7.1: Understand Percent

Skills to Develop

  • Use the definition of percent
  • Convert percents to fractions and decimals
  • Convert decimals and fractions to percents

be prepared!

Before you get started, take this readiness quiz.

  1. Translate “the ratio of 33 to 5” into an algebraic expression. If you missed this problem, review Table 2.4.3.
  2. Write 3 5 as a decimal. If you missed this problem, review Example 5.5.1.
  3. Write 0.62 as a fraction. If you missed this problem, review Example 5.1.4.

Use the Definition of Percent

How many cents are in one dollar? There are 100 cents in a dollar. How many years are in a century? There are 100 years in a century. Does this give you a clue about what the word “per cent” means? It is really two words, “per cent,” and means per one hundred. A percent is a ratio whose denominator is 100. We use the percent symbol %, to show percent.

Definition: Percent

A percent is a ratio whose denominator is 100.

According to data from the American Association of Community Colleges (2015), about 57% of community college students are female. This means 57 out of every 100 community college students are female, as Figure (PageIndex{1}) shows. Out of the 100 squares on the grid, 57 are shaded, which we write as the ratio (dfrac{57}{100}).

Figure (PageIndex{1}) - Among every 100 community college students, 57 are female.

Similarly, 25% means a ratio of (dfrac{25}{100}), 3% means a ratio of (dfrac{3}{100}) and 100% means a ratio of (dfrac{100}{100}). In words, "one hundred percent" means the total 100% is (dfrac{100}{100}), and since (dfrac{100}{100}) = 1, we see that 100% means 1 whole.

Example (PageIndex{1}):

According to the Public Policy Institute of California (2010), 44% of parents of public school children would like their youngest child to earn a graduate degree. Write this percent as a ratio.


The amount we want to convert is 44%.44%
Write the percent as a ratio. Remember that percent means per 100.$$dfrac{44}{100}$$

Exercise (PageIndex{1}):

Write the percent as a ratio. According to a survey, 89% of college students have a smartphone.



Exercise (PageIndex{2}):

Write the percent as a ratio. A study found that 72% of U.S. teens send text messages regularly.



Example (PageIndex{2}):

In 2007, according to a U.S. Department of Education report, 21 out of every 100 first-time freshmen college students at 4-year public institutions took at least one remedial course. Write this as a ratio and then as a percent.


The amount we want to convert is 21 out of 100.21 out of 100
Write as a ratio.$$dfrac{21}{100}$$
Convert the 21 per 100 to percent.21%

Exercise (PageIndex{3}):

Write as a ratio and then as a percent: The American Association of Community Colleges reported that 62 out of 100 full-time community college students balance their studies with full-time or part time employment.


(frac{62}{100}), 62%

Exercise (PageIndex{4}):

Write as a ratio and then as a percent: In response to a student survey, 41 out of 100 Santa Ana College students expressed a goal of earning an Associate's degree or transferring to a four-year college.


(frac{41}{100}), 41%

Convert Percents to Fractions and Decimals

Since percents are ratios, they can easily be expressed as fractions. Remember that percent means per 100, so the denominator of the fraction is 100.


Step 1. Write the percent as a ratio with the denominator 100.

Step 2. Simplify the fraction if possible.

Example (PageIndex{3}):

Convert each percent to a fraction: (a) 36% (b) 125%


(a) 36%

Write as a ratio with denominator 100.$$dfrac{36}{100}$$

(b) 125%

Write as a ratio with denominator 100.$$dfrac{125}{100}$$

Exercise (PageIndex{5}):

Convert each percent to a fraction: (a) 48% (b) 110%

Answer a


Answer b


Exercise (PageIndex{6}):

Convert each percent to a fraction: (a) 64% (b) 150%

Answer a


Answer b


The previous example shows that a percent can be greater than 1. We saw that 125% means (dfrac{125}{100}), or (dfrac{5}{4}). These are improper fractions, and their values are greater than one.

Example (PageIndex{4}):

Convert each percent to a fraction: (a) 24.5% (b) 33 (dfrac{1}{3})%


(a) 24.5%

Write as a ratio with denominator 100.$$dfrac{24.5}{100}$$
Clear the decimal by multiplying numerator and denominator by 10.$$dfrac{24.5(10)}{100(10)}$$
Rewrite showing common factors.$$dfrac{5 cdot 49}{5 cdot 200}$$

(b) 33 (dfrac{1}{3})%

Write as a ratio with denominator 100.$$dfrac{33 dfrac{1}{3}}{100}$$
Write the numerator as an improper fraction.$$dfrac{dfrac{100}{3}}{100}$$
Rewrite as fraction division, replacing 100 with (dfrac{100}{1}).$$dfrac{100}{3} div dfrac{100}{1}$$
Multiply by the reciprocal.$$dfrac{100}{3} cdot dfrac{1}{100}$$

Exercise (PageIndex{7}):

Convert each percent to a fraction: (a) 64.4% (b) 66(dfrac{2}{3})%

Answer a


Answer b


Exercise (PageIndex{8}):

Convert each percent to a fraction: (a) 42.5% (b) 8(dfrac{3}{4})%

Answer a


Answer b


In Decimals, we learned how to convert fractions to decimals. To convert a percent to a decimal, we first convert it to a fraction and then change the fraction to a decimal.


Step 1. Convert the fraction to a decimal by dividing the numerator by the denominator.

Example (PageIndex{5}):

Convert each percent to a decimal: (a) 6% (b) 78%


Because we want to change to a decimal, we will leave the fractions with denominator 100 instead of removing common factors.

(a) 6%

Write as a ratio with denominator 100.$$dfrac{6}{100}$$
Change the fraction to a decimal by dividing the numerator by the denominator.0.06

(b) 78%

Write as a ratio with denominator 100.$$dfrac{78}{100}$$
Change the fraction to a decimal by dividing the numerator by the denominator.0.78

Exercise (PageIndex{9}):

Convert each percent to a decimal: (a) 9% (b) 87%

Answer a


Answer b


Exercise (PageIndex{10}):

Convert each percent to a decimal: (a) 3% (b) 91%

Answer a


Answer b


Example (PageIndex{6}):

Convert each percent to a decimal: (a) 135% (b) 12.5%


Write as a ratio with denominator 100.$$dfrac{135}{100}$$
Change the fraction to a decimal by dividing the numerator by the denominator.1.35

(b) 12.5%

Write as a ratio with denominator 100.$$dfrac{12.5}{100}$$
Change the fraction to a decimal by dividing the numerator by the denominator.0.125

Exercise (PageIndex{11}):

Convert each percent to a decimal: (a) 115% (b) 23.5%

Answer a


Answer b


Exercise (PageIndex{12}):

Convert each percent to a decimal: (a) 123% (b) 16.8%

Answer a


Answer b


Let's summarize the results from the previous examples in Table (PageIndex{1}), and look for a pattern we could use to quickly convert a percent number to a decimal number.

Table (PageIndex{1})

Do you see the pattern? To convert a percent number to a decimal number, we move the decimal point two places to the left and remove the % sign. (Sometimes the decimal point does not appear in the percent number, but just like we can think of the integer 6 as 6.0, we can think of 6% as 6.0%.) Notice that we may need to add zeros in front of the number when moving the decimal to the left.

Figure (PageIndex{2}) uses the percents in Table (PageIndex{1}) and shows visually how to convert them to decimals by moving the decimal point two places to the left.

Figure (PageIndex{2})

Example (PageIndex{7}):

Among a group of business leaders, 77% believe that poor math and science education in the U.S. will lead to higher unemployment rates. Convert the percent to: (a) a fraction (b) a decimal



Write as a ratio with denominator 100.$$dfrac{77}{100}$$


Change the fraction to a decimal by dividing the numerator by the denominator.0.77

Exercise (PageIndex{13}):

Twitter's share of web traffic jumped 24% when one celebrity tweeted live on air. Convert the percent to: (a) a fraction and (b) a decimal.

Answer a


Answer b


Exercise (PageIndex{14}):

The U.S. Census estimated that in 2013, 44% of the population of Boston age 25 or older have a bachelor's or higher degrees. Convert the percent to: (a) a fraction and (b) a decimal.

Answer a


Answer b


Example (PageIndex{8}):

There are four suits of cards in a deck of cards—hearts, diamonds, clubs, and spades. The probability of randomly choosing a heart from a shuffled deck of cards is 25%. Convert the percent to: (a) a fraction (b) a decimal.

Figure (PageIndex{3}) - (credit: Riles32807, Wikimedia Commons)



Write as a ratio with denominator 100.$$dfrac{25}{100}$$


Change the fraction to a decimal by dividing the numerator by the denominator.0.25

Exercise (PageIndex{15}):

The probability that it will rain Monday is 30%. Convert the percent to: (a) a fraction, and (b) a decimal.

Answer a


Answer b


Exercise (PageIndex{16}):

The probability of getting heads three times when tossing a coin three times is 12.5%. Convert the percent to: (a) a fraction, and (b) a decimal.

Answer a


Answer b


Convert Decimals and Fractions to Percents

To convert a decimal to a percent, remember that percent means per hundred. If we change the decimal to a fraction whose denominator is 100, it is easy to change that fraction to a percent.


Step 1. Write the decimal as a fraction.

Step 2. If the denominator of the fraction is not 100, rewrite it as an equivalent fraction with denominator 100.

Step 3. Write this ratio as a percent.

Example (PageIndex{9}):

Convert each decimal to a percent: (a) 0.05 (b) 0.83


(a) 0.05

Write as a fraction. The denominator is 100.$$dfrac{5}{100}$$
Write this ratio as a percent.5%


The denominator is 100.$$dfrac{83}{100}$$
Write this ratio as a percent.83%

Exercise (PageIndex{17}):

Convert each decimal to a percent: (a) 0.01 (b) 0.17.

Answer a


Answer b


Exercise (PageIndex{18}):

Convert each decimal to a percent: (a) 0.04 (b) 0.41.

Answer a


Answer b


To convert a mixed number to a percent, we first write it as an improper fraction.

Example (PageIndex{10}):

Convert each decimal to a percent: (a) 1.05 (b) 0.075


(a) 1.05

Write as a fraction.$$1 dfrac{5}{100}$$
Write as an improper fraction. The denominator is 100.$$dfrac{105}{100}$$
Write this ratio as a percent.105%

Notice that since 1.05 > 1, the result is more than 100%.

(b) 0.075

Write as a fraction.$$dfrac{75}{1,000}$$
Divide the numerator and denominator by 10, so that the denominator is 100.$$dfrac{7.5}{100}$$
Write this ratio as a percent.7.5%

Exercise (PageIndex{19}):

Convert each decimal to a percent: (a) 1.75 (b) 0.0825

Answer a


Answer b


Exercise (PageIndex{20}):

Convert each decimal to a percent: (a) 2.25 (b) 0.0925

Answer a


Answer b


Let's summarize the results from the previous examples in Table 6.20 so we can look for a pattern.

