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

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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