11

Chapter 6 Assessing Countries’ Attractiveness

2

4

3

5

1

2

COUNTRY OPPORTUNITIES

COUNTRY RISK ANALYSIS

COMPETITIVE ANALYSIS

ENTRY MODE

DEVELOPMENT PATHS

ORGANISATION:CONTROL6

Analysis(Assessing CountryAttractiveness)

Implementation

• External• Internal

The foreign markets entry decision-making

3

What makes a country attractive for foreign investors?

Country Industry

Size and Growth

RisksIncentivesResources Market Competition

- SociologicalFactors

- DemographicFactors

- Public PolicyFactors

- EconomicFactors

- Is the country a critical source of• Skilled Personnel• Raw materials?• Components?• Labor?• Technological innovation?• Learning?

- Quality ofInfrastructure andsupporting services- Location

-Taxes- Subsidies- Regulations- Government Contracts- Ease of

Doing Business

- Political -Economical -Competitive -Operational

Nature of the demand in this country?

- Life Cycle- Segmentation-Quality of demand

Intensity of Rivalry

-Entry barriers- Bargaining Power of Suppliers and Customers

4

Countries’ growth life cycle

-2,00%

0,00%

2,00%

4,00%

6,00%

8,00%

10,00%

12,00%

-1000 9000 19000 29000 39000 49000

Russia

USA

China

Singapore

Korea

UKGermany

Australia

France

IndiaMalaysia

Chile

Philippines

Indonesia

Mexico

Hong Kong

Brazil

South Africa

GDP/ Cap US$ 2009(Circles are proportional to GDP)

Aver

age

Gro

wth

Rat

e 19

90-2

009

5

Quality of markets: Segmentation

6

Middle class effect in emerging countries

7

Telephones

36%

605%

143%

79%

68%

158%

0% 100% 200% 300% 400% 500% 600% 700%

GNP/per cap

Televisions

Refrigerators

Washing machines

Middle Class effect in China

Source: : World Bank & EIU

VCRs

Growth 1990-1995

8

8

0%

10%

20%

30%

40%

50%

60%

0 100 200 300 400 500 600 700 800 900 1000

Low Middle Class“Seekers” ( 200000-500000 Rp)

(4400-11000Us$)

Middle Class“Strivers” (500000-1000000Rp)

(11000-21000US$)

“Global”Above 1000000Rp>21000US$

“Aspirers”(90000-200000Rp)(2000-4400US$)Deprived

Below 90000Rp<2000US$

Thousand RupiahPer Household1US$=45.7Rp)

2025

20152005

Middle Class in IndiaMcKinsey Survey2007

Source: McKinsey: The 'Bird of Gold': The Rise of India's Consumer Market,2007

9

Source: McKinsey: The 'Bird of Gold': The Rise of India's Consumer Market,2007

Household size:

Urban Population %:

Total Population :

# of Urban household in Middle class

Urban Middle Class Population:

1090 M 1400 M1250 M

30% 35% 40%

8 9449

5.4 55.1

43.2 249 470

Middle Class in India McKinsey Survey2007

10

Value Keptby

Customer

Internal Costs

Purchased Supplies

Cost ofCreating Value

>

Value for Shareholders,Community (Taxes) , Employees (Bonuses)

Price

ValueCaptured

Is the business profitable in this country?

>Costs

CompetitiveForces

Customer Value

Factor CostsTechnology

Management

Volume

11

Profitability Drivers

Industry andCountry Attractiveness

Demand

CompetitiveForces

Risks

Customer Value

Innovation

Company Competitive Advantages

Sustainable Differentition

Costs Advantages

SociologicalFactors

DemographicFactors

Public PolicyFactors

EconomicGrowth

Economic Value

12

Is the business profitable?Porter’s Five Forces

NewEntrants

Substitutes

Suppliers Buyers

Barriers to Entry• Legal: licenses• Partnering• Distribution• Complexity of Competitive

Context

Intensity ofRivalry andCompetition

The sixth force: Government

Source: Michael E. Porter

• Imitative behaviour: when a business is perceived as lucrative many competitors

jump at it

Leading to:

– Overcapacity– Undifferentiated competitive

approaches– Price based competition– Protected local firms– Intricated networks

• Local Content requirements create monopolies

• Protected suppliers gives them high bargaining power

• Protectionism• Import Substitution• Strong regulation

• Price conscious

13ISD 6

Is the business risky?

1414

Source: Global Insight, 2010

Countries’ Risks

1515

Relationship between country risksand Foreign Direct Investments

Source: UNCTAD for FDI and Global Insight for Risks

16

Assessing Country RisksMethods: Grand Tour

Banks Consultants Trade Commissions Ratings Intelligence building

Availability of data Reliability of data Bias Cultures

Issues:

Lessons:

Don’t rely on one single source Don’t delegate the interpretation to third parties Invest in intelligence Look at operational issues

17

Ease of Doing BusinessEconomy

Ease of Doing

Business Rank

Starting a Business

Dealing with Construction Permits

Getting Electricity

Registering Property

Getting Credit

Protecting Investors

Paying Taxes

Trading Across Borders

Enforcing Contracts

Resolving Insolvency

Singapore 1 4 3 5 14 8 2 4 1 12 2

Hong Kong 2 5 1 4 57 4 3 3 2 5 16Korea, Rep. 8 24 26 11 71 8 79 38 4 2 13

Japan 20 107 63 26 58 24 17 120 16 34 1

Taiwan 25 16 87 3 33 67 79 71 23 88 14

Denmark 5 31 10 13 11 24 29 14 7 32 9

Norway 6 41 60 12 8 48 24 27 9 4 4United Kingdom 7 19 22 60 68 1 10 24 13 21 6

Sweden 14 46 23 8 19 48 29 50 8 54 19

Germany 19 98 15 2 77 24 97 89 12 8 36Switzerland 26 85 46 6 14 24 166 12 41 23 43

France 29 25 30 62 149 48 79 58 24 6 46

South Africa 35 44 31 124 76 1 10 44 144 81 77

China 91 151 179 115 40 67 97 122 60 16 75

Russia 120 111 178 183 45 98 111 105 160 13 60

Brazil 126 120 127 51 114 98 79 150 121 118 136

India 132 166 181 98 97 40 46 147 109 182 128Source: Woldd Bank, http://www.doingbusiness.org/EconomyRankings/