Table (PageIndex{2})

Do you see the pattern? To convert a decimal to a percent, we move the decimal point two places to the right and then add the percent sign.

Figure (PageIndex{4}) uses the decimal numbers in Table (PageIndex{2}) and shows visually to convert them to percents by moving the decimal point two places to the right and then writing the % sign.

Figure (PageIndex{4})

In Decimals, we learned how to convert fractions to decimals. Now we also know how to change decimals to percents. So to convert a fraction to a percent, we first change it to a decimal and then convert that decimal to a percent.


Step 1. Convert the fraction to a decimal.

Step 2. Convert the decimal to a percent.

Example (PageIndex{11}):

Convert each fraction or mixed number to a percent: (a) (dfrac{3}{4}) (b) (dfrac{11}{8}) (c) (2 dfrac{1}{5})


To convert a fraction to a decimal, divide the numerator by the denominator.


Change to a decimal.$$dfrac{3}{4}$$
Write as a percent by moving the decimal two places.


Change to a decimal.$$dfrac{11}{8}$$
Write as a percent by moving the decimal two places.


Write as an improper fraction.$$2 dfrac{1}{5}$$
Change to a decimal.$$dfrac{11}{5}$$
Write as a percent.

Notice that we needed to add zeros at the end of the number when moving the decimal two places to the right.

Exercise (PageIndex{21}):

Convert each fraction or mixed number to a percent: (a) (dfrac{5}{8}) (b) (dfrac{11}{4}) (c) (3 dfrac{2}{5})

Answer a


Answer b


Answer c


Exercise (PageIndex{22}):

Convert each fraction or mixed number to a percent: (a) (dfrac{7}{8}) (b) (dfrac{9}{4}) (c) (1 dfrac{3}{5})

Answer a


Answer b


Answer c

Sometimes when changing a fraction to a decimal, the division continues for many decimal places and we will round off the quotient. The number of decimal places we round to will depend on the situation. If the decimal involves money, we round to the hundredths place. For most other cases in this book we will round the number to the nearest thousandth, so the percent will be rounded to the nearest tenth.

Example (PageIndex{12}):

Convert (dfrac{5}{7}) to a percent.


To change a fraction to a decimal, we divide the numerator by the denominator.

Change to a decimal—rounding to the nearest thousandth.0.714
Write as a percent.71.4%

Exercise (PageIndex{23}):

Convert the fraction to a percent: (dfrac{3}{7})


Exercise (PageIndex{24}):

Convert the fraction to a percent: (dfrac{4}{7})



When we first looked at fractions and decimals, we saw that fractions converted to a repeating decimal. When we converted the fraction (dfrac{4}{3}) to a decimal, we wrote the answer as 1.(overline{3}). We will use this same notation, as well as fraction notation, when we convert fractions to percents in the next example.

Example (PageIndex{13}):

An article in a medical journal claimed that approximately (dfrac{1}{3}) of American adults are obese. Convert the fraction (dfrac{1}{3}) to a percent.


Change to a decimal.
Write as a repeating decimal.0.333 …
Write as a percent.(33 dfrac{1}{3})%

We could also write the percent as 33.(overline{3})%.

Exercise (PageIndex{25}):

According to the U.S. Census Bureau, about (dfrac{1}{9}) of United States housing units have just 1 bedroom. Convert the fraction to a percent.


(11. overline{1} \%), or (11 frac{1}{9} \% )

Exercise (PageIndex{26}):

According to the U.S. Census Bureau, about (dfrac{1}{6}) of Colorado residents speak a language other than English at home. Convert the fraction to a percent.


(16. overline{6} \%), or (16 frac{2}{3} \% )

Practice Makes Perfect

Use the Definition of Percents

In the following exercises, write each percent as a ratio.

  1. In 2014, the unemployment rate for those with only a high school degree was 6.0%.
  2. In 2015, among the unemployed, 29% were long-term unemployed.
  3. The unemployment rate for those with Bachelor's degrees was 3.2% in 2014.
  4. The unemployment rate in Michigan in 2014 was 7.3%.

In the following exercises, write as (a) a ratio and (b) a percent.

  1. 57 out of 100 nursing candidates received their degree at a community college.
  2. 80 out of 100 firefighters and law enforcement officers were educated at a community college.
  3. 42 out of 100 first-time freshmen students attend a community college.
  4. 71 out of 100 full-time community college faculty have a master's degree.

Convert Percents to Fractions and Decimals

In the following exercises, convert each percent to a fraction and simplify all fractions.

  1. 4%
  2. 8%
  3. 17%
  4. 19%
  5. 52%
  6. 78%
  7. 125%
  8. 135%
  9. 37.5%
  10. 42.5%
  11. 18.4%
  12. 46.4%
  13. (9 dfrac{1}{2})%
  14. (8 dfrac{1}{2}) %
  15. (5 dfrac{1}{3}) %
  16. (6 dfrac{2}{3}) %

In the following exercises, convert each percent to a decimal.

  1. 5%
  2. 9%
  3. 1%
  4. 2%
  5. 63%
  6. 71%
  7. 40%
  8. 50%
  9. 115%
  10. 125%
  11. 150%
  12. 250%
  13. 21.4%
  14. 39.3%
  15. 7.8%
  16. 6.4%

In the following exercises, convert each percent to (a) a simplified fraction and (b) a decimal.

  1. In 2010, 1.5% of home sales had owner financing. (Source: Bloomberg Businessweek, 5/ 23–29/2011)
  2. In 2000, 4.2% of the United States population was of Asian descent. (Source:
  3. According to government data, in 2013 the number of cell phones in India was 70.23% of the population.
  4. According to the U.S. Census Bureau, among Americans age 25 or older who had doctorate degrees in 2014, 37.1% are women.
  5. A couple plans to have two children. The probability they will have two girls is 25%.
  6. Javier will choose one digit at random from 0 through 9. The probability he will choose 3 is 10%.
  7. According to the local weather report, the probability of thunderstorms in New York City on July 15 is 60%.
  8. A club sells 50 tickets to a raffle. Osbaldo bought one ticket. The probability he will win the raffle is 2%.

Convert Decimals and Fractions to Percents

In the following exercises, convert each decimal to a percent.

  1. 0.01
  2. 0.03
  3. 0.18
  4. 0.15
  5. 1.35
  6. 1.56
  7. 3
  8. 4
  9. 0.009
  10. 0.008
  11. 0.0875
  12. 0.0625
  13. 1.5
  14. 2.2
  15. 2.254
  16. 2.317

In the following exercises, convert each fraction to a percent.

  1. (dfrac{1}{4})
  2. (dfrac{1}{5})
  3. (dfrac{3}{8})
  4. (dfrac{5}{8})
  5. (dfrac{7}{4})
  6. (dfrac{9}{8})
  7. (6 dfrac{4}{5})
  8. (5 dfrac{1}{4})
  9. (dfrac{5}{12})
  10. (dfrac{11}{12})
  11. (2 dfrac{2}{3})
  12. (1 dfrac{2}{3})
  13. (dfrac{3}{7})
  14. (dfrac{6}{7})
  15. (dfrac{5}{9})
  16. (dfrac{4}{9})

In the following exercises, convert each fraction to a percent.

  1. (dfrac{1}{4}) of washing machines needed repair.
  2. (dfrac{1}{5}) of dishwashers needed repair.

In the following exercises, convert each fraction to a percent.

  1. According to the National Center for Health Statistics, in 2012, 7 20 of American adults were obese.
  2. The U.S. Census Bureau estimated that in 2013, 85% of Americans lived in the same house as they did 1 year before.

In the following exercises, complete the table.


      Everyday Math

      1. Sales tax Felipa says she has an easy way to estimate the sales tax when she makes a purchase. The sales tax in her city is 9.05%. She knows this is a little less than 10%.
        1. Convert 10% to a fraction.
        2. Use your answer from (a) to estimate the sales tax Felipa would pay on a $95 dress.
      2. Savings Ryan has 25% of each paycheck automatically deposited in his savings account.
        1. Write 25% as a fraction.
        2. Use your answer from (a) to find the amount that goes to savings from Ryan's $2,400 paycheck.
      3. Amelio is shopping for textbooks online. He found three sellers that are offering a book he needs for the same price, including shipping. To decide which seller to buy from he is comparing their customer satisfaction ratings. The ratings are given in the chart.
      1. Write seller C’s rating as a fraction and a decimal.
      2. Write seller B’s rating as a percent and a decimal.
      3. Write seller A’s rating as a percent and a decimal.
      4. Which seller should Amelio buy from and why?

      Writing Exercises

      1. Convert 25%, 50%, 75%, and 100% to fractions. Do you notice a pattern? Explain what the pattern is.
      2. Convert (dfrac{1}{10}, dfrac{2}{10}, dfrac{3}{10}, dfrac{4}{10}, dfrac{5}{10}, dfrac{6}{10}, dfrac{7}{10}, dfrac{8}{10}), and (dfrac{9}{10}) to percents. Do you notice a pattern? Explain what the pattern is.
      3. When the Szetos sold their home, the selling price was 500% of what they had paid for the house 30 years ago. Explain what 500% means in this context.
      4. According to, cell phone use in 2008 was 600% of what it had been in 2001. Explain what 600% means in this context.

      Self Check

      (a) After completing the exercises, use this checklist to evaluate your mastery of the objectives of this section.

      (b) If most of your checks were:

      …confidently. Congratulations! You have achieved the objectives in this section. Reflect on the study skills you used so that you can continue to use them. What did you do to become confident of your ability to do these things? Be specific.

      …with some help. This must be addressed quickly because topics you do not master become potholes in your road to success. In math, every topic builds upon previous work. It is important to make sure you have a strong foundation before you move on. Who can you ask for help? Your fellow classmates and instructor are good resources. Is there a place on campus where math tutors are available? Can your study skills be improved?

      …no—I don’t get it! This is a warning sign and you must not ignore it. You should get help right away or you will quickly be overwhelmed. See your instructor as soon as you can to discuss your situation. Together you can come up with a plan to get you the help you need.

      7.1 The Costs of Turnover

      According to the book Keeping the People Who Keep You in Business by Leigh Branham (Branham, 2000), the cost of losing an employee can range from 25 percent to 200 percent of that employee’s salary. Some of the costs cited revolve around customer service disruption and loss of morale among other employees, burnout of other employees, and the costs of hiring someone new. Losing an employee is called turnover .

