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Guide to analyze countrys attractiveness

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T w o b r o a d

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Managerial Implications

i m p l i c aMcGraw-Hill/Irwin 6/e International Business,

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Attractiveness
Figure . : Country Attractiveness 2 2
Benefits Size of Economy Likely Economic Growth Overall Attractiveness Costs Corruption Lack of Infrastructure Legal Costs

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Risks Political Risks: Social Unrest/Anti -Business Trends Economic Risks: Economic Mismanagement Legal Risks: Failure to Safeguard Property Rights
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Return
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Framework for individual assignment

HYPOTHETICAL BUSINESS SCENARIO Product Business Company Market or industry Country LEARNING TASK 1: COUNTRY FACTOR ANALYSIS Country factors Benefits Risks Costs Trade off Economic Legal Political Cultural Religious
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Return
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Educational

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General investment frameworks

High High risk High return Market and competitive opportunities Low attractiveness Low High
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High attractiveness

Low risk Low return

Risks

Low

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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 firms products or services based on: Market size Growth Quality of demand. 3. Industry opportunities Industry opportunities assessment determines profitability potential of a companys presence in a country given the following factors: Quality of industry competitive structure (Porters five-force Industry Analysis Framework) Resource availability (Porters diamond framework)
McGraw-Hill/Irwin International Business, 6/e 2007 The McGraw-Hill Companies, Inc., All

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

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COMPETITION COUNTRY MARKETS AND INDURTRIES OPPORTUNITIES + Intensity of rivalry + Entry barriers + Bargaining power of suppliers & customers - Is the business + Profitable short-term? + Profitable long-term?

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INCENTIVES

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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 risks Economic risks expose business performance to the extent that the economic business drivers can vary and therefore put profitability at stake. Competitive risks 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. 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. McGraw-Hill/Irwin

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Framework for country risk analysis

POLITICAL RISKS
SHAREHOLDERS EXPOSURE
EMPLOYEES EXPOSURE

Assets destruction (war, riots...) Assets spoilation (expropriation) Assets immobility (transfer, freeze)

Kidnapping Gangsterism Harassment

OPERATIONAL EXPOSURE

Market disruption Labor unrest Racketing Supply shortages

ECONOMIC RISKS
Economic growth Variability Inflation Cost of inputs Exchange rates

COUNTRY RISK ANALYSIS

COMPETITIVE RISKS
BUSINESS LOGICS: Corruption Cartels Networks REGULATIONS

OPERATIONAL RISKS
INFRASTRUCTURE

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- Nationalistic preferences