How does a company decide which countries to target ? (3.3)

Question 1

How well developed is the country ?

Answer 1

Companies can use the human development index (HDI) as it ranks countries in relation to several aspects of development. It is useful for businesses as it shows which rising incomes are having an impact throughout the population. Access to education is also an important indicator for businesses what want skilled workers.

Question 2

How stable is the government ?

Answer 2

Political instability can make markets unattractive. Most companies will avoid unstable governments an will try an avoid war zones. Many businesses will seek to develop relationships with politicians in order to reduce the risks and of course some see corrupt practices as a way of enhancing their safety. Small , medium sized businesses that are less powerful would be greatly deterred by instability.

Question 3

Is there a legal framework that will protect businesses ?

Answer 3

Sometimes , but not always countries like USA have rules so if piracy happens in the market the company will go to court and be sued meanwhile in countries such as china the rules aren’t as clear and people make fakes without being caught despite the fact the original product has trademarks and patents.

Question 4

Are there problematic government policies ?

Answer 4

Businesses will decide where to set up their business depending on whether the government policies work in their favour:

• Countries where taxes are low have been successful in attracting FDI (ex: Ireland). Some businesses will arrange their affairs so countries where there are high taxes they make low profit but countries with low taxes they make high profits.
• Some countries will try and exclude imports by taxing them or restricting the quantities. To help the domestic companies to compete this makes some potential export markets unattractive.
• Also how long it takes to set up a business in a foreign country in India it currently takes 27 days meanwhile in America it only takes 6 days.
• Whether the exchange rates are favourable, some businesses may set up the production process in the country so that the business is able to cover costs if much of its output is sold in the local market.
• Whether the company will get a grant or subsides can also be key. In the EU , theses are regulated carefully to ensure that the playing field is level and businesses can prosper.

Question 5

Cultural and media issues which affect the decision ?

Answer 5

Businesses need to understand local cultures, they need to make sure that the product they produce is needed. Also familiar methods of advertising may have to be replaced with media that is available and appropriate for the new market. This is an area where most business need local help.

Question 6

How does labour market affects the decisions /

Answer 6

Planning for a new location a businesses will need to find out how easy it is to recruit labour with the appropriate skills for the technologies that will be used. It may be that training programmes are necessary. Also wage costs will need to be considered.

Question 7

What is specialisation ?

Answer 7

Is where a nation identifies a industry in which it has an absolute or comparative advantage over rival nations and the concentrates on growing these industries so that they can produce more of their products or services.

Question 8

What are the advantages to multinationals through trading with nations who specialise with creating products ?

Answer 8

• They can take advantage of absolute and comparative advantage of nations such as china and India:
• By building factories abroad (low wages in India
• By setting up call centres abroad (outsourcing)
• simply buying from suppliers from these nations. Ex: Global sourcing to get low prices so the multinationals can increase their global profits and satisfy shareholders.
• Gain a competitive advantage on price , so they can compete more against other large companies.