      There are two types of turnover, voluntary turnover and involuntary turnover. Voluntary turnover is the type of turnover that is initiated by the employee for many different reasons. Voluntary turnover can be somewhat predicted and addressed in HR, the focus of this chapter. Involuntary turnover is where the employee has no choice in their termination—for example, employer-initiated due to nonperformance. This is discussed further in Chapter 9 “Successful Employee Communication”.

      It has been suggested that replacement of an employee who is paid $8 per hour can range upwards of $4,000 (Paiement, 2009). Turnover can be calculated by

      separations during the time period (month)/total number of employees midmonth × 100 = the percentage of turnover.

      For example, let’s assume there were three separations during the month of August and 115 employees midmonth. We can calculate turnover in this scenario by

      3/115 × 100 = 2.6% turnover rate.

      This gives us the overall turnover rate for our organization. We may want to calculate turnover rates based on region or department to gather more specific data. For example, let’s say of the three separations, two were in the accounting department. We have ten people in the accounting department. We can calculate that by

      accounting: 2/10 × 100 = 20% turnover rate.

      The turnover rate in accounting is alarmingly high compared to our company turnover rate. There may be something happening in this department to cause unusual turnover. Some of the possible reasons are discussed in Section 7.1.1 “Reasons for Voluntary Turnover”.

      Figure 7.1 United States Yearly Turnover Statistics, 2001–11

      Source: Data from Bureau of Labor Statistics, “Job Openings and Labor Turnover Survey,” accessed August 11, 2011,

      In HR, we can separate the costs associated with turnover into indirect costs and direct costs. Direct turnover costs include the cost of leaving, replacement costs, and transition costs, while indirect turnover costs include the loss of production and reduced performance. The following are some examples of turnover costs (Maertz & Campion, 1998):

      • Recruitment of replacements
      • Administrative hiring costs
      • Lost productivity associated with the time between the loss of the employee and hiring of replacement
      • Lost productivity due to a new employee learning the job
      • Lost productivity associated with coworkers helping the new employee
      • Costs of training
      • Costs associated with the employee’s lack of motivation prior to leaving
      • Sometimes, the costs of trade secrets and proprietary information shared by the employee who leaves
      • Public relations costs

      To avoid these costs, development of retention plans is an important function of the HR strategic plan. Retention plans outline the strategies the organization will use to reduce turnover and address employee motivation.

      Direct Indirect
      Recruitment costs Lost knowledge
      Advertising costs for new position Loss of productivity while new employee is brought up to speed
      Orientation and training of new employee Cost associated with lack of motivation prior to leaving
      Severance costs Cost associated with loss of trade secrets
      Testing costs
      Time to interview new replacements
      Time to recruit and train new hires

      Costs of Turnover in Hospitality

      This video provides an excellent illustration of how to measure the cost of employee turnover in the hospitality industry.

      Get a deeper understanding of your blood, urine, and stool test results.

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      ARMs vs fixed: when ARMs are strong

      If you plan to buy a house or refinance a mortgage any time in the near future, you should consider ARM loans along with fixed-rate mortgages.

      The right ARM could increase the amount you qualify to finance or make it easier to buy when home prices are increasing.

      If your household earnings are $6,000 a month, for instance, and your monthly property taxes and homeowners insurance equal $300 a month, most mortgage guidelines would allow you to spend up to $1,500 on your next home for principal and interest.

      An ARM with a lower rate may allow you to qualify for a bigger loan. Here are a few examples, using actual rates from national sources as of this writing, for a $1500-per-month principal and interest payment:

      Program Rate Loan Amount
      30 Yr Fixed 4.250% $380,000
      7/1 ARM 4.000% $393,000
      5/1 ARM 3.875% $399,000
      3/1 ARM 4.125% $387,000

      Note that 3-year ARMs are more expensive than their more stable counterparts, 5- and 7-year loans. In other markets, 3/1 ARM rates were the cheapest around. This could be that more consumers are choosing longer-term ARMs, so with volume come discounts.

      Or it could be lenders’ way of discouraging this short-term, riskier loan type.

      To Understand a City’s Pace of Gentrification, Look at Its Housing Supply

      Updated to include downloadable data on 74 metropolitan statistical areas (updated 7/1/20).

      This post was corrected to reflect that 48 percent, not 49 percent, of all 2018 borrowers were high-income households (corrected 6/24/20).

      Gentrification is a hotly debated subject, with conversations centering around what happens to neighborhoods’ income and racial mix as new buyers move in and how that affects current residents. Although the impacts of gentrification are still being studied and debated, it’s important to understand what increases the pace of gentrification, which we define for this analysis as how fast high-income homebuyers move into low-income neighborhoods.

      We combined two datasets to examine the movement of high-income borrowers into low-income areas and the varying pace of this movement across different metropolitan statistical areas (MSAs). Our analysis focuses only on income because homebuyers’ race or ethnicity was not available at comparable levels of granularity in the two datasets.

      Our examination reveals that, in many MSAs, high housing costs—resulting from a lack of available housing—cause affluent buyers to look for homes in low- and moderate-income (LMI) neighborhoods. That means cities’ housing supply can determine how fast gentrification may occur. Boosting the supply of housing can slow the pace of new buyers moving into lower-income neighborhoods.

      Nationally, high-income homebuyers purchase in LMI neighborhoods at the same rate they already live in these neighborhoods

      We looked at 2018 Home Mortgage Disclosure Act and 2018 American Community Survey data to determine the prevalence of high-income homebuyers in LMI areas. We then examined the price-to-income ratios (using area median incomes, or AMIs) in the 20 largest US MSAs to get a sense of housing supply challenges. (View and download data on the 74 most populous MSAs.)

      At the national level, high-income buyers (those earning above 120 percent of the AMI) take out new mortgages to buy homes in LMI neighborhoods at a slightly higher rate (29 percent) than they already own homes in these neighborhoods (26 percent).

      But low-income buyers (earning up to 50 percent of the AMI) are taking out new mortgages to buy homes in LMI neighborhoods at much lower rates (14 percent) than their homeownership rates in these neighborhoods (31 percent).

      For households with moderate incomes (earning 50 to 80 percent of the AMI), the share of new mortgages (31 percent) is significantly higher than the share of current homeowners (21 percent), and for middle income households (earning 80 to 120 percent of the AMI), the share of new mortgages is somewhat larger (27 percent) than their rates of already owning homes in the neighborhood (21 percent).

      In terms of mortgage borrowing nationally, the biggest difference between new mortgages and current ownership rates is in the share of mortgage borrowers in the low-income group. There are comparatively few new mortgage borrowers with low incomes relative to the share of current homeowners with those incomes. This difference is, in part, the result of a lack of supply of houses for sale and of mortgages at the low end of the housing price spectrum.

      In cities with limited housing supply, high-income homebuyers disproportionately look to LMI areas

      The income distribution of all homeowners and renters does not vary much across the 20 largest MSAs, but the distribution of new mortgage borrowers in 2018 was different among the MSAs. We estimated the number of current high-income homeowners in LMI neighborhoods for a small number of MSAs, including Los Angeles and Chicago.

      Nationally, high-income households represent 45 percent of homeowners, 48 percent of all 2018 borrowers, and 28 percent of 2018 borrowers in LMI areas. But in Los Angeles, the MSA with the highest price-to-income ratio, 53 percent of current homeowners and 78 percent of 2018 borrowers have high incomes.

      Most importantly, the rate of gentrification in LMI neighborhoods could be rapid, as the 60 percent purchase rate of high-income borrowers in LMI Los Angeles neighborhoods significantly exceeded their current presence in LMI neighborhoods of 38 percent. A greater share of new borrowers in LMI areas in Los Angeles (60 percent) have higher incomes than do current homeowners across the city (53 percent).

      Conversely, in Chicago, a city with more affordable housing (as indicated by a price-to-income ratio in the bottom quartile), the share of high-income 2018 homebuyers in LMI areas is barely half the share of current high-income homeowners in the city. In fact, the share of high-income borrowers in LMI areas is slightly lower than the share of current high-income homeowners in LMI areas.

      The figure above shows the relationship between the price-to-income ratio and the share of recent purchases by high-income borrowers in low-income neighborhoods for the 75 largest MSAs. Although not perfect, the correlation is high. This suggests that when housing prices are high in an MSA, as indicated by a high price-to-income ratio, high-income borrowers will look to LMI neighborhoods to buy homes.

      An area’s price-to-income ratio is better than home prices at predicting high-income buyers’ interest in LMI neighborhoods

      We also find that the price-to-income ratio is a more important determinant than home price of the propensity of high-income people to buy in LMI areas. Most starkly, at $909,000, the median home price in San Francisco far exceeds Los Angeles’s $699,000. But Los Angeles’s 9.14 price-to-income ratio exceeds San Francisco’s 8.33 ratio, and a substantially greater share of high-income households buy in LMI neighborhoods in Los Angeles.

      In MSAs with a high price-to-income ratio, even high-income borrowers are stretching to purchase a home, and they are increasingly venturing into LMI areas. Middle- and low-income borrowers are finding it increasingly difficult to buy in LMI areas, as prices for low-price homes have increased faster than prices for more expensive homes. These areas with a high price-to-income ratio tend to have a lower homeownership rate than the national average. This is particularly true in California MSAs, but the New York and Miami areas also show signs of high-income movement in LMI neighborhoods and somewhat depressed overall homeownership rates.

      These data show that when even affluent buyers must stretch to become homeowners, they are likely to look to LMI neighborhoods to purchase homes. Boosting the housing supply by easing local land use, building, and zoning restrictions and encouraging alternative forms of housing like manufactured housing and accessory dwelling units would make homes more affordable and allow more buyers at all income levels to find homes, slowing the pace of gentrification.

      From left to right, Arthur Davis, his wife, Deloris and their daughter Audrey, stand outside their home that has been in their family since 1954. Their next door neighbor Joseph "Tex" Gathings stands behind them on the porch. The Davis family has received several letters from real estate agents trying to get them to sell their home, in Highland Beach, Maryland, a historically Black beach community where Frederick Douglass spent his summers. July 22, 2017. (Photo by Cheriss May for The Washington Post via Getty Images)

      Understanding Percent Yield

      My favorite cookie recipe (whole wheat chocolate chip cookies with cashews) says that it will make 48 cookies, and yet I’ve never gotten more than 30 when I make them. That means I’m only getting 62.5% of the number of cookies I’m supposed to. You can probably guess that this is entirely my fault I scoop too much cookie dough per cookie onto the baking sheet. That explanation is true, but it doesn’t change the fact that I didn’t get as many cookies as I expected.

