Ppt Slides Chapter Ten

7/31/2019 Ppt Slides Chapter Ten

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Chapter TenCountry "Due Diligence" - Integrating the Ten Tools

The objective of this chapter is to integrate the nine tools, in orderto provide global managers with a new and powerful tool: Aframework for conducting country "due diligence" (analysis of new

markets), similar to how experts analyze companies that are targetsfor possible acquisition. A second objective is to expand on themain theme of this book, that every global risk can become a globalopportunity. We will argue that the Great Depression that beganin 2007-8 will lead every industry, major and minor, to rewrite the'rules of the game', the way in which business is conducted, andthat this reshuffling of the deck can create huge opportunities forglobal managers and entrepreneurs wise enough to anticipate thenew paradigms and position themselves to benefit from them.

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Macro Accounting:

How large is the countrys Gross Domestic Product (GDP) and GDP per capita,measured in dollars, at prevailing exchange rates and also using purchasing-power-parity exchange rates that reflect the real, underlying value of the currency?

What does its GDP cash flow look like the sources of GDP and its uses, theproportions of GDP bought by households, governments, businesses and foreigners?

Is the countrys GDP growing? How fast? How is the annual increase in GDP thegrowth dividend used: for consumption, for investment, or for exports?

Is the country present- or future-oriented as measured by how the GDP divides upbetween personal and government consumption and investment and net exports?

How large is the countrys net addition to its stock of buildings, machines andequipment, and how does it pay for that investment out of its own saving or throughborrowing the savings of foreigners?

Overall, is the country investing abroad, or are foreigners investing in it? Whereare its citizens and businesses investing abroad, how much, and in what way? Who,how much, and in what form are foreigners invetsting in the country? How havethese patterns been changing?

What key components of demand are driving the countrys GDP growth, or slowingit?

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Due-Diligence Checklist


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How fast is the countrys capacity to produce goods and services (potentialsupply of GDP) growing, relative to demand growth? If demand isoutpacing productive capacity, is there a threat of future inflation?

How much of each additional GDP dollar is spent by households onpersonal consumption, and how much is saved? How have these importantproportions been changing?

How large is the budget deficit as a proportion of GDP? Are exportsbigger or smaller than imports? How important is trade, and net exportsexpressed as a proportion of GDP?

Money, Interest and Inflation: How does the country shape its monetary policy? Who is responsible? What are its

key considerations?How fast is the money supply growing? How is the rate at which that money

changes hands (velocity) changing? Is the Central Banks monetary policy currently making it easier, or harder, to

borrow money? Are real (inflation adjusted) interest rates rising or falling? Howis this affecting GDP? Historically, are real interest rates relatively high or relativelylow?

Does the Central Bank have the freedom to lower interest rates, or is it seriouslylimited in this by the need to maintain a fixed exchange rate relative to anothercurrency?

In general, what degree of political pressure and influence is exerted on the CentralBank when it sets monetary policy and interest rates? How independent is it?

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Cycles and Trends

What is the current direction and magnitude of the two key macroeconomicforces: prices and output? How have they been changing n recent years? Howhigh is unemployment? How has it been changing?

Is there inflation? How much? Is inflation driven mainly by demand-pull forces(rising spending)? Or by cost-push (rising wages, interest rates, energy prices,taxes and cost of materials)?

What is the current level of inflation-adjusted common stock prices? How doesthis compare with historical levels? Are common-stock prices justified byunderlying profitability and future earnings prospects of the countrys businesses?

Is a recession likely soon? Are there any signs of it now?Is there a four- stage inflation cycle? If so, which of the four cycle stages

currently prevails? When will the transition to the next stage likely occur if atall?

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Dollars and Deficits

Is foreign trade important to the countrys economy? Who are the countrys main

trading partners?Is the current account of the Balance of Payments in deficit or in surplus? Howhas this deficit or surplus been changing in recent years? If in deficit does thissignal a future drop in the value of the countrys currency, relative to the dollar?

Is the countrys official (legal) exchange rate bigger, or smaller, than theunderlying (purchasing power) value of the countrys currency relative to the

dollar? Is there a black market in foreign exchange, and if so, how high are black -market rates relative to official ones?

Are exchange rates fixed or floating? If they are floating, are they a cause of inflation? How sensitive is the countrys exchange rate to speculative buying andselling? If they are fixed, is the current fixed exchange rate stable, or will there bedevaluation (decline in the currencys value)?

How are the twin deficits (budget, trade) changing, and how are these changesaffecting overall disposable income?

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Integrating the Tools:

For this country, which variables serve as leading indicators, by signaling changesin business activity well in advance of economic downturns? What are such

indicators currently signaling?How do long-term interest rates currently compare with short-term ones? Is thedifference between short-term and long-term interest rates currently large, or small,and does this signal and impeding recession?

Do businesses and consumers have money, or can borrow it easily? Are theyoptimistic and willing and ready to spend? What is the countrys overall mood?

Is the country truly democratic? Is it politically stable internally? Is it involved inpotentially explosive disputes with neighboring countries? Is there a large, restiveunderclass?

Does the country have national energy? Can individuals become wealthy throughinnovation and entrepreneurship? How well-educated are the people?

Is your personal sense of the countrys character and direction, based on your own

observations and insights, consistent with the business profile provided by answersto the checklist questions? If intuition and analysis differ: Which is right?


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Action Learning:

Pick a country -- any country. Conduct a 'due diligence' analysis of that country, usingthe 10 tools and the checklist in this chapter. Be sure to analyze the data well, but alsolook "between the lines" and "behind the numbers". State whether this country is apromising target for business and investment in the short run and in the long run. Why

or why not?


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Beyond Macroeconomics

Demography: How rapidly is population growing? What is the age structure of thepopulation? What fraction of the population are under age 15? Over age 65? Whatfraction of the population live in cities and urban areas? Is there outmigration orinmigration? One of the major future trends in the major industrial countries is theaging of the population. This will have important political and business implications.

Health and Education: What is the average life expectancy of men and women? Childmortality rates? What fraction of youths complete primary and secondary school?

University? What fraction of the population is literate? Energy and Resources: How high is energy consumption? Where are energy sources especially, oil and coal obtained? Are there natural resources?

Environment: Is the environment protected by strong policies? Is there ecologicalawareness?


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Political system: Is the country democratic? Is it politically stable? Are business andgovernment allies or adversaries? Is political power concentrated or diffuse?

Society and Culture: Is the country individualistic or collectivist? Egalitarian or

hierarchical? Is there gender equality? Is there a strong work ethicReligion: What are the major religions? Are there religious beliefs or taboos that

could affect your products and marketing? Language: Do its people have a common language, or do they speak many

dialects. Attitude: How do its citizens view foreigners? How do they feel about

Americans? Competitiveness: How does the country rank in the tables of World Competitiveness?

How has this ranking changed? What are the countrys strengths and weaknesses?Corruption: how honest, or dishonest, is the business system.


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Case Study: General Electric and the New Paradigm

Definition: Paradigm Shift - not a change in the body of knowledge or facts, but rather, a major shift in the waythose facts are perceived and interpreted; in science, andin global business as well.


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Case Study: Paradigm Shift in Newspapers: "News, not Paper"

Rocky Mountain News - bankrupt!

Seattle Post-Intelligencer rapid transition to Internet !


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CONCLUSION

Use the 10 tools consistently and continually.Prepare for the next crisis, even as the global economyrecovers from the current one!

When a public figure asks, in the next crisis,Why did no one see it coming?

be able to respond:But I saw it! I used the 10 tools to track minds,markets and money, to assess risk and toidentify opportunities, to enhance the wellbeing

of my organization and the people who work for it.

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Ppt Slides Chapter Ten