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Chapter 6 Assessing Countries’ Attractiveness

Chapter 6 Assessing Countries’ Attractiveness. The foreign markets entry decision-making. 1. COUNTRY OPPORTUNITIES. COUNTRY RISK ANALYSIS. Analysis (Assessing Country Attractiveness). 2. External Internal. 3. COMPETITIVE ANALYSIS. 4. ENTRY MODE. Implementation.

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Chapter 6 Assessing Countries’ Attractiveness

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  1. Chapter 6 Assessing Countries’ Attractiveness

  2. The foreign markets entry decision-making 1 COUNTRY OPPORTUNITIES COUNTRY RISK ANALYSIS Analysis (Assessing Country Attractiveness) 2 • External • Internal 3 COMPETITIVE ANALYSIS 4 ENTRY MODE Implementation DEVELOPMENT PATHS 5 6 ORGANISATION:CONTROL

  3. What makes a country attractive for foreign investors? Country Industry Resources Market Competition Size and Growth Incentives Risks - Is the country a critical source of Nature of the demand in this country? Intensity of Rivalry -Entry barriers - Bargaining Power of Suppliers and Customers • -Taxes- Subsidies • - Regulations • - Government • Contracts • Ease of Doing • Business - Political -Economical -Competitive -Operational - Economic Factors • Skilled Personnel • Raw materials? • Components? • Labor? • Technological • innovation? • Learning? • Life Cycle • Segmentation • -Quality of demand - Demographic Factors - Public Policy Factors - Sociological Factors - Quality of Infrastructure and supporting services - Location

  4. Countries’ growth life cycle Average Growth Rate 1990-2009 GDP/ Cap US$ 2009 (Circles are proportional to GDP)

  5. Quality of markets: Segmentation

  6. Middle class effect in emerging countries

  7. Middle Class effect in China 158% VCRs 68% Washing machines 79% Refrigerators Growth 1990-1995 143% Televisions 605% Telephones 36% GNP/per cap 0% 100% 200% 300% 400% 500% 600% 700% Source: : World Bank & EIU

  8. 60% 50% 2005 40% 2015 2025 30% 20% 10% Thousand Rupiah Per Household 1US$=45.7Rp) 0% 0 100 200 300 400 500 600 700 800 900 1000 “Global” Above 1000000Rp >21000US$ “Aspirers” (90000-200000Rp) (2000-4400US$) Low Middle Class “Seekers” ( 200000-500000 Rp) (4400-11000Us$) Middle Class “Strivers” (500000-1000000Rp) (11000-21000US$) Deprived Below 90000Rp <2000US$ Middle Class in India McKinsey Survey2007 Source: McKinsey: The 'Bird of Gold': The Rise of India's Consumer Market,2007 8

  9. Middle Class in India McKinsey Survey2007 Total Population : 1090 M 1250 M 1400 M Urban Population %: 30% 35% 40% # of Urban household in Middle class 49 94 8 Household size: 5.4 5.1 5 Urban Middle Class Population: Source: McKinsey: The 'Bird of Gold': The Rise of India's Consumer Market,2007 43.2 249 470

  10. Is the business profitable in this country? Customer Value Value Kept by Customer > Price CompetitiveForces Value for Shareholders, Community (Taxes) , Employees (Bonuses) Value Captured > Costs Internal Costs Factor Costs Technology Management Cost of Creating Value Purchased Supplies Volume

  11. Profitability Drivers Sociological Factors Demand Economic Value Demographic Factors Industry and Country Attractiveness Competitive Forces Public Policy Factors Risks Economic Growth Company Competitive Advantages Sustainable Differentition Costs Advantages Customer Value Innovation

  12. Is the business profitable? Porter’s Five Forces • Imitative behaviour: when a business is perceived as lucrative many competitors • jump at it New Entrants • Barriers to Entry • Legal: licenses • Partnering • Distribution • Complexity of Competitive Context • Overcapacity • Undifferentiated competitive approaches • Price based competition • Protected local firms • Intricated networks Leading to: Intensity of Rivalry and Competition Suppliers Buyers • Price conscious • Local Content requirements create monopolies • Protected suppliers gives • them high bargaining power The sixth force: Government • Protectionism • Import Substitution • Strong regulation Substitutes Source: Michael E. Porter

  13. Is the business risky? ISD 6

  14. Countries’ Risks Source: Global Insight, 2010 14

  15. Relationship between country risks and Foreign Direct Investments Source: UNCTAD for FDI and Global Insight for Risks 15

  16. Assessing Country Risks Methods: • Grand Tour • Banks • Consultants • Trade Commissions • Ratings • Intelligence building • Availability of data • Reliability of data • Bias • Cultures Issues: • Don’t rely on one single source • Don’t delegate the interpretation to third parties • Invest in intelligence • Look at operational issues Lessons:

  17. Ease of Doing Business Source: Woldd Bank, http://www.doingbusiness.org/EconomyRankings/

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