      In chemistry, chemical equations give us a “recipe” for various chemical reactions. We use stoichiometry (a fancy word that really just means “math”) to calculate how much of a chemical we expect to make, based on that chemical equation and how much of the reactants we use to start. Life would be easy if every reaction gave us exactly what we expected, but the reality is that chemists pretty much never get 100% of the products they expect. There are numerous reasons for this, all of which are valid, but nevertheless leave us with less product than desired. Some chemical reactions simply do not go to completion, because the reaction also runs in reverse. Sometimes there are side reactions other reactions that take place at the same time, so that some of the reactants make a product other than the one we wanted. Sometimes the chemist makes a mistake, anything – which may include measuring a chemical incorrectly, sloshing some of the solution out of a beaker, sneezing into the reaction mixture, heating the mixture too intensely, or perhaps not stirring the mixture long enough can throw off the final results.

      Experimental errors (mistakes made by the chemist, or caused by limitations of the equipment) can be avoided to some extent, but chemical causes, such as side reactions and equilibrium processes, are an inherent part of the reaction. As a result, they are always present, and have a predictable result on the amount of product produced.

      To calculate percent error is simple. Divide the amount of product actually made by the amount of product expected (known as the theoretical yield, it is found using stoichiometry read Helium’s “An Introduction to Stoichiometry” if you don’t know how to do this) and multiply the result by 100%. In equation form, it looks like this:

      [Percent Yield] = ( [actual yield] / [theoretical yield] ) * 100%

      Here’s a quick example:
      A certain chemical reaction was expected to produce 88.7 grams of the new wonder drug Miraculosum. When the lab actually tried the process out, only 13.4 grams of Miraculosum were collected.

      The percent yield is ( 13.4 / 88.7 ) x 100% = 15.1%

      Now, suppose that the company tried the experiment again, and found that every time they got the same percent yield, 15.1%. They probably wouldn’t be thrilled, since the chemicals needed to make their drug are expensive, but management realizes that all they have to do is charge more for Miraculosum and they’ll still turn a profit. To meet production needs, however, they’re going to have to figure out how much of their reactants (the ingredients) they need to make the desired amount of product. Now simple stoichiometry isn’t enough, they have to take into account the percent yield as well.

      Let’s make up a chemical equation for the synthesis of Miraculosum:

      1 pseudosterol + 2 fakelement -> 1 Miraculosum

      Let’s imagine that demand for Miraculosum is high, they have to produce 90 kilograms (90,000 grams) of the stuff to fill their first order. Since this is an imaginary compound, we don’t have a molar mass for it, but we can pretend that the molar mass is 300 grams per mole, and use that to calculate that they need to make 300 moles of Miraculosa. (You always have to work in moles for stoichiometry, remember.)

      If the reaction gave 100% yield, life would be simple. They could take 300 moles of pseudosterol and 600 moles of fakelement and rest assured that they’d get all the product they desired. Because the reaction only gives 15.1%, this won’t work. It would only give us 15.1% of 300 moles, which is 45.3 moleshardly enough to fill the order.

      To get the right amount of reactants, we’ll have to work backwards a little. We know that we will only get 15.1% yield. We also know that we want to make 300 moles of Miraculosum. Putting those two things together means that 300 moles has to be 15.1% of the amount we were supposed to get from the reaction (the theoretical yield).

      [Percent Yield] = ( [actual yield] / [theoretical yield] ) * 100%

      Filling in the things we know gives:

      [15.1%] = ( [ 300 moles ] / [theoretical yield ] ) * 100%

      Solving for [theoretical yield] gives:

      [theoretical yield] = 1987 moles

      Knowing this, we can then use stoichiometry to find out how much of the reactants are needed to make 1987 moles of Miraculosa if only the reaction were 100% efficient, but that will actually make our 300 moles instead.

      pseudosterol: 1987 moles x 1 / 1 = 1987 moles
      fakelement: 1987 moles x 2 / 1 = 3974 moles

      You should be aware that while this particular drug is imaginary, drug companies really are affected by percent yields, and that contributes to the price of prescription drugs. (Research costs do too, of course, but the point is that drug companies don’t charge those prices just because they’re greedy extortionists who want to get rich. They may very well be greedy extortionists who want to get rich, but they’re also working to pay the high costs of producing expensive chemicals with low percent yields.)

      The last thing to address with percent yields is that sometimes a series of reactions is needed to produce the final product. Every reaction has its own percent yield associated with it, so that step one may only give 50% yield, step two may give 20% yield, and step three may give 70% yield. What this means is that the final yield is going to be only 70% of 20% of 50% of the theoretical yield, based on the original amount. Calculating the actual yield at every step of the reaction would be tedious, however, so instead we wait until the very end to calculate the overall percent yield and the actual yield that results. That probably made very little sense written out, so here’s an easy example:

      This (fake) series of reactions is needed to make the final product Feeblebreath:

      2 Alfalfalene -> 1 yumarol (50% yield)
      1 yumarol + 1 mintalloy -> 1 garglene (20% yield)
      2 gargalene + (secret catalyst) -> 1 Feeblebreath (70% yield)

      Stoichiometry (not shown) dictates that we ought to get 60 grams of Feeblebreath product, if the reaction has 100% yield.

      The reaction does not have 100% yield, instead, it has 50, 20, and 70% yields, which must be combined.

      To combine percentages, multiply them together in decimal form, and then convert back to a percent. (50% = 0.50, 20% = 0.20, 70% = 0.70)

      This means the overall percent yield for these three reactions will only be 7%.

      The manufacturers expected to get 60 grams, theoretically, but the actual yield will be 7% of 60 grams.

      Only 4.2 grams of Feeblebreath are actually made.

      In practice, chemical companies try to make their products in as few steps as possible for exactly this reason. The more steps involved, the lower the percent yield. It is also important that every step have as high a percent yield as possible, for, as you see, having even one small (20%) yield really impacts the final result.

      You may also wish to further your knowledge of stoichiometry with the Helium articles:
      “An Introduction to Stoichiometry” and
      “Finding the Limiting Reactant”.

      Understanding the Basic Principles of Nitrogen

      In order to remove nitrogen at your wastewater treatment facility you must understand the different forms of nitrogen and some commonly referred to terms that you will be dealing with.

      Total Nitrogen (TN) is the sum of all nitrogen forms or

      Total Nitrogen = TKN + NO2 + NO3

      TKN stands for Total Kjeldahl Nitrogen which is the sum of NH3 + Organic Nitrogen

      NH3 stands for Ammonia Nitrogen

      Organic Nitrogen is derived from amino acids & proteins:

      Good examples are urea and uric acid

      N2 stands for Nitrogen Gas

      Refractory Nitrogen is the nitrogen that can’t be biologically decomposed.

      Alkalinity is easiest defined as the ability to resist a drop in pH. This is very important because for every 1 part ammonia (NH3) converted to nitrate (NO3) – 7.1 parts of alkalinity are depleted, and for every 1 part nitrate (NO3) removed – 3.6 parts alkalinity are recovered.

      An anoxic zone is a basin, or portion of, which is mixed but not aerated. The dissolved oxygen levels must be less than 1.0 mg/L but never reach 0.0 mg/L. In an anoxic zone the bug’s oxygen source is derived from the nitrate (NO3) compounds.

      Nitrification and denitrification are two terms that are commonly misunderstood. Both are individually distinct processes.

      Nitrification is the conversion of ammonia (NH3) to nitrate (NO3). How is this done? This is a two-step process that is done with oxygen and two types of bacteria, Nitrosomonas and Nitrobacter, known collectively as the nitrifiers.

      Ammonia (NH3) + Oxygen (O2) + Alkalinity + Nitrosomonas = Nitrite (NO2)

      Nitrite (NO2) + Oxygen (O2) + Alkalinity + Nitrobacter = Nitrate (NO3)

      Nitrite (NO2) is the unstable form of nitrogen and is easily converted because it does not wish to be in this form.

      The total conversion of ammonia (NH3) to nitrate (NO3) takes 4.6 parts oxygen and 7.1 parts alkalinity to convert 1 part ammonia (NH3).

      Denitrification is the conversion of nitrate (NO3) to nitrogen gas (N2). How is this done? Heterotrophic bacteria utilize the nitrate (NO3) as an oxygen source under anoxic conditions to break down organic substances.

      Nitrates (NO3) + Organics + Heterotrophic bacteria = Nitrogen Gas & Oxygen & Alkalinity

      Now that you understand the different forms of nitrogen and terms that you will be dealing with, the next questions are What forms of nitrogen do you test for and what can you use to test for them.

      Total kjeldahl nitrogen (TKN) is an involved test that many wastewater treatment facility laboratories are not equipped to perform. If you can’t perform this test, do not use this as an excuse to ignore monitoring the nitrogen cycle. The ammonia (NH3) values are approximately 60% of the Total kjeldahl nitrogen (TKN) values, and the organic nitrogen is generally removed in the settled sludge. Also, Total kjeldahl nitrogen (TKN) generally equals 15 – 20 % of the Biochemical Oxygen Demand (BOD) of the raw sewage.

      The following tests are a must to monitor and control the nitrogen cycle: pH, alkalinity, ammonia (NH3), nitrite (NO2) & nitrate (NO3)

      All of the major lab supply companies sell field test kits that are inexpensive, easy to use, and provide quick relatively accurate results. Some of the things to keep in mind when purchasing field test kits are

      Ammonia – (NH3 as N), Nitrite – (NO2 as N), Nitrate – (NO3 as N)

      All results are expressed as nitrogen so that you can total them up to determine the Total nitrogen values.

      Now that you have your test kits the next questions are: Where do we test in our wastewater treatment facility and what numbers should we expect?

      To establish a good handle on nitrogen in your wastewater treatment facility, you must develop a good sampling program that will give a complete profile of your system.

      The first sampling point would be the raw influent or primary effluent if you have a primary clarifier. Typically, what is entering the facility will be high in alkalinity and ammonia (NH3) with very little to no nitrite (NO2) or nitrate (NO3). A quick way to determine if you might need to perform alkalinity addition is to multiply the ammonia (NH3) by 7.1 mg/L. If this number exceeds the influent alkalinity concentration, you will probably have to add something such as sodium hydroxide or lime to the aeration tank.

      Why is this important? When you start converting ammonia (NH3) to nitrate (NO3) in the aeration tank many hydrogen ions will be released. When alkalinity drops below 50 mg/l your pH can drop dramatically. You should never allow the pH of the aeration tank to drop below 6.5. Biological activity will be inhibited and toxic ammonia (NH3) can bleed right through your system.

      The next sampling points to establish are in your aeration tank. The length of the tank will dictate how many sampling points are required. Generally, I use three locations: The front, middle and end of the aeration tank.

      If a suitable environment is maintained in the aeration tank most of the ammonia (NH3) will be converted to nitrate (NO3) by the time it leaves the tank.

      Why would you use three locations if all you care about is what is leaving the tank? You must determine how much tankage is required to perform this conversion.

      If this conversion is completed in the middle of the tank this will give you 1/3 of the tank to establish an anoxic zone. An anoxic zone will enable you to not only convert the nitrogen but to remove it.

