How Does A Country Decide Which Countries To Target?

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Unit 3 ­ International Business
Unit 3.3.3 ­ How Does a Company Decide Which Countries to Target?
Assessment of a Country Markets
Roseanne Theyara
Geographic Proximity:
This must include making some comparisons between a range of suitable location.
Government Policies:
How much tax will the business have to pay?
o Tax rates vary between countries, as to both the level and the way they are
collected.
Are there significant barriers to trade?
o Some governments try to exclude imports by taxing them or restricting the
quantity.
o It can make some potential export markets rather unattractive.
How difficult is it to start up a business?
o In the past, bureaucratic controls made setting up a business very time
consuming.
o Recent policies have made the process easier.
Will there be government grants or subsidies available?
o These are carefully regulated to ensure that the playing field is level, giving
all countries a change to compete.
Natural Resources:
Mining companies go to where the resources are and then export them to where
there is a demand for them.
Exchange Rate Movement:
How favourable is the exchange rate?
Selling exports in a foreign market that has an undervalued exchange rate can be
quite a problem because of the competition.
Domestic producers will have a price advantage.
One solution would be to locate as much of the production prices as is possible
within the target market.
The business may be able to cover its costs if much of its output is sold in the local
market.
Political and Legal System:
Political instability can make some markets very unattractive.
While strong prospects of profits will still draw a business to invest even when the
government is unstable, the risks will be greater.
There is a trade off between risk and profitability.
Many businesses will seek to develop relationships with politicians in order to
reduce risks and of course some see corrupt practices as a way of enhancing their
safety.
Many emerging economies have laws that enable businesses to go through the
courts to collect debts. But in many other cases, the legal system works painfully
slow and is unpredictable.

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Unit 3 ­ International Business
Unit 3.3.3 ­ How Does a Company Decide Which Countries to Target?
Assessment of a Country Markets
Roseanne Theyara
It may not be easy to find well-qualified lawyers who can help.
There is piracy in the US market place. This happens when competing producers
make cheap, counterfeit copies of products that should be legally protected by
trademarks and patents.…read more

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Unit 3 ­ International Business
Unit 3.3.3 ­ How Does a Company Decide Which Countries to Target?
Assessment of a Country Markets
Roseanne Theyara
There may be a trade off between paying low wages and recruiting people with the
necessary human capital.
Likely Return on Investment:
The size of the population and the level of income determine the number of
consumers who are potential customers.
Inferior goods will not benefit from rising incomes as people might lose interest in
them if their incomes rise.
E.g.…read more

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Unit 3 ­ International Business
Unit 3.3.3 ­ How Does a Company Decide Which Countries to Target?
Assessment of a Country Markets
Roseanne Theyara
Absolute Advantage:
Absolute advantage ­ Exists when a country is able to produce a good more cheaply
in absolute terms than another country.
Assumption:
o 2 countries.
o 2 goods.
o No transport costs.
o Resources are easily transferable.
o No trade barriers.
o No economies of scale.…read more

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Unit 3 ­ International Business
Unit 3.3.3 ­ How Does a Company Decide Which Countries to Target?
Assessment of a Country Markets
Roseanne Theyara
o No transport costs.
o Resources are easily transferable.
o No trade barriers.
o No economies of scale.
Example -
Cost Per Unit in Worker Cost Per Unit in Worker
Hours Hours
Wheat Wine
England 15 30
Portugal 10 15
A unit of wine in England costs the same amount to produce as 2 units of
wheat.…read more

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