assessment of a country as a market

Question 1

what are the 5 factors to assess when deciding on a market to sell in ?

Answer 1

• infrastructure
• political stability
• level and growth of disposable income
• exchange rates
• ease of doing business

Question 2

Infrastructure

Answer 2

• factors like: roads, transportation, communication (mobile coverage + internet).
• good infrastructure improves the production and delivery process of goods to consumers = reducing costs + increasing sales.
• poor infrastructure could decrease the ability to deliver goods at a lower cost and time = reducing the attractiveness of the market.

Question 3

Ease of doing business

Answer 3

• rules and regulations involved in establishing a business in a particular market may be relatively simple or extraordinarily hard.
• if businesses face problems with their goods entering the country, setting up premises or dealing with everyday trading activities, they are likely to look for alternative markets.
• If business faces significant challenges setting up a business, this may lead to delays in operations and the business generating sales = may prove costly.

Question 4

levels and growth of disposable income

Answer 4

• Disposable income: it is the income individuals have left after paying direct taxes and other deductions
• a business needs to make sure the consumers in the market not only have a sufficient income, but that it is also steady and growing overtime.
• 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 any potential growth in sales in the future.

Question 5

exchange rates

Answer 5

• exchange rates: the price of one currency in terms of another.
• changes in exchange rates can affect the cost of imports and exports in overseas currencies = therefore, fluctuations can impact sales and profits.
• businesses selling to countries with stronger currencies can import raw materials and components for production at a lower price = reduce business costs and increase profit margins.
• however, exports from this country will be more expensive to customers abroad = demand will shift to domestic businesses.
• businesses selling to countries with weaker currencies can export products abroad with cheaper prices - increasing competitiveness.
• however, importing raw materials and components is more expensive = increasing business costs.

Question 6

political stability

Answer 6

• a country with a stable government and economy is seen as a less risky investment for a business, as the country has political stability.
• a country with political stability can also minimise uncertainty = making it more attractive as a market.
• 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, higher levels of crime, exchange rate fluctuations (currency may drop) and is more likely to have disruption to trading.

Question 7

using porter’s 5 forces to assess potential markets

Answer 7

• theory can be used to determine the competitive intensity and attractiveness of a market.
  1. Buyer power - how easy is it for buyers to drive down prices in the market.
  2. supplier power - how easy is it for suppliers to drive up prices in the market.
  3. threat of substitutes - can customers easily switch products.
  4. threat of new entrants - the risk new competitors create for current companies within an industry = a lot of new entrants may erode profitability.
  5. Rivalry - the level of competition in the market.