      The final sampling point will be the plant effluent prior to chlorination. There should never be less than 50 mg/L of alkalinity. The pH should never be out of the permitted range. Ammonia (NH3) should have extremely low concentrations. Nitrite (NO2) should be very low to non-detectable and the majority of the nitrogen will be in the nitrate (NO3) form.

      Throughout all of your testing the nitrite (NO2) levels should be very low. Why bother testing for them then? High levels of nitrite (NO2) in the system indicate there is, or about to be, a problem with the nitrification cycle. Nitrosomonas bacteria are harder to kill than Nitrobacter bacteria. If the Nitrobacter bacteria are killed off, the Nitrosomonas bacteria will continue working on the ammonia (NH3) and you will have a jammed cycle with high levels of nitrite (NO2). An effluent with high nitrite (NO2) concentrations will be difficult to disinfect because of the tremendous chlorine demand it poses.

      What type of problems might you encounter while performing nitrification? A decrease in the aeration tank pH due to insufficient alkalinity causing ammonia (NH3) to bleed through the system which will cause a decrease in the microbiological activity. An inability to completely nitrify due to a lack of dissolved oxygen mixed liquor suspended solids, mean cell retention time, and cold temperatures.

      All these factors can inhibit the nitrification cycle. High ammonia (NH3) discharges can affect your toxicity testing. High nitrite (NO2) levels will cause a tremendous chlorine demand making disinfection difficult – jeopardizing your fecal coliform limits. Leaving sludge that is high in nitrate (NO3) too long in the secondary clarifier can cause the sludge blanket to rise to the surface when the nitrogen gas is released. This will make quite a mess and will jeopardize your TSS limits.

      Why bother to nitrify at your wastewater treatment facility if there can be this many problems? Aside from permit limits, ammonia (NH3) is toxic to fish and other aquatic life. Ammonia (NH3) discharges also place a very high oxygen demand on the receiving streams. Most operators perform nitrification due to the desire to produce a highly stabilized effluent at their wastewater treatment facility.

      Now that we have converted all this ammonia (NH3) to nitrate (NO3), how can we remove it from the system or more specifically perform denitrification?

      An anoxic zone will have to be established within the wastewater treatment facility. Regardless of where and how you do this, the principles of operating an anoxic zone will always be the same.

      The dissolved oxygen levels must be as close, without reaching, 0.0 mg/l as possible. A safe target point to avoid septicity while starting your zone would be 0.5 mg/L.A good operating point would be 0.2 mg/l.

      There must be a carbon source. Raw influent usually works fine but some plants have to supplement the carbon source by injecting methanol or ethanol. It takes about 2.0 – 2.5 parts methanol for every part nitrate (NO3) that is denitrified.

      The mixed liquor suspended solids concentration must be kept in balance with the food supply. In other words, the Food to Microorganisms should be in the proper range (on the lower end) for the type of process you are operating.

      The pH of the anoxic zone should be close to neutral (7.0) and never drop below 6.5.

      How will this all come together to work? Heterotrophic bacteria need a carbon source for food. They obtain their oxygen the easiest way possible using the following sequence: free and dissolved oxygen, nitrate (NO3), and then sulfate (SO4). If your zone has no free or dissolved oxygen, the “bugs” will have to obtain their oxygen source by breaking down the nitrate (NO3) that are returned to the anoxic zone in the activated sludge. As the “bugs” utilize the nitrate (NO3) as an oxygen source to break down the carbon, their source of food, nitrogen gas will be released to the atmosphere.

      Bugs + Carbon + Nitrate (NO3) = Nitrogen Gas (N2) + Oxygen (O2) + 3.6 parts Alkalinity

      Many wastewater treatment facilities have been performing successful single tank denitrification by creating and utilizing anoxic zones. Some examples that I have seen work are:

      Constructing a dedicated anoxic zone at the head of the aeration tank by installing a baffle and mechanical mixers

      Utilizing the first 1/4 to 1/3 of the aeration basin as an anoxic zone by throttling the aeration system diffusers valves to allow mixing without transferring dissolved oxygen

      A dissolved oxygen probe in the aeration tank tied into a variable frequency drive that sends a signal to the blowers, providing a continuous dissolved oxygen level as determined by the set points

      Utilizing timers to cycle the aeration system on and off which allows the whole aeration basin to be used intermittently as an anoxic zone (always check with your equipment manufacturers before implementing this method so that no damage will occur)

      You may find that the return activated sludge pump cannot return enough nitrate (NO3) to the anoxic zone quick enough. If that is the case, a high yield submersible pump can be lowered into the effluent end of the aeration tank.

      The discharge piping can be attached to the aeration basin walls, returning mixed liquor high in nitrate (NO3) back to the anoxic zone. The outlet of the discharge piping will need to be slightly submerged to avoid splashing and the introduction of dissolved oxygen.

      How will you know when all of the nitrate (NO3) is used up? The next place the bugs will go for their oxygen source is the sulfate (SO4). As the sulfates are used up, sulfides will combine with hydrogen to form hydrogen sulfide and this stinks like rotten eggs.

      Why would you want to perform denitrification at your facility? The obvious reason would be Total nitrogen limits in your discharge permit, others include alkalinity and oxygen recovery, the desire to produce a highly stabilized effluent, and a reduction of problems with rising sludge in your clarifier.

      Establishing and successfully operating a nitrogen removal process at your wastewater treatment facility will take some time and effort on your part. A lot more process control testing will have to be performed and system upsets may occur. The benefits will by far outweigh the headaches and great pride can be taken when you discharge a highly stabilized effluent from your wastewater treatment facility.

      This article was written by Robert Scott the Wastewater Technician for the Atlantic States Rural Water & Wastewater Association.

      7.1: Understand Percent

      After reading this section, students should be able to …

      1. describe the five common international-expansion entry modes.
      2. know the advantages and disadvantages of each entry mode.
      3. understand the dynamics among the choice of different entry modes.

      The Five Common International-Expansion Entry Modes

      What is the best way to enter a new market? Should a company first establish an export base or license its products to gain experience in a newly targeted country or region? Or does the potential associated with first-mover status justify a bolder move such as entering an alliance, making an acquisition, or even starting a new subsidiary? Many companies move from exporting to licensing to a higher investment strategy, in effect treating these choices as a learning curve. Each has distinct advantages and disadvantages. In this section, we will explore the traditional international-expansion entry modes. Beyond importing, international expansion is achieved through exporting, licensing arrangements, partnering and strategic alliances, acquisitions, and establishing new, wholly owned subsidiaries, also known as greenfield ventures. These modes of entering international markets and their characteristics are shown in Table 7.1 “International-Expansion Entry Modes”. 1 Each mode of market entry has advantages and disadvantages. Firms need to evaluate their options to choose the entry mode that best suits their strategy and goals.

      Table 7.1 International-Expansion Entry Modes

      Type of Entry Advantages Disadvantages
      Exporting Fast entry, low risk Low control, low local knowledge, potential negative environmental impact of transportation
      Licensing and Franchising Fast entry, low cost, low risk Less control, licensee may become a competitor, legal and regulatory environment (IP and contract law) must be sound
      Partnering and Strategic Alliance Shared costs reduce investment needed, reduced risk, seen as local entity Higher cost than exporting, licensing, or franchising integration problems between two corporate cultures
      Acquisition Fast entry known, established operations High cost, integration issues with home office
      Greenfield Venture (Launch of a new, wholly owned subsidiary) Gain local market knowledge can be seen as insider who employs locals maximum control High cost, high risk due to unknowns, slow entry due to setup time

      Exporting is the marketing and direct sale of domestically produced goods in another country. Exporting is a traditional and well-established method of reaching foreign markets. Since it does not require that the goods be produced in the target country, no investment in foreign production facilities is required. Most of the costs associated with exporting take the form of marketing expenses.

      While relatively low risk, exporting entails substantial costs and limited control. Exporters typically have little control over the marketing and distribution of their products, face high transportation charges and possible tariffs, and must pay distributors for a variety of services. What is more, exporting does not give a company firsthand experience in staking out a competitive position abroad, and it makes it difficult to customize products and services to local tastes and preferences.

      Exporting is a typically the easiest way to enter an international market, and therefore most firms begin their international expansion using this model of entry. Exporting is the sale of products and services in foreign countries that are sourced from the home country. The advantage of this mode of entry is that firms avoid the expense of establishing operations in the new country. Firms must, however, have a way to distribute and market their products in the new country, which they typically do through contractual agreements with a local company or distributor. When exporting, the firm must give thought to labeling, packaging, and pricing the offering appropriately for the market. In terms of marketing and promotion, the firm will need to let potential buyers know of its offerings, be it through advertising, trade shows, or a local sales force.

      Amusing Anecdotes

      One common factor in exporting is the need to translate something about a product or service into the language of the target country. This requirement may be driven by local regulations or by the company’s wish to market the product or service in a locally friendly fashion. While this may seem to be a simple task, it’s often a source of embarrassment for the company and humor for competitors. David Ricks’s book on international business blunders relates the following anecdote for US companies doing business in the neighboring French-speaking Canadian province of Quebec. A company boasted of lait frais usage, which translates to “used fresh milk,” when it meant to brag of lait frais employé, or “fresh milk used.” The “terrific” pens sold by another company were instead promoted as terrifiantes, or terrifying. In another example, a company intending to say that its appliance could use “any kind of electrical current,” actually stated that the appliance “wore out any kind of liquid.” And imagine how one company felt when its product to “reduce heartburn” was advertised as one that reduced “the warmth of heart”! 2

      Among the disadvantages of exporting are the costs of transporting goods to the country, which can be high and can have a negative impact on the environment. In addition, some countries impose tariffs on incoming goods, which will impact the firm’s profits. In addition, firms that market and distribute products through a contractual agreement have less control over those operations and, naturally, must pay their distribution partner a fee for those services.

      Ethics in Action

      Companies are starting to consider the environmental impact of where they locate their manufacturing facilities. For example, Olam International, a cashew producer, originally shipped nuts grown in Africa to Asia for processing. Now, however, Olam has opened processing plants in Tanzania, Mozambique, and Nigeria. These locations are close to where the nuts are grown. The result? Olam has lowered its processing and shipping costs by 25 percent while greatly reducing carbon emissions. 3

      Likewise, when Walmart enters a new market, it seeks to source produce for its food sections from local farms that are near its warehouses. Walmart has learned that the savings it gets from lower transportation costs and the benefit of being able to restock in smaller quantities more than offset the lower prices it was getting from industrial farms located farther away. This practice is also a win-win for locals, who have the opportunity to sell to Walmart, which can increase their profits and let them grow and hire more people and pay better wages. This, in turn, helps all the businesses in the local community. 4

      Firms export mostly to countries that are close to their facilities because of the lower transportation costs and the often greater similarity between geographic neighbors. For example, Mexico accounts for 40 percent of the goods exported from Texas. 5 The Internet has also made exporting easier. Even small firms can access critical information about foreign markets, examine a target market, research the competition, and create lists of potential customers. Even applying for export and import licenses is becoming easier as more governments use the Internet to facilitate these processes.

