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Doing Business in the Developing Countries - Coggle Diagram
Doing Business in the Developing Countries
Classification of the Developing Countries
The rank of the country depends mainly on the efficiency of the export revenues “recycled” through the economy rather than on its absolute value.
UN Criteria
GDP per capita and their source of income
Oil or Non-oil
The UN operates with the following classifications
a) Least Developed (44 Countries)
b) Non-oil exporting developing nations (88)
c) Developing countries from OPEC (13 member of state)
The World Bank divides the countries into four major groups
b) Middle Income
c) Upper-Middle Income
a) Low Income
d) High Income
Cultural and Political Factors
Language
When it comes to business negotiations, marketing research or contracting, the knowledge of the appropriate language must be at a professional level.
The language is the mirror of the culture, including the business culture.
Culture-based Segmentation
c) Individualism
b) Uncertainty Avoidance
a) Power Distance
d) Masculine
Religion
Determines to a great extent the economic rules.
The most important cultural component you must be careful with.
Some scholars argue that religion strongly affects the propensity to consume, in other words it limits the buying behavior.
International entrepreneur have more difficulties because of the extended variety of religions, languages, historical roots, ethnic groups, beliefs, and so on.
The low consumption per capita in the developing countries, compared to the developed ones, is caused by the low income, not by any cultural differences.
Entry Strategies in the LDCs
The basic entry strategies in the practice of international business
Licensing
Off-shore production (direct investments)
Indirect exporting/importing
Subcontracting
Direct exporting/importing
Portfolio (indirect) investments.
Factors to consider for the best entry strategy for the developing countries
Company’s characteristics
The qualification and motivation of its management
Export experiences and possible contacts with business counter
partners in the host country
The type of its products and services
The availability of financial reserves for backing the higher risk of
direct exporting.
The host country characteristics
Government’s trade and economic policy
Government’s foreign policy
Type of government
Favorability or restrictions toward the foreign business activities
Availability and reliability of the existing distributive system
Membership of regional custom and/or economic agreements
Level of corruption.
Export/Import trade regime
Interaction with the World Market
Economic outcomes from the regional economic cooperation between the developing countries
Better allocation of production, based on division of labor (specialization and cooperation)
Better allocation of capital, building capacity to finance or co-finance larger investment projects at national or regional level
Lower costs on export/import because of the lower or eliminated tariffs and nontariff barriers (improved terms of trade)
Coordinated economic policy
Economies of scale resulting from the interrelated domestic markