Factors to Consider Before Entering New Countries
- When businesses are considering new markets, they have to consider the attractiveness of the market
- This will involve businesses carrying out extensive market research, and using models such as the Boston Matrix and PESTLE
Factors to consider before entering new countries
Infrastructure
- Infrastructure considers factors such as roads, transportation and communication (mobile coverage/internet)
- Good infrastructure improves the production process and delivery of goods/services to the customer which reduces costs and increase sales
- Good infrastructure improves the production process and delivery of goods/services to the customer which reduces costs and increase sales
Ease of doing business
- Rules and regulations involved in establishing a business in a particular market may be relatively simple or extraordinarily hard
- Issues to consider include accessing credit, registering properties and enforcing contracts
- If businesses face significant challenges setting up a business, this may lead to delays in operations and the business generating sales
- The World Economic Forum (WEF) has established a ranking of countries by the ease of doing business
A scoring system that rates how easy it is to conduct business activities in different countries
(Source: World Economic Forum)
Levels of growth and disposable income
- Disposable income is the income individuals have left after paying direct taxes (e.g. income tax) and other deductions (e.g. pension contributions)
- Selling products in a country with higher disposable income is likely to lead to more sales
- Selling in a country with lower disposable income is likely to lead to slower sales growth
- Businesses should look at trends in income levels over time to see if there is potential growth in sales in the future
Exchange rates
- An exchange rate is the price of one currency in terms of another e.g. £1 = $1.10
- Exchange rates can be subject to extreme fluctuations due to external factors
- Businesses should look at the historical trends of the currency of the country
- Businesses moving to countries with stronger currencies can import raw materials and components for production at a lower price
- Exports from this country will be more expensive to customers abroad
- Exports from this country will be more expensive to customers abroad
Political Stability
- Businesses may be at risk of not gaining a return on their investment in a country with political instability
- A country with political instability will be subject to corruption, lack of law enforcement and higher levels of crime
- It is more likely to have disruption to trading
- An economy with a stable economy and government is seen as a less risky investment for a business
Exam Tip
In Paper 1, you may be given an extract A-D will contain information regarding a particular market/country. You will be expected to assess if the business should expand and make a judgement regarding whether a business should expand their operations in this market. It is important you use evidence from the extract and your own knowledge to support your arguments and consider in your conclusion what the most important factors are for the business