      Because the cost of exporting is lower than that of the other entry modes, entrepreneurs and small businesses are most likely to use exporting as a way to get their products into markets around the globe. Even with exporting, firms still face the challenges of currency exchange rates. While larger firms have specialists that manage the exchange rates, small businesses rarely have this expertise. One factor that has helped reduce the number of currencies that firms must deal with was the formation of the European Union (EU) and the move to a single currency, the euro, for the first time. As of 2011, seventeen of the twenty-seven EU members use the euro, giving businesses access to 331 million people with that single currency. 6

      Licensing and Franchising

      A company that wants to get into an international market quickly while taking only limited financial and legal risks might consider licensing agreements with foreign companies. An international licensing agreement allows a foreign company (the licensee) to sell the products of a producer (the licensor) or to use its intellectual property (such as patents, trademarks, copyrights) in exchange for royalty fees. Here’s how it works: You own a company in the United States that sells coffee-flavored popcorn. You’re sure that your product would be a big hit in Japan, but you don’t have the resources to set up a factory or sales office in that country. You can’t make the popcorn here and ship it to Japan because it would get stale. So you enter into a licensing agreement with a Japanese company that allows your licensee to manufacture coffee-flavored popcorn using your special process and to sell it in Japan under your brand name. In exchange, the Japanese licensee would pay you a royalty fee.

      Licensing essentially permits a company in the target country to use the property of the licensor. Such property is usually intangible, such as trademarks, patents, and production techniques. The licensee pays a fee in exchange for the rights to use the intangible property and possibly for technical assistance as well.

      Because little investment on the part of the licensor is required, licensing has the potential to provide a very large return on investment. However, because the licensee produces and markets the product, potential returns from manufacturing and marketing activities may be lost. Thus, licensing reduces cost and involves limited risk. However, it does not mitigate the substantial disadvantages associated with operating from a distance. As a rule, licensing strategies inhibit control and produce only moderate returns.

      Another popular way to expand overseas is to sell franchises. Under an international franchise agreement, a company (the franchiser) grants a foreign company (the franchisee) the right to use its brand name and to sell its products or services. The franchisee is responsible for all operations but agrees to operate according to a business model established by the franchiser. In turn, the franchiser usually provides advertising, training, and new-product assistance. Franchising is a natural form of global expansion for companies that operate domestically according to a franchise model, including restaurant chains, such as McDonald’s and Kentucky Fried Chicken, and hotel chains, such as Holiday Inn and Best Western.

      Contract Manufacturing and Outsourcing

      Because of high domestic labor costs, many U.S. companies manufacture their products in countries where labor costs are lower. This arrangement is called international contract manufacturing or outsourcing. A U.S. company might contract with a local company in a foreign country to manufacture one of its products. It will, however, retain control of product design and development and put its own label on the finished product. Contract manufacturing is quite common in the U.S. apparel business, with most American brands being made in a number of Asian countries, including China, Vietnam, Indonesia, and India.[4]

      Thanks to twenty-first-century information technology, nonmanufacturing functions can also be outsourced to nations with lower labor costs. U.S. companies increasingly draw on a vast supply of relatively inexpensive skilled labor to perform various business services, such as software development, accounting, and claims processing. For years, American insurance companies have processed much of their claims-related paperwork in Ireland. With a large, well-educated population with English language skills, India has become a center for software development and customer-call centers for American companies. In the case of India, as you can see in Table 7.1 “Selected Hourly Wages, United States and India” , the attraction is not only a large pool of knowledge workers but also significantly lower wages.

      Table 7.1 Selected Hourly Wages, United States and India

      Occupation U.S. Wage per Hour (per year) Indian Wage per Hour (per year)
      Middle-level manager $29.40 per hour ($60,000 per year) $6.30 per hour ($13,000 per year)
      Information technology specialist $35.10 per hour ($72,000 per year) $7.50 per hour ($15,000 per year)
      Manual worker $13.00 per hour ($27,000 per year) $2.20 per hour ($5,000 per year)

      Source: Data obtained from “Huge Wage Gaps for the Same Work Between Countries – June 2011,”, (Links to an external site.)Links to an external site.(accessed September 20, 2011).

      Partnerships and Strategic Alliances

      Another way to enter a new market is through a strategic alliance with a local partner. A strategic alliance involves a contractual agreement between two or more enterprises stipulating that the involved parties will cooperate in a certain way for a certain time to achieve a common purpose. To determine if the alliance approach is suitable for the firm, the firm must decide what value the partner could bring to the venture in terms of both tangible and intangible aspects. The advantages of partnering with a local firm are that the local firm likely understands the local culture, market, and ways of doing business better than an outside firm. Partners are especially valuable if they have a recognized, reputable brand name in the country or have existing relationships with customers that the firm might want to access. For example, Cisco formed a strategic alliance with Fujitsu to develop routers for Japan. In the alliance, Cisco decided to co-brand with the Fujitsu name so that it could leverage Fujitsu’s reputation in Japan for IT equipment and solutions while still retaining the Cisco name to benefit from Cisco’s global reputation for switches and routers. 7 Similarly, Xerox launched signed strategic alliances to grow sales in emerging markets such as Central and Eastern Europe, India, and Brazil. 8

      Strategic alliances and joint ventures have become increasingly popular in recent years. They allow companies to share the risks and resources required to enter international markets. And although returns also may have to be shared, they give a company a degree of flexibility not afforded by going it alone through direct investment.

      There are several motivations for companies to consider a partnership as they expand globally, including (a) facilitating market entry, (b) risk and reward sharing, (c) technology sharing, (d) joint product development, and (e) conforming to government regulations. Other benefits include political connections and distribution channel access that may depend on relationships.

      Such alliances often are favorable when (a) the partners’ strategic goals converge while their competitive goals diverge (b) the partners’ size, market power, and resources are small compared to the industry leaders and (c) partners are able to learn from one another while limiting access to their own proprietary skills.

      What if a company wants to do business in a foreign country but lacks the expertise or resources? Or what if the target nation’s government doesn’t allow foreign companies to operate within its borders unless it has a local partner? In these cases, a firm might enter into a strategic alliance with a local company or even with the government itself. A strategic alliance is an agreement between two companies (or a company and a nation) to pool resources in order to achieve business goals that benefit both partners. For example, Viacom (a leading global media company) has a strategic alliance with Beijing Television to produce Chinese-language music and entertainment programming.[5]

      An alliance can serve a number of purposes:

      • Enhancing marketing efforts
      • Building sales and market share
      • Improving products
      • Reducing production and distribution costs
      • Sharing technology

      Alliances range in scope from informal cooperative agreements to joint ventures—alliances in which the partners fund a separate entity (perhaps a partnership or a corporation) to manage their joint operation. Magazine publisher Hearst, for example, has joint ventures with companies in several countries. So, young women in Israel can read Cosmo Israel in Hebrew, and Russian women can pick up a Russian-language version of Cosmo that meets their needs. The U.S. edition serves as a starting point to which nationally appropriate material is added in each different nation. This approach allows Hearst to sell the magazine in more than fifty countries.[6]

      Strategic alliances are also advantageous for small entrepreneurial firms that may be too small to make the needed investments to enter the new market themselves. In addition, some countries require foreign-owned companies to partner with a local firm if they want to enter the market. For example, in Saudi Arabia, non-Saudi companies looking to do business in the country are required by law to have a Saudi partner. This requirement is common in many Middle Eastern countries. Even without this type of regulation, a local partner often helps foreign firms bridge the differences that otherwise make doing business locally impossible. Walmart, for example, failed several times over nearly a decade to effectively grow its business in Mexico, until it found a strong domestic partner with similar business values.

      The disadvantages of partnering, on the other hand, are lack of direct control and the possibility that the partner’s goals differ from the firm’s goals. David Ricks, who has written a book on blunders in international business, describes the case of a US company eager to enter the Indian market: “It quickly negotiated terms and completed arrangements with its local partners. Certain required documents, however, such as the industrial license, foreign collaboration agreements, capital issues permit, import licenses for machinery and equipment, etc., were slow in being issued. Trying to expedite governmental approval of these items, the US firm agreed to accept a lower royalty fee than originally stipulated. Despite all of this extra effort, the project was not greatly expedited, and the lower royalty fee reduced the firm’s profit by approximately half a million dollars over the life of the agreement.” 9 Failing to consider the values or reliability of a potential partner can be costly, if not disastrous.

      To avoid these missteps, Cisco created one globally integrated team to oversee its alliances in emerging markets. Having a dedicated team allows Cisco to invest in training the managers how to manage the complex relationships involved in alliances. The team follows a consistent model, using and sharing best practices for the benefit of all its alliances. 10

      Did You Know?

      Partnerships in emerging markets can be used for social good as well. For example, pharmaceutical company Novartis crafted multiple partnerships with suppliers and manufacturers to develop, test, and produce antimalaria medicine on a nonprofit basis. The partners included several Chinese suppliers and manufacturing partners as well as a farm in Kenya that grows the medication’s key raw ingredient. To date, the partnership, called the Novartis Malaria Initiative, has saved an estimated 750,000 lives through the delivery of 300 million doses of the medication. 11

      The key issues to consider in a joint venture are ownership, control, length of agreement, pricing, technology transfer, local firm capabilities and resources, and government intentions. Potential problems include (a) conflict over asymmetric new investments, (b) mistrust over proprietary knowledge, (c) performance ambiguity, that is, how to “split the pie,” (d) lack of parent firm support, (e) cultural clashes, and (f) if, how, and when to terminate the relationship.

      Ultimately, most companies will aim at building their own presence through company-owned facilities in important international markets. Acquisitions or greenfield start-ups represent this ultimate commitment. Acquisition is faster, but starting a new, wholly owned subsidiary might be the preferred option if no suitable acquisition candidates can be found.


      An acquisition is a transaction in which a firm gains control of another firm by purchasing its stock, exchanging the stock for its own, or, in the case of a private firm, paying the owners a purchase price. In our increasingly flat world, cross-border acquisitions have risen dramatically. In recent years, cross-border acquisitions have made up over 60 percent of all acquisitions completed worldwide. Acquisitions are appealing because they give the company quick, established access to a new market. However, they are expensive, which in the past had put them out of reach as a strategy for companies in the undeveloped world to pursue. What has changed over the years is the strength of different currencies. The higher interest rates in developing nations has strengthened their currencies relative to the dollar or euro. If the acquiring firm is in a country with a strong currency, the acquisition is comparatively cheaper to make. As Wharton professor Lawrence G. Hrebiniak explains, “Mergers fail because people pay too much of a premium. If your currency is strong, you can get a bargain.” 12

      When deciding whether to pursue an acquisition strategy, firms examine the laws in the target country. China has many restrictions on foreign ownership, for example, but even a developed-world country like the United States has laws addressing acquisitions. For example, you must be an American citizen to own a TV station in the United States. Likewise, a foreign firm is not allowed to own more than 25 percent of a US airline. 13

      Acquisition is a good entry strategy to choose when scale is needed, which is particularly the case in certain industries (e.g., wireless telecommunications). Acquisition is also a good strategy when an industry is consolidating. Nonetheless, acquisitions are risky. Many studies have shown that between 40 percent and 60 percent of all acquisitions fail to increase the market value of the acquired company by more than the amount invested. 14

      Foreign Direct Investment and Subsidiaries

      Many of the approaches to global expansion that we’ve discussed so far allow companies to participate in international markets without investing in foreign plants and facilities. As markets expand, however, a firm might decide to enhance its competitive advantage by making a direct investment in operations conducted in another country.

      Also known as foreign direct investment (FDI), acquisitions and greenfield start-ups involve the direct ownership of facilities in the target country and, therefore, the transfer of resources including capital, technology, and personnel. Direct ownership provides a high degree of control in the operations and the ability to better know the consumers and competitive environment. However, it requires a high level of resources and a high degree of commitment.

      Foreign direct investment refers to the formal establishment of business operations on foreign soil—the building of factories, sales offices, and distribution networks to serve local markets in a nation other than the company’s home country. On the other hand offshoring occurs when the facilities set up in the foreign country replace U.S. manufacturing facilities and are used to produce goods that will be sent back to the United States for sale. Shifting production to low-wage countries is often criticized as it results in the loss of jobs for U.S. workers.[7]

      FDI is generally the most expensive commitment that a firm can make to an overseas market, and it’s typically driven by the size and attractiveness of the target market. For example, German and Japanese automakers, such as BMW, Mercedes, Toyota, and Honda, have made serious commitments to the U.S. market: most of the cars and trucks that they build in plants in the South and Midwest are destined for sale in the United States.

      A common form of FDI is the foreign subsidiary: an independent company owned by a foreign firm (called the parent). This approach to going international not only gives the parent company full access to local markets but also exempts it from any laws or regulations that may hamper the activities of foreign firms. The parent company has tight control over the operations of a subsidiary, but while senior managers from the parent company often oversee operations, many managers and employees are citizens of the host country. Not surprisingly, most very large firms have foreign subsidiaries. IBM and Coca-Cola, for example, have both had success in the Japanese market through their foreign subsidiaries (IBM-Japan and Coca-Cola–Japan). FDI goes in the other direction, too, and many companies operating in the United States are in fact subsidiaries of foreign firms. Gerber Products, for example, is a subsidiary of the Swiss company Novartis, while Stop & Shop and Giant Food Stores belong to the Dutch company Royal Ahold.

      Where does most FDI capital end up? Figure 7.3 “Where FDI Goes” provides an overview of amounts, destinations (developed or developing countries), and trends.

      All these strategies have been successful in the arena of global business. But success in international business involves more than merely finding the best way to reach international markets. Doing global business is a complex, risky endeavor. As many companies have learned the hard way, people and organizations don’t do things the same way abroad as they do at home. What differences make global business so tricky? That’s the question that we’ll turn to next.

      Wholly Owned Subsidiaries

      Firms may want to have a direct operating presence in the foreign country, completely under their control. To achieve this, the company can establish a new, wholly owned subsidiary (i.e., a greenfield venture) from scratch, or it can purchase an existing company in that country. Some companies purchase their resellers or early partners (as Vitrac Egypt did when it bought out the shares that its partner, Vitrac, owned in the equity joint venture). Other companies may purchase a local supplier for direct control of the supply. This is known as vertical integration.

      Establishing or purchasing a wholly owned subsidiary requires the highest commitment on the part of the international firm, because the firm must assume all of the risk—financial, currency, economic, and political.

      The process of establishing of a new, wholly owned subsidiary is often complex and potentially costly, but it affords the firm maximum control and has the most potential to provide above-average returns. The costs and risks are high given the costs of establishing a new business operation in a new country. The firm may have to acquire the knowledge and expertise of the existing market by hiring either host-country nationals—possibly from competitive firms—or costly consultants. An advantage is that the firm retains control of all its operations.

      Did You Know: McDonald’s International

      McDonald’s has a plant in Italy that supplies all the buns for McDonald’s restaurants in Italy, Greece, and Malta. International sales has accounted for as much as 60 percent of McDonald’s annual revenue. 15

      Cautions When Purchasing an Existing Foreign Enterprise

      As we’ve seen, some companies opt to purchase an existing company in the foreign country outright as a way to get into a foreign market quickly. When making an acquisition, due diligence is important—not only on the financial side but also on the side of the country’s culture and business practices. The annual disposable income in Russia, for example, exceeds that of all the other BRIC countries (i.e., Brazil, India, and China). For many major companies, Russia is too big and too rich to ignore as a market. However, Russia also has a reputation for corruption and red tape that even its highest-ranking officials admit. In a BusinessWeek article, presidential economic advisor Arkady Dvorkovich (whose office in the Kremlin was once occupied by Soviet leader Leonid Brezhnev), for example, advises, “Investors should choose wisely” which regions of Russia they locate their business in, warning that some areas are more corrupt than others. Corruption makes the world less flat precisely because it undermines the viability of legal vehicles, such as licensing, which otherwise lead to a flatter world.

      The culture of corruption is even embedded into some Russian company structures. In the 1990s, laws inadvertently encouraged Russian firms to establish legal headquarters in offshore tax havens, like Cyprus. A tax haven is a country that has very advantageous (low) corporate income taxes.

      Businesses registered in these offshore tax havens to avoid certain Russian taxes. Even though companies could obtain a refund on these taxes from the Russian government, “the procedure is so complicated you never actually get a refund,” said Andrey Pozdnyakov, cofounder of Siberian-based Elecard, in the same BusinessWeek article.

      This offshore registration, unfortunately, is a danger sign to potential investors like Intel. “We can’t invest in companies that have even a slight shadow,” said Intel’s Moscow-based regional director Dmitry Konash about the complex structure predicament. 16

      Did You Know: Business Collaborations in China

      Some foreign companies believe that owning their own operations in China is an easier option than having to deal with a Chinese partner. For example, many foreign companies still fear that their Chinese partners will learn too much from them and become competitors. However, in most cases, the Chinese partner knows the local culture—both that of the customers and workers—and is better equipped to deal with Chinese bureaucracy and regulations. In addition, even wholly owned subsidiaries can’t be totally independent of Chinese firms, on whom they might have to rely for raw materials and shipping as well as maintenance of government contracts and distribution channels.

      Collaborations offer different kinds of opportunities and challenges than self-handling Chinese operations. For most companies, the local nuances of the Chinese market make some form of collaboration desirable. The companies that opt to self-handle their Chinese operations tend to be very large and/or have a proprietary technology base, such as high-tech or aerospace companies—for example, Boeing or Microsoft. Even then, these companies tend to hire senior Chinese managers and consultants to facilitate their market entry and then help manage their expansion. Nevertheless, navigating the local Chinese bureaucracy is tough, even for the most-experienced companies.

      Let’s take a deeper look at one company’s entry path and its wholly owned subsidiary in China. Embraer is the largest aircraft maker in Brazil and one of the largest in the world. Embraer chose to enter China as its first foreign market, using the joint-venture entry mode. In 2003, Embraer and the Aviation Industry Corporation of China jointly started the Harbin Embraer Aircraft Industry. A year later, Harbin Embraer began manufacturing aircraft.

      In 2010, Embraer announced the opening of its first subsidiary in China. The subsidiary, called Embraer China Aircraft Technical Services Co. Ltd., will provide logistics and spare-parts sales, as well as consulting services regarding technical issues and flight operations, for Embraer aircraft in China (both for existing aircraft and those on order). Embraer will invest $18 million into the subsidiary with a goal of strengthening its local customer support, given the steady growth of its business in China.

      Guan Dongyuan, president of Embraer China and CEO of the subsidiary, said the establishment of Embraer China Aircraft Technical Services demonstrates the company’s “long-term commitment and confidence in the growing Chinese aviation market.” 17

      Building Long-Term Relationships

      Developing a good relationship with regulators in target countries helps with the long-term entry strategy. Building these relationships may include keeping people in the countries long enough to form good ties, since a deal negotiated with one person may fall apart if that person returns too quickly to headquarters.

      Did You Know: Guanxi

      One of the most important cultural factors in China is guanxi (pronounced guan shi), which is loosely defined as a connection based on reciprocity. Even when just meeting a new company or potential partner, it’s best to have an introduction from a common business partner, vendor, or supplier—someone the Chinese will respect. China is a relationship-based society. Relationships extend well beyond the personal side and can drive business as well. With guanxi, a person invests with relationships much like one would invest with capital. In a sense, it’s akin to the Western phrase “You owe me one.”

      Guanxi can potentially be beneficial or harmful. At its best, it can help foster strong, harmonious relationships with corporate and government contacts. At its worst, it can encourage bribery and corruption. Whatever the case, companies without guanxi won’t accomplish much in the Chinese market. Many companies address this need by entering into the Chinese market in a collaborative arrangement with a local Chinese company. This entry option has also been a useful way to circumvent regulations governing bribery and corruption, but it can raise ethical questions, particularly for American and Western companies that have a different cultural perspective on gift giving and bribery.

      Mini Case: Coca-Cola and Illy Caffé 18

      In March 2008, the Coca-Cola company and Illy Caffé Spa finalized a joint venture and launched a premium ready-to-drink espresso-based coffee beverage. The joint venture, Ilko Coffee International, was created to bring three ready-to-drink coffee products—Caffè, an Italian chilled espresso-based coffee Cappuccino, an intense espresso, blended with milk and dark cacao and Latte Macchiato, a smooth espresso, swirled with milk—to consumers in 10 European countries. The products will be available in stylish, premium cans (150 ml for Caffè and 200 ml for the milk variants). All three offerings will be available in 10 European Coca-Cola Hellenic markets including Austria, Croatia, Greece, and Ukraine. Additional countries in Europe, Asia, North America, Eurasia, and the Pacific were slated for expansion into 2009.

