Country Attractiveness in international business

10
Unit One Country’s attractiveness

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Country Attractiveness in international business

Transcript of Country Attractiveness in international business

Page 1: 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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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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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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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