Embed Size (px)
Citation preview
ARBITRAGE STRATEGY 10 Factors to Consider When Entering a New Market
ARBITRAGEThe simultaneous buying and selling of securities, currency,
or commodities in different markets or in derivative forms in order to take advantage of differing prices for the same
asset
10 FACTORS TO CONSIDER WHEN ENTERING A NEW MARKET
POLITICAL STABILITY
► Look for:» Strong institutions» Climate that enables
investment» Low corruption» Little violence or terrorism
► Political stability without good governance does not foster growth
1
► www.theglobaleconomy.com | Free resource · Research statistics by country · Print charts ► www.govindicators.org | Free resource · The World Bank Group’s world governance indicators rank 200+ countries in the following categories :
» Voice and Accountability» Political Stability and Absence of Violence» Government Effectiveness» Regulatory Quality» Rule of Law» Control of Corruption
► www.prsgroup.com | Free sample only · Global PRS Risk Index by Political Risk Services Group
POLITICAL STABILITY RESOURCES
CURRENCY &INFLATION
► Decipher the economic prosperity of the country by researching:
» GDP» Currency stability» Historical inflation rates » Trade patterns
► Determine the level of risk
2
TAXES, REGULATIONS,
TARIFFS► Take time to do ample research in this area and read the fine print
► Find out which rules and regulations will apply to your business and product and sort out the details pre-production
► Enlist the help of a local to explain anything that is unclear
► Look at:»Government policies » Trade agreements» Transaction tax structure » Duty-free advantages
3
RAW MATERIAL ADVANTAGES
► Focus on right-shoring ► Manufacturing close to raw material locations = lower material costs because goods are abundant and transportation costs are low ► Example: East West produces rubber goods in Vietnam and steel goods in India because these natural resources are native to each area
4
► Labor costs are typically the driving factor for entering new markets, but just because labor is cheap does not mean there is availability or expertise to back it up. Unions can also pose problems like unpredictable wage increases and labor strikes.
► Factors to consider:
LABOR5
» Wages» Availability» Local population size » Unions» Regulations
LABOR COST EXAMPLE
China USA India Vietnam
Raw Material Cost
$6.00 $6.00 $6.00 $6.00
Labor Cost $2.00 $10.00
$1.00 $0.50
Freight & Duty $1.00 $0 $0.75 $1.00Profit $1.00 $0 $1.00 $1.00Total Cost $10.00 $16.0
0$8.75 $8.50
Below is a hypothetical example of costs for an East West product in the countries where we manufacture, as well as the US. As you can see, labor costs are the driving factor in moving production to Vietnam.
INFRASTRUCTURE
► Assess what the area has to offer vs. what it lacks when it comes to infrastructure
» Buildings » Roads » Power» Ports / Airports (existence & proximity)» Transportation
► How will infrastructure strengths or weaknesses in the area affect your time-to-market?
► Do you need to invest big bucks in your own facilities or off-grid power supplies in areas that experience frequent blackouts?
6
► Strong and efficient supply chain is critical to success in a foreign country
► Key areas to research include: » Quality of physical infrastructure» Strategy and planning capabilities» Quality and improvement processes » Asset management » Transaction tax infrastructure » Distribution network» Technology and automation adoption » Competitive advantages
SUPPLY CHAIN7
MANAGEMENT► Building a large workforce will nail down the production and assembly portion of your operation, but it will all be for nothing if you don’t have an excellent team of managers on board
► Hire strategically► Look at education statistics for the country you are considering
» What is the graduation rate?» What degrees are students getting? » Are there enough management-
quality professionals available in the area?
► Consider relocating your own management personnel overseas
8
► All labor is not skilled labor – you need to hire educated, highly knowledgeable workers for more sophisticated processes, like those that require engineers or machinists
► Consider the proximity of your facility to a technical university
► Some regions are lacking in engineers while others are saturated
KNOW-HOW9
ENVIRONMENT► It is important to set up shop in a stable and safe location
► Examine the following factors:» Civil unrest» Ongoing protests » Violence» Crime statistics» Terrorist activity» Poverty and unemployment rates
10
THANKS FOR READING!
ADDITIONAL RESOURCES Did you find this SlideShare helpful? If so, check out these additional resources:
5 Tips to Diversify Your Supply Chain 5 Tips to Reduce Supply Chain Risk 8 Must-Have Building Blocks for a Robust Supply Chain 6 Benefits of Manufacturing Offshore: Part 1 6 Benefits of Manufacturing Offshore: Part 2
IMAGE SOURCES Some images and icons from Freepik Currency image from here Engineer graphic from Forbes East West photography by Christian Berg
