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4-1

INTERNATIONAL BUSINESS

Lecturer: Duong Thi Hoai Nhung (MBA)


Faculty of Business Administration
Foreign Trade University

Email: nhungdth@ftu.edu.vn
Mobile: 0985 867 488

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

Part 3: Guide to analyze


country’s attractiveness
4-3

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

McGraw-Hill/Irwin
International Business, 6/e © 2007 The McGraw-Hill Companies, Inc., All Rights Reserved.
4-4
Attractiveness

Figure 2.1: Country Attractiveness


Costs
Benefits Corruption
Size of Economy Lack of Infrastructure
Likely Economic Growth Legal Costs

Overall
Attractiveness

Risks
Political Risks: Social Unrest/Anti-Business Trends
Economic Risks: Economic Mismanagement
Legal Risks: Failure to Safeguard Property Rights
Return
McGraw-Hill/Irwin
International Business, 6/e © 2007 The McGraw-Hill Companies, Inc., All Rights Reserved.
4-5

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   Return      
McGraw-Hill/Irwin
Educational
International Business, 6/e
       
© 2007 The McGraw-Hill Companies, Inc., All Rights Reserved.
4-6

General investment frameworks


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

Low
High Low
Risks
McGraw-Hill/Irwin
International Business, 6/e © 2007 The McGraw-Hill Companies, Inc., All Rights Reserved.
4-7

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)

McGraw-Hill/Irwin
International Business, 6/e © 2007 The McGraw-Hill Companies, Inc., All Rights Reserved.
4-8

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)
McGraw-Hill/Irwin
International Business, 6/e © 2007 The McGraw-Hill Companies, Inc., All Rights Reserved.
4-9

Framework for country market and industry


attractiveness assessment
MARKET
- How important is the demand in this country?
+ Growth?
+ Size?
+ Customer quality

RESOURCES COMPETITION
- Is the country a critical
source of COUNTRY MARKETS + Intensity of rivalry
+ Skilled personnel? AND INDURTRIES + Entry barriers
+ Raw materials? OPPORTUNITIES + Bargaining power of
+ Components? suppliers & customers
+ Labor? - Is the business
+ Technology? + Profitable short-term?
+ Innovation? INCENTIVES + Profitable long-term?
- Quality of infrastructure + Tax
supporting services + Subsidies
- Location
+ Infrastructures
+ Government contracts
McGraw-Hill/Irwin + Does a presence in this country
International Business, 6/e increase competitiveness?
© 2007 The McGraw-Hill Companies, Inc., All Rights Reserved.
4 - 10

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
McGraw-Hill/Irwin
to foreign
International investors
Business, 6/e or because the infrastructure is not Companies,
© 2007 The McGraw-Hill reliable.Inc., All Rights Reserved.
4 - 11

Framework for country risk analysis


POLITICAL
RISKS

SHAREHOLDERS EXPOSURE EMPLOYEES EXPOSURE OPERATIONAL EXPOSURE


• Assets destruction (war, riots...) • Kidnapping • Market disruption
Assets spoilation (expropriation)  Gangsterism  Labor unrest
Assets immobility (transfer,  Harassment  Racketing
freeze) Supply shortages

ECONOMIC COUNTRY COMPETITIVE


RISKS RISK RISKS
ANALYSIS
 Economic growth BUSINESS
 Variability LOGICS:
 Inflation • Corruption
 Cost of inputs OPERATIONAL
 Cartels
 Exchange rates RISKS
 Networks
INFRASTRUCTURE REGULATIONS
- Power, telecommunication, - Nationalistic preferences
transport - Constraints on local capital, local
- Supplier
McGraw-Hill/Irwin content, local employment
International Business, 6/e -Taxes
© 2007 The McGraw-Hill Companies, Inc., All Rights Reserved.

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