Unit 3 - 3.3.3

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  • Created on: 11-01-13 07:56
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3.3.3 ­ How does a company decide which countries to target?
Factors companies look for in foreign markets:
- Natural resources, does the country have the natural resources required by the company,
how much will they cost and how easy are they to access
- Commodity prices, firms wish to locate closest to the cheapest commodities to help lower costs
- Exchange rate movements, does SPICEE apply? Want a country with little fluctuation in exchange rates
so moving within the EU would be better
- Political and legal system, looking for a stable country e.g. no war or civil unrest
- Level of economic development, higher GDP (gross domestic product) and GNP (gross national
product) is better shows better economic development also higher HDI (human development index)
- Potential labour force, strong child labour laws present, high unemployment rate for large workforce,
cheap wages wanted to lower costs, large supply with a good skill level
- Level of technology, good transport facilities, research centers, high standards for manufacturing and
selling products, also look for EPOS and FPOS systems (bar code and credit card scanner)
- Likely return on investment, high expected profit levels so more money can be spent on the company
and a long repayment period so they have a long time to spread out their repayment costs
- Geographical proximity of the market, how close the market is to the host country, good distribution
networks e.g. railway and shipping also closer to the domestic market it better so workers don't have to
travel as far to get to the new market
- Government policies, are the local government policies of benefit to the company? Do the government
give any assistance to the company moving into their country are there health and safety laws present?
Low to no tariffs and no or high quotas
Comparative advantage:
The idea that countries can benefit from specializing in the production of goods at which they are relatively
more efficient, consumers within each country then gain the maximum benefit from international trade.
· Example: USA and Nepal
- USA good at making cars and crops
- Nepal bad at making cars and crops but better at making crops than cars
- USA make cars and Nepal produce crops, the countries then trade as they are now both working
at their comparative advantage

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