International Business In Focus Assessing Country Attractiveness
International Business In Focus
Assessing Country Attractiveness
Learning Outcomes
This lecture on the global economy will enable you to:
• Identify reasons for FDI
• Select target markets and sites for exporting and FDI
• Assess global risks
Reasons for FDI
• Market Access
• Lower Production Costs
• Natural Resources
• Competition from Developing Country MNCs
• Other Assets (e.g. technology)
Screening and Evaluating Foreign Markets
ATTRACTIVENESS
=
PROFIT VS RISK
The Process of Assessing Country Attractiveness
INITIAL SCREENING
ASSESS GENERAL MARKET OR SITE POTENTIAL
ASSESS GENERAL BUSINESS ENVIRONMENT
PRODUCT/SERVICE MARKET ASSESSMENT
PRODUCTION SITE ASSESSMENT
UNDERTAKE RISK ANALYSIS
SELECT MARKET OR SITE
Initial Screening
• To eliminate countries which have little chance of being markets/production sites by assessing if there is a:
– Basic demand
– Basic resources
– Business environment is acceptable
Market Potential
• Market indicators
– GDP
– GDP per capita
– Growth in GDP
– Ownership of cars, TVs, telephones, computers, energy usage, internet usage etc.
Site Potential
• Access to raw materials, labour, finance
• Access to energy, communications and transport
• Quality and cost of above
Assess the general business environment
• Political and Legal Environment – Government regulation
• Restrictions • Taxes • Incentives
– Legal Regime • Employment law • Health and safety law • Environmental policy
– Bureaucracy
Government Bureaucracy
Country Rank Score Country Rank Score
Hong Kong 1 89.7 India 124 54.6
United States 9 77.8 China 135 52.0
United Kingdom 16 74.5 Russia 143 50.5
Brazil 113 56.3 Korea, North 179 1.0
Economic Freedom index (2011) – Heritage Foundation
Economic and Financial Environment
• Inflation
• Interest rates
• Exchange rates
• Credit availability
• Financial stability
• Rates of Return
Socio-cultural Environment
• Language • Religion • Culture/Customs • Demographic trends • Health/Education • Urbanisation • Labour force availability and skills • Wage levels/Working hours • Unionisation
Technological Environment
• Science and technology infrastructure
• Patent protection
• Road network/Public transport
• Telephony/Internet capacity
• Air transport
• Ports
• Power supply and reliability
Ecological Environment
• Resource depletion
• Global warming/climate change
• Pollution
• Water supply
• Natural disasters
• Sustainable development
Product /Service Market Assessment
• Size and growth rate of market
• Major competitors
• Prices, marketing, and promotions of competitors
• Distribution networks
• Local standards and regulations
• Tariffs and other trade regulations
• Local cultural factors
Product /Service Market Assessment
Competitive Forces
• The size of the market • Growth rate of the market • No. and size of competitors • Marketing strategies • Production capacity • Cost structure • Entry • Substitutes • Power of buyers and sellers
Production Site Assessment
• Start-up procedures/ ownership regulations
• Availability, cost and quality of resources
• Infrastructure
• Financial system
• Taxation
• Labor regulations/expatriate employees
• Dispute resolution
Production Site Assessment
Country Risk
Changes in political leadership/philosophy
Civil unrest
Corruption/organized crime
Weak leadership/governance
• Reliability of the infrastructure
• Supply chain disruption
• Economic risks
• Wars/terrorism/piracy
Country Risk
Select Market and/or Site
• Use grid:
– Factor judged important to the decision
– Each of them a weight
– Scoring according - importance to company
• Section of grid:
– Market potential
– Ease of doing business
– Potential risk
Country attractiveness grid