Chapter 72- Assessment of a country as a Market

Question 1

Disposable income

Answer 1

The amount of money that a person has left over after they have paid taxes, national insurance and other deductions.

This must be considered when a business is going into an international market as if there is higher disposable income then people will be able to afford the businesses goods.

However if there is a lower disposable income then this would suggest that people barely have enough money for a good standard of living therefore will not have a disposable income to spend on other goods.

Businesses also need to consider whether the country’s disposable income is growing steady other time therefore will be able to know if that particular country/market of people will be able to afford their products now and in the future. This making it an attractive market.

Question 2

Ease of doing business

Answer 2

The business also needs to consider how easy it is to do business with that country. If there are problems with goods entering the market or other problems then this mat cause delays in sales, increasing costs and potentially affect other parts of the business in the distribution chain.

Question 3

Infrastructure

Answer 3

The basic systems, facilities, services and capital equipment required for a country economy to function, which might include its roads, communication systems and power services.

A business will need to consider the infrastructure of an area.

This is because although disposable income may be there for people to buy the goods, there may not be the infrastructure or transport links to manufacture and developer the goods to stores. E.g. in developing countries.

Communication may be considered alongside this as businesses will want to run efficiently, wanting to be able to co-ordinate production, sales and distribution which is best done electronically. However, there may be electricity shortages and limited internet communication which may affect efficiency.

Question 4

Political stability-

Answer 4

It is important to check how politically stable a country is because this stability will affect the business environment and can cost the investors some or all of their value of investment.
It is therefore important to evaluate the political climate of a country before investing and to critically assess the potential risks. There are a few obvious issues to check for the target market.

The nature of the government and its relationship with business

The nature of the government and its relationship with major international institutions, such as the United Nations, the World Trade Organization, the International Monetary Fund and the World Bank.

The government’s legal orientation and approach to regulation and taxation

The possible political risks that may emerge in the near future, such as elections, political vacuums, coups, terrorism, human rights issues, or protests.

There are also numerous risks that a business might need to be aware of:
 Instability during an election
 The emergence of political vacuums
 Increasing authoritarianism
 Factions in government, such as when political parties split
 Increasing levels of corruption.
 Threats from terrorism.

Question 5

Exchange rate

Answer 5

The price of one currency against another. A currency can rise in value, or appreciate, against other currencies.

For instance, when the pound rises, or appreciates, against the euro, one pound will buy more euros.

Likewise, a currency can fall in value – or depreciate – against other currencies. In this case, if the pound was to depreciate against the euro, it would be able to buy fewer euros.

Question 6

Some issues to check for the target market:

Answer 6

• Nature of government and its relationship with business
• Relationship with major international institutions such as
UN, the WTO and IMF.
• Legal orientation
• Future political risk such as elections