Country-attractiveness

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Country-attractiveness

  1. 1. Guide to analyze country’s attractiveness Unit One
  2. 2. Managerial Implications <ul><li>Two broad implications for IB </li></ul><ul><ul><li>Political, economic, and legal systems of a country raise important ethical issues that have implications for the practice of international business </li></ul></ul><ul><ul><li>The political, economic, and legal environment of a country clearly influences the attractiveness of that country as a market and/or investment site </li></ul></ul>
  3. 3. Attractiveness Return
  4. 4. Framework for individual assignment Return HYPOTHETICAL BUSINESS SCENARIO LEARNING TASK 1: COUNTRY FACTOR ANALYSIS Product Business Company Market or industry Country Country factors Benefits Risks Costs Trade off Economic         Legal         Political         Cultural         Religious         Educational        
  5. 5. General investment frameworks High risk High return High attractiveness Low attractiveness Low risk Low return Market and competitive opportunities Risks High Low Low High
  6. 6. Country attractiveness analysis <ul><li>1. A country attractiveness assessment is based on two dimensions </li></ul><ul><li>Market and industry opportunities </li></ul><ul><li>Country risks (many organizations publish country assessment results based on various economic/political/social factors) </li></ul>
  7. 7. Country attractiveness analysis <ul><li>2. Market opportunities </li></ul><ul><li>Market opportunities assessment measures the potential demand in the country for a firm’s products or services based on: </li></ul><ul><li>Market size </li></ul><ul><li>Growth </li></ul><ul><li>Quality of demand. </li></ul><ul><li>3. Industry opportunities </li></ul><ul><li>Industry opportunities assessment determines profitability potential of a company’s presence in a country given the following factors: </li></ul><ul><li>Quality of industry competitive structure (Porter’s five-force Industry Analysis Framework) </li></ul><ul><li>Resource availability (Porter’s diamond framework) </li></ul>
  8. 8. Framework for country market and industry attractiveness assessment MARKET - How important is the demand in this country? + Growth? + Size? + Customer quality <ul><li>RESOURCES </li></ul><ul><li>- Is the country a critical source of </li></ul><ul><li>+ Skilled personnel? </li></ul><ul><li>+ Raw materials? </li></ul><ul><li>+ Components? </li></ul><ul><li>+ Labor? </li></ul><ul><li>+ Technology? </li></ul><ul><li>+ Innovation? </li></ul><ul><li>- Quality of infrastructure supporting services </li></ul><ul><li>- Location </li></ul>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
  9. 9. Country attractiveness analysis <ul><li>4. Country risk </li></ul><ul><li>Political risks </li></ul><ul><li>Political risks are probable disruptions owing to internal or external events or regulations resulting from political action of governments or societal crisis and unrest. </li></ul><ul><li>Economic risks </li></ul><ul><li>Economic risks expose business performance to the extent that the economic business drivers can vary and therefore put profitability at stake. </li></ul><ul><li>Competitive risks </li></ul><ul><li>Competitive 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. </li></ul><ul><li>Operational risks. </li></ul><ul><li>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. </li></ul>
  10. 10. Framework for country risk analysis POLITICAL RISKS OPERATIONAL RISKS COMPETITIVE RISKS ECONOMIC RISKS <ul><li>SHAREHOLDERS EXPOSURE </li></ul><ul><li>Assets destruction (war, riots...) </li></ul><ul><li>Assets spoilation (expropriation) </li></ul><ul><li>Assets immobility (transfer, freeze ) </li></ul><ul><li>OPERATIONAL EXPOSURE </li></ul><ul><li>Market disruption </li></ul><ul><li>Labor unrest </li></ul><ul><li>Racketing </li></ul><ul><li>Supply shortages </li></ul><ul><li>EMPLOYEES EXPOSURE </li></ul><ul><li>Kidnapping </li></ul><ul><li>Gangsterism </li></ul><ul><li>Harassment </li></ul><ul><ul><li>Economic growth </li></ul></ul><ul><li>Variability </li></ul><ul><li>Inflation </li></ul><ul><li>Cost of inputs </li></ul><ul><li>Exchange rates </li></ul><ul><li>BUSINESS LOGICS: </li></ul><ul><li>Corruption </li></ul><ul><li>Cartels </li></ul><ul><li>Networks </li></ul>INFRASTRUCTURE - Power, telecommunication, transport - Supplier COUNTRY RISK ANALYSIS <ul><ul><li>REGULATIONS </li></ul></ul><ul><ul><li>- Nationalistic preferences </li></ul></ul><ul><ul><li>- Constraints on local capital, local content, local employment </li></ul></ul><ul><ul><li>-Taxes </li></ul></ul>

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