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4.2.2 assessment of a country as a market - Coggle Diagram
4.2.2 assessment of a country as a market
Disposable income
The amount of money that a person has left over after they have paid their taxes, national insurance and other deductions.
levels of disposable income
A business can find out about the levels of disposable income in the UK through the office for national statistics (ONS)
A falling level of disposable income may mean people with low incomes are struggling to pay for what they consider a minimum standard of living and that those with higher incomes aren't buying as many luxury goods.
Meaning total expenditure will reduce
Also reducing savings
As a result people will be consuming less
growth of disposable income
Businesses expanding into new markets want to ensure that disposable income is either stable or preferably growing over time
If disposable income is growing it may mean that consumers will be able to buy a businesses goods or services either now or in the future
This will then make a business more attractive to expand into
Ease of doing business
Index is a ranking system established by the World Bank Group. In the EODB index, 'higher rankings' (a lower numerical value) indicate better, usually simpler, regulations for businesses and stronger protections of property rights.
The ease at which a company can do business is an important factor when considering a country as a possible market
If a business faces problems when entering a country with it's goods, premises, trade links etc then it's likely to look at different locations or markets
Problems like those with the ease of the business are likely to cause delays in sales, which will increase costs and could affect other parts of the business
Ease of doing business rankings
The World Bank Group publishes a yearly report summarising it's research into the issues that that each country places on businesses
Countries at the top of the ranking are good countries for a business to consider with regards to the ease of doing business and vise versa
The World Bank produced 10 indicators that track the life cycle of the business and problems that may occur
1- starting a business (time consuming, costly etc)
2- dealing with construction permits (time consuming, number of procedures, costly etc)
3- getting electricity (time consuming, costly etc)
4- registering property (time consuming, days, costly)
5- getting credit (legal rights, information etc)
6- protecting minority investors
7- Paying taxes (payments per year, time etc)
8- trading across borders (time consuming, documents required etc)
9- Enforcing contracts (number of procedures, time etc)
10- resolving insolvency
Infrastructure
the basic systems, facilities, services and capital equipment required for a country's economy to function, which might include it's roads, communication systems and power services.
Infrastructure is important when deciding how attractive a country is to a business
Because goods and services need to be made and delivered to the customers, which requires a certain level of communication and transportation links
Many developing countries have underdeveloped and unreliable infrastructure which can be expensive and can add to a company's operating and production costs
A delay or failure to deliver products due to poor infrastructure can cause a loss of sales and increased costs which can lead to a market being unattractive to businesses
Communication infrastructure is equally as important
Many companies want to co-ordinate production, sales and distribution which is best done electronically
But electricity shortages and limited internet coverage may mean that such efficiencies can't take place
Political stability
The stability of a political system can affect the appeal of a particular local market.
A country with a calm political environment can reduce uncertainty, which may make that country more attractive as a market to businesses
There are a few issues to check before entering a new countries market
The nature of the government and its relationship with business
The governments relationship with the World Trade Organization, the International Monetary Fund and the World Bank
The governments legal orientation and approaches to regulation and taxation
The possible political risks that may emerge in the near future i.e. elections
Instability during a election
The emergence of political vacuums
Increasing authoritarianism
Factions in government i.e. political party spilt
Increasing levels of corruption
Threats of terrorism
External threats (boarder conflicts, trade disputes etc)
Transparency International in a non-government organisation established to combat corruption, every year it publishes the global corruption perceptions index. Which measures the perceived levels of public sector corruption in countries around the world.
Exchange rate
The price of one currency against another
A currency can appreciate (rise in value) or depreciate (fall in value)
Changes in exchange rates can have a big impact on a business that is operating internationally
A business looking to expand to a new country should look at the relationship between between it's home currency and that of the country it's trading with
They would need to look at this over time because currency's can fluctuate over time
A business might want to protect itself from adverse movements in the price of currencies, it can do this by:
Taking out insurance to protect it from financial loss
Using financial instruments such as hedging, to try and hedge against the financial risks