Country Attractiveness in international business
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Unit One Country’s attractiveness
description
Country Attractiveness in international business
Transcript of Country Attractiveness in international business
Unit One
Country’s attractiveness
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McGraw-Hill/IrwinInternational Business, 6/e
© 2007 The McGraw-Hill Companies, Inc., All Rights Reserved.
Managerial Implications
• Two broad implications for IB- Political, economic, and legal systems of a country
raise important ethical issues that have implications for the practice of international business
- The political, economic, and legal environment of a country clearly influences the attractiveness of that country as a market and/or investment site
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Attractiveness
Figure 2.1: Country Attractiveness
BenefitsSize of Economy
Likely Economic Growth
CostsCorruption
Lack of InfrastructureLegal Costs
RisksPolitical Risks: Social Unrest/Anti-Business Trends
Economic Risks: Economic MismanagementLegal Risks: Failure to Safeguard Property Rights
OverallAttractiveness
Return
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Framework for individual assignment
Product
Business
Company
Market or industry
Country
Return
HYPOTHETICAL BUSINESS SCENARIO
LEARNING TASK 1: COUNTRY FACTOR ANALYSIS
Country factors Benefits Risks Costs Trade off
Economic
Legal
Political
Cultural
Religious
Educational
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© 2007 The McGraw-Hill Companies, Inc., All Rights Reserved.
General investment frameworks
High riskHigh return
High attractiveness
Low attractiveness
Low riskLow return
Market and competitive
opportunities
RisksHigh Low
Low
High
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Country attractiveness analysis
1. A country attractiveness assessment is based on two dimensions
• Market and industry opportunities• Country risks (many organizations publish country
assessment results based on various economic/political/social factors)
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Country attractiveness analysis
2. Market opportunities
Market opportunities assessment measures the potential demand in the country for a firm’s products or services based on:
• Market size• Growth• Quality of demand.
3. Industry opportunities
Industry opportunities assessment determines profitability potential of a company’s presence in a country given the following factors:
• Quality of industry competitive structure (Porter’s five-force Industry Analysis Framework)
• Resource availability (Porter’s diamond framework)
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© 2007 The McGraw-Hill Companies, Inc., All Rights Reserved.
Framework for country market and industry attractiveness assessment
MARKET- How important is the demand in this country?+ Growth?+ Size?+ Customer quality
RESOURCES- Is the country a critical source of + Skilled personnel?+ Raw materials?+ Components?+ Labor?+ Technology?+ Innovation?- Quality of infrastructure supporting services- Location
COMPETITION
+ Intensity of rivalry+ Entry barriers+ Bargaining power of suppliers & customers- Is the business+ Profitable short-term?+ Profitable long-term?INCENTIVES
+ Tax+ Subsidies+ Infrastructures+ Government contracts+ Does a presence in this country increase competitiveness?
COUNTRY MARKETS AND INDURTRIES OPPORTUNITIES
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Country attractiveness analysis
4. Country risk• Political risks
Political risks are probable disruptions owing to internal or external events or regulations resulting from political action of governments or societal crisis and unrest.
• Economic risksEconomic risks expose business performance to the extent that the economic business drivers can vary and therefore put profitability at stake.
• Competitive risksCompetitive risks are related to non-economic distortion of the competitive context owing to cartels and networks as well as corrupt practices. The competitive battlefield is not even and investors who base their competitive advantage on product quality and economics are at disadvantage.
• Operational risks.Operational risks are those that directly affect the bottom line, either because government regulations and bureaucracies add costly taxation or constraints to foreign investors or because the infrastructure is not reliable.
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© 2007 The McGraw-Hill Companies, Inc., All Rights Reserved.
Framework for country risk analysis POLITICAL
RISKS
OPERATIONALRISKS
COMPETITIVERISKS
ECONOMICRISKS
SHAREHOLDERS EXPOSURE• Assets destruction (war, riots...)Assets spoilation (expropriation)Assets immobility (transfer, freeze)
OPERATIONAL EXPOSURE• Market disruption Labor unrest RacketingSupply shortages
EMPLOYEES EXPOSURE• Kidnapping Gangsterism Harassment
Economic growth Variability Inflation Cost of inputs Exchange rates
BUSINESS LOGICS:
• Corruption Cartels Networks
INFRASTRUCTURE- Power, telecommunication, transport- Supplier
COUNTRYRISK
ANALYSIS
REGULATIONS- Nationalistic preferences- Constraints on local capital, local content, local employment-Taxes
