-dependence on a single country.

In summary, Apple’s robust growth in iPhone exports from India not only reflects its commitment to expanding local manufacturing but also highlights India’s emerging role as a key player in global technology supply chains.

Can you afford not to be present in the BRICS Countries? Talk to us, we’ll help you succeed abroad.

Source: Visual Capitalist.

In a changing world, can you afford not to be present in at least one BRICS country? Talk to us.

Source: Visual Capitalist.

In a changing world, can you afford not to be present in at least one BRICS country? Talk to us.

India is set to become the third-largest economy globally by the fiscal year 2030-31, with projections indicating its nominal GDP will nearly double from $3.6 trillion to over $7 trillion. This anticipated growth rate of 6.7% would also elevate India to the upper-middle-income category.

Economic Performance and Growth Outlook

India’s economy has demonstrated remarkable resilience, achieving a growth rate of 8.2% in the fiscal year ending March 2024, exceeding previous estimates. The share of India’s GDP in the global economy is expected to rise from 3.6% to 4.5% by 2030-31.

Key Growth Drivers

– Structural reforms aimed at simplifying business operations
– Enhancements in the logistics sector
– Increased private sector investment
– Strong domestic consumption
– A growing working-age population

Current Economic Indicators

The fiscal year 2024-25 has started on a positive note, with record-high goods and services tax (GST) collections. The purchasing managers’ index (PMI) reflects ongoing expansion in both manufacturing and services, positioning India as a leader in private sector output globally over the past year.

Challenges Ahead

Despite the optimistic outlook, several challenges could temper growth:

– Rising food price inflation, influenced by climate change
– The delayed impact of previous interest rate hikes
– Regulatory measures aimed at controlling unsecured lending
– Government efforts towards fiscal consolidation

Nevertheless, India’s real GDP is forecasted to grow by 6.8% this fiscal year, maintaining its status as the fastest-growing large economy.

Global Integration and Economic Resilience

India’s growth trajectory is enhancing its integration into global value chains. The country boasts strong external buffers, with a significantly reduced current account deficit and robust foreign exchange reserves exceeding $650 billion. This favorable net external debt position minimizes risks associated with capital outflows.

As India continues to expand economically, it is poised to become a more significant player in the global market, solidifying its status among the world’s major economies by the end of the decade.

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Danny Quah, a professor at the London School of Economics (LSE), studied the dynamics of the global economy’s centre of gravity in a 2011 paper. He defined the economic centre of gravity as the average location of the planet’s economic activity, measured by GDP generated across nearly 700 identifiable locations on Earth’s surface.

In 1980, the world’s economic centre of gravity was situated in the middle of the Atlantic Ocean. However, by 2008, it had drifted eastward to a location between Izmir and Minsk, east of Helsinki and Bucharest. Extrapolating growth in the 700 locations, Quah projected that by 2050, the economic centre of gravity would be located between India and China.

An updated graphic shows the WECG’s movement over time. In 1AD, China and India were the world’s largest economies. European industrialization and America’s rise drew the economic centre of gravity into the Atlantic. However, Japan’s economic boom made it the second-largest economy in the world, pulling the centre northward. As China has regained economic leadership, the centre is now retracing its steps towards the east.

Interestingly, the WECG appears to move horizontally, suggesting that the north-south divide may remain relatively constant. Quah’s research shows that the latitude declines from 66 degrees North to 44 degrees North by 2049, implying that the south, like the east, is gaining considerable relative economic strength.

As the global economy’s centre of gravity continues to shift eastward, policy formulation and global governance will require more inclusive engagement with the east. While some global policy questions, such as promoting economic growth, may remain the same, others, like appropriate political and military intervention, might change in character.

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Source Visual Capitalist.

The global market share of some countries, particularly China, India and Brazil, is constantly increasing. Can you afford not to be there? Talk to us.

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