International Business Awareness – IBA
Lecture 3 – Country Selection
“Not every market is for every business, not business is for every market”
One of the main reasons for companies to expand internationally:
- Spread risk
- Reduce cost
- Gain sales
Opportunities: Sales expansion
- GDP and population
- Economic and demographic
o Leapfrogging of products
o Prices
o Income elasticity
o Substitution
o Income inequality
o Cultural factors and taste
o Existence of trading blocs
- Labour
- Infrastructure
- Ease of transport and communications
- Government incentives and disincentives
Risks:
- Companies and managers have differ in their perceptions of risk
- One company’s risk is another’s opportunity
- Reducing risk other than avoiding location
- There are always trade-offs
Risk aspects:
- Competitive risk
o Making operations comparable
o Geographic diversification
o Following competitors or customers
- Monetary risk
o Exchange rate stability
, o Inflation rates
o Liquidity preference
o Capital controls
o Government spending
- Political risk
o Changes in government policy
o Operational issues
o Nationalisation
- Natural disaster
EXAMPLE
So why did we choose the USA?
1. Lower prices
2. Local market small modifications
3. Market size
4. Corporate image
5. Geography
Tools: Indices
MPI index, Economic Freedom Index, Corruption
Perception Index
Lecture 3 – Country Selection
“Not every market is for every business, not business is for every market”
One of the main reasons for companies to expand internationally:
- Spread risk
- Reduce cost
- Gain sales
Opportunities: Sales expansion
- GDP and population
- Economic and demographic
o Leapfrogging of products
o Prices
o Income elasticity
o Substitution
o Income inequality
o Cultural factors and taste
o Existence of trading blocs
- Labour
- Infrastructure
- Ease of transport and communications
- Government incentives and disincentives
Risks:
- Companies and managers have differ in their perceptions of risk
- One company’s risk is another’s opportunity
- Reducing risk other than avoiding location
- There are always trade-offs
Risk aspects:
- Competitive risk
o Making operations comparable
o Geographic diversification
o Following competitors or customers
- Monetary risk
o Exchange rate stability
, o Inflation rates
o Liquidity preference
o Capital controls
o Government spending
- Political risk
o Changes in government policy
o Operational issues
o Nationalisation
- Natural disaster
EXAMPLE
So why did we choose the USA?
1. Lower prices
2. Local market small modifications
3. Market size
4. Corporate image
5. Geography
Tools: Indices
MPI index, Economic Freedom Index, Corruption
Perception Index