      The Coca-Cola Company is the world’s largest beverage company. Along with Coca-Cola, recognized as the world’s most valuable brand, the company markets four of the world’s top five nonalcoholic sparkling brands, including Diet Coke, Fanta, Sprite, and a wide range of other beverages, including diet and light beverages, waters, juices and juice drinks, teas, coffees, and energy and sports drinks. Through the world’s largest beverage distribution system, consumers in more than 200 countries enjoy the company’s beverages at a rate of 1.5 billion servings each day.

      Based in Trieste, Italy, Illy Caffé produces and markets a unique blend of espresso coffee under a single brand leader in quality. Over 6 million cups of Illy espresso coffee are enjoyed every day. Illy is sold in over 140 countries around the world and is available in more than 50,000 of the best restaurants and coffee bars. Illy buys green coffee directly from the growers of the highest quality Arabica through partnerships based on the mutual creation of value. The Trieste-based company fosters long-term collaborations with the world’s best coffee growers—in Brazil, Central America, India, and Africa—providing know-how and technology and offering above-market prices.

      In summary, when deciding which mode of entry to choose, companies should ask themselves two key questions:

      1. How much of our resources are we willing to commit? The fewer the resources (i.e., money, time, and expertise) the company wants (or can afford) to devote, the better it is for the company to enter the foreign market on a contractual basis—through licensing, franchising, management contracts, or turnkey projects.
      2. How much control do we wish to retain? The more control a company wants, the better off it is establishing or buying a wholly owned subsidiary or, at least, entering via a joint venture with carefully delineated responsibilities and accountabilities between the partner companies.

      Regardless of which entry strategy a company chooses, several factors are always important.

      • Cultural and linguistic differences. These affect all relationships and interactions inside the company, with customers, and with the government. Understanding the local business culture is critical to success.
      • Quality and training of local contacts and/or employees. Evaluating skill sets and then determining if the local staff is qualified is a key factor for success.
      • Political and economic issues. Policy can change frequently, and companies need to determine what level of investment they’re willing to make, what’s required to make this investment, and how much of their earnings they can repatriate.
      • Experience of the partner company. Assessing the experience of the partner company in the market—with the product and in dealing with foreign companies—is essential in selecting the right local partner.

      Companies seeking to enter a foreign market need to do the following:

      • Research the foreign market thoroughly and learn about the country and its culture.
      • Understand the unique business and regulatory relationships that impact their industry.
      • Use the Internet to identify and communicate with appropriate foreign trade corporations in the country or with their own government’s embassy in that country. Each embassy has its own trade and commercial desk. For example, the US Embassy has a foreign commercial desk with officers who assist US companies on how best to enter the local market. These resources are best for smaller companies. Larger companies, with more money and resources, usually hire top consultants to do this for them. They’re also able to have a dedicated team assigned to the foreign country that can travel the country frequently for the later-stage entry strategies that involve investment.

      Once a company has decided to enter the foreign market, it needs to spend some time learning about the local business culture and how to operate within it.

      Entrepreneurship and Strategy

      The Chinese have a “Why not me?” attitude. As Edward Tse, author of The China Strategy: Harnessing the Power of the World’s Fastest-Growing Economy, explains, this means that “in all corners of China, there will be people asking, ‘If Li Ka-shing [the chairman of Cheung Kong Holdings] can be so wealthy, if Bill Gates or Warren Buffett can be so successful, why not me?’ This cuts across China’s demographic profiles: from people in big cities to people in smaller cities or rural areas, from older to younger people. There is a huge dynamism among them.” 19 Tse sees entrepreneurial China as “entrepreneurial people at the grassroots level who are very independent-minded. They’re very quick on their feet. They’re prone to fearless experimentation: imitating other companies here and there, trying new ideas, and then, if they fail, rapidly adapting and moving on.” As a result, he sees China becoming not only a very large consumer market but also a strong innovator. Therefore, he advises US firms to enter China sooner rather than later so that they can take advantage of the opportunities there. Tse says, “Companies are coming to realize that they need to integrate more and more of their value chains into China and India. They need to be close to these markets, because of their size. They need the ability to understand the needs of their customers in emerging markets, and turn them into product and service offerings quickly.” 20

      • [1]Fine Waters Media, “Bottled Water of France,” (Links to an external site.)Links to an external site. (accessed May 25, 2006).
      • [2]H. Frederick Gale, “China’s Growing Affluence: How Food Markets Are Responding” (U.S. Department of Agriculture, June 2003), (Links to an external site.)Links to an external site. (accessed May 25, 2006).
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      • [4]Gary Gereffi and Stacey Frederick, “The Global Apparel Value Chain, Trade and the Crisis: Challenges and Opportunities for Developing Countries,” The World Bank, Development Research Group, Trade and Integration Team, April 2010, (Links to an external site.)Links to an external site. (accessed August 21, 2011).
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      • [10]“Glocalization Examples—Think Globally and Act Locally,”, (Links to an external site.)Links to an external site. (accessed August 21, 2011).
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      1. Shaker A. Zahra, R. Duane Ireland, and Michael A. Hitt, “International Expansion by New Venture Firms: International Diversity, Mode of Market Entry, Technological Learning, and Performance,” Academy of Management Journal 43, no. 5 (October 2000): 925–50.

      2. David A. Ricks, Blunders in International Business (Hoboken, NJ: Wiley-Blackwell, 1999), 101.

      3. Michael E. Porter and Mark R. Kramer, “The Big Idea: Creating Shared Value,” Harvard Business Review , January–February 2011, accessed January 23, 2011,

      4. Michael E. Porter and Mark R. Kramer, “The Big Idea: Creating Shared Value,” Harvard Business Review , January–February 2011, accessed January 23, 2011,

      5. Andrew J. Cassey, “Analyzing the Export Flow from Texas to Mexico,” StaffPAPERS: Federal Reserve Bank of Dallas , No. 11, October 2010, accessed February 14, 2011,

      6. “The Euro,” European Commission, accessed February 11, 2011,

      7. Steve Steinhilber, Strategic Alliances (Cambridge, MA: Harvard Business School Press, 2008), 113.

      8. “ASAP Releases Winners of 2010 Alliance Excellence Awards,” Association for Strategic Alliance Professionals, September 2, 2010, accessed February 12, 2011,

      9. David A. Ricks, Blunders in International Business (Hoboken, NJ: Wiley-Blackwell, 1999), 101.

      10. Steve Steinhilber, Strategic Alliances (Cambridge, MA: Harvard Business School Press, 2008), 125.

      11. “ASAP Releases Winners of 2010 Alliance Excellence Awards,” Association for Strategic Alliance Professionals, September 2, 2010, accessed September 20, 2010,

      12. “Playing on a Global Stage: Asian Firms See a New Strategy in Acquisitions Abroad and at Home,” [email protected], April 28, 2010, accessed January 15, 2011,

      13. “Playing on a Global Stage: Asian Firms See a New Strategy in Acquisitions Abroad and at Home,” [email protected], April 28, 2010, accessed January 15, 2011,

      14. “Playing on a Global Stage: Asian Firms See a New Strategy in Acquisitions Abroad and at Home,” [email protected] , April 28, 2010, accessed January 15, 2011,

      15. Annual revenue in 2008 was $23.5 billion, of which 60 percent was international. Source: Suzanne Kapner, “Making Dough,” Fortune, August 17, 2009, 14.

      16. Source: Carol Matlack, “The Peril and Promise of Investing in Russia,” BusinessWeek, October 5, 2009, 48–51.

      17. Source: United Press International, “Brazil’s Embraer Expands Aircraft Business into China,” July 7, 2010, accessed August 27, 2010,

      19. Art Kleiner, “Getting China Right,” Strategy and Business , March 22, 2010, accessed January 23, 2011,

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      Understanding Percentages

      Just starting to learn the basketball game (pro, and using 1971-72 teams) and have a few questions. I’m using the percentages and don’t entirely understand what they represent. Here’s a display example for a player:

      Location Out **
      Rate 2/5
      Shot 65
      FG% .071
      To 23
      F 12

      I understand Location and Rate. However:

      (1) I’m not sure what Shot and FG% represent. I would guess it’s a 65% chance he will shoot the ball if I select him (as opposed to some other result occurring – typically Shot + To + F = 100, but not always) and only a .071 (7.1% chance) of making a shot if he takes one. Am I close? If so, he does not seem like a good player to select.

      (2) I understand what To and F are and I assume the 23 and 12 are percentages (i.e., To 23 means there is a 23% chance if I select that player he will turn the ball over and F 12 means there is a 12% chance he will be fouled). Correct?

      I will have more questions, but I thought I would start with these. Thanks.

      Apr 21, 2017 #2 2017-04-21T14:54

      Apr 21, 2017 #3 2017-04-21T20:04

      Apr 22, 2017 #4 2017-04-22T00:20

      I play the 2012 version, and mine has

      Location Open Rate Good TO Foul
      outside ** 3/5 55% 22% 6%

      Perhaps the newer versions added something. I will say there is a great pdf instruction manual included that helped me with my game play. Goodluck

      Apr 22, 2017 #5 2017-04-22T02:40

      Thanks. I have read both manuals. I would like a better explanation. For example, I'd like confirmation that "Shot 65" means a 65% chance of the selected player shooting AFTER he gets the ball (as opposed to before he is selected). That seems to be the case, but the manuals are not entirely clear on what the percentages are in relation to. I was hoping I could get into a back and forth with someone knowledgeable about this, especially since I have a few subsidiary questions (like why Shot + To + F = 100 most of the time, but not always, and the statistical difference, if any, between selecting the player with the ball via the list of the five players and merely shooting or driving with that player).

      I am comfortable with games that involve cards where you can see (and even calculate, if you want) the odds of a given result. With this game, the percentages seem to be the rough equivalent, so I would like to understand what they mean.

      Apr 23, 2017 #6 2017-04-23T15:29

      I don't have anything to add to this discussion, other than to make the standard suggestion of e-mailing Action HQ with your question(s). Dave & Co. are very responsive to inquiries and issues with the game. They do keep busy, and sometimes you might have to send a follow-up e-mail or two, but stick with it and you'll most likely get a useful answer in a short period of time.

      Of course if you do go this route and get your answer, post it on this thread for the benefit of the community.

      Apr 24, 2017 #7 2017-04-24T19:00

      In addition, the manuals indicate that the field goal percentage ranges are the same for an outside and inside shot for a particular rating. The only difference indicated in the manual is a somewhat lower FG% for the inside shot because the assumption is that an inside shooter is more closely guarded. As an example, the manual suggests a 6/6 shooter (defended by an average or 5/5 defender) has a 44% chance of making his shot. This appears to be true for the outside shot (though the 44% figure does, as the manual notes, go up or down somewhat depending on other variables like team passing and team defense) but it clearly is not the case for the inside shot. As far as I can determine, the FG% for a particular inside rating could be as much as 8% higher than the FG% for an outside rating. I certainly don't see a lower percentage (as the manual implies).

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