Assessment of a country as a market Flashcards
Factors to consider
Disposable income Ease of doing business Infrastructure Political stability Exchange rates
Levels and growth of disposable income
When looking to expand into a market, a business wants to ensure that consumers have sufficient disposable income to purchase its goods and services
A falling disposable income infers citizens are failing to afford a minimum standard of living
Ease of doing business
An important factor to consider when looking at a potential market is how easily it is to do business there
This is measured by an index created by the World Bank Group. The lower the number, the easier it is to do business in Can include factors such as: ease with which business can be started and closed down efficiency with which contracts are enforced amount of bureaucracy availability of trade credit efficiency of tax collection ease of resolving insolvency trading across borders (RTA) ease of getting electricity dealing with construction permits protecting minority investors registering property
Infrastructure
A business wants to ensure the country has adequate/ sufficient infrastructure; buildings, railroads, ports, airports, power and energy, waste management, communication, roads, water etc..
Many developing countries have undeveloped transportation infrastructure which can cause problems with getting to work and delivering resources in time
Political stability
A country with a calm political situation is likely to be more attractive as a potential market to businesses
It is important to consider:
the nature of the government and its relationship with business and with major international institutions (the UN, WTO, IMF, World Bank)
The possible risks that may emerge in the near future (elections, terrorism, boycotting, protests, political vacuums, coups)
Exchange rates
Changes in exchange rates can have a very large impact on a business that is operating internationally.
A business in Spain looking to export its goods/services to Japan would want those goods to be purchased in euros, as the euro appreciates against the yen, this would make the goods expensive to Japanese consumers and might reduce sales.
Alternatively, a Spanish business looking to buy a Japanese business will want to buy yen to pay the Japanese shareholders for their shares. Owing to the strong euro, it would take fewer euros to buy a yen, making it cheaper.
Businesses should also consider fluctuating exchange rates. They can cause uncertainty and create problems
Application of Porter’s five forces in assessing potential markets
Porter’s model can be used to assess the potential of an overseas market by helping businesses to look at the balance of power in a market between different types of organisations, and see if such market will be profitable.
It helps to review the strengths of a market position, based on 5 key forces, however, sometimes they need to make assumptions as not all information is available.
