Country-attractiveness

1. Unit One
Guide to analyze
country’s attractiveness

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International Business, 6/e © 2007 The McGraw-Hill Companies, Inc., All Rights Reserved.
Managerial Implications
•Two broad implications for IB
-Political, economic, and legal systems of a country
raise important ethical issues that have implications
for the practice of international business
-The political, economic, and legal environment of a
country clearly influences the attractiveness of
that country as a market and/or investment site

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International Business, 6/e © 2007 The McGraw-Hill Companies, Inc., All Rights Reserved.
Attractiveness
Figure 2.1: Country Attractiveness
Benefits
Size of Economy
Likely Economic Growth
Costs
Corruption
Lack of Infrastructure
Legal Costs
Risks
Political Risks: Social Unrest/Anti-Business Trends
Economic Risks: Economic Mismanagement
Legal Risks: Failure to Safeguard Property Rights
Overall
Attractiveness
Return

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International Business, 6/e © 2007 The McGraw-Hill Companies, Inc., All Rights Reserved.
Framework for individual assignment
Product
Business
Company
Market or industry
Country
Return
HYPOTHETICAL BUSINESS SCENARIO
LEARNING TASK 1: COUNTRY FACTOR ANALYSIS
Country factors BenefitsRisksCosts Trade off
Economic
Legal
Political
Cultural
Religious
Educational

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International Business, 6/e © 2007 The McGraw-Hill Companies, Inc., All Rights Reserved.
General investment frameworks
High risk
High return
High
attractiveness
Low
attractiveness
Low risk
Low return
Market and
competitive
opportunities
Risks
High Low
Low
High

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International Business, 6/e © 2007 The McGraw-Hill Companies, Inc., All Rights Reserved.
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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International Business, 6/e © 2007 The McGraw-Hill Companies, Inc., All Rights Reserved.
Country attractiveness analysis
2. Market opportunities
Market opportunities assessment measures the potential demand in the
country for a firm’s products or services based on:
•Market size
•Growth
•Quality of demand.
3. Industry opportunities
Industry opportunities assessment determines profitability potential of
a company’s presence in a country given the following factors:
•Quality of industry competitive structure (Porter’s five-force
Industry Analysis Framework)
•Resource availability (Porter’s diamond framework)

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International Business, 6/e © 2007 The McGraw-Hill Companies, Inc., All Rights Reserved.
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
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

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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.

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International Business, 6/e © 2007 The McGraw-Hill Companies, Inc., All Rights Reserved.
Framework for country risk analysis
POLITICAL
RISKS
OPERATIONAL
RISKS
COMPETITIVE
RISKS
ECONOMIC
RISKS
SHAREHOLDERS EXPOSURE
• Assets destruction (war, riots...)
·Assets spoilation (expropriation)
·Assets immobility (transfer,
freeze)
OPERATIONAL EXPOSURE
• Market disruption
· Labor unrest
· Racketing
·Supply shortages
EMPLOYEES EXPOSURE
• Kidnapping
· Gangsterism
· Harassment
· Economic growth
· Variability
· Inflation
· Cost of inputs
· Exchange rates
BUSINESS
LOGICS:
• Corruption
· Cartels
· Networks
INFRASTRUCTURE
- Power, telecommunication,
transport
- Supplier
COUNTRY
RISK
ANALYSIS
REGULATIONS
- Nationalistic preferences
- Constraints on local capital, local
content, local employment
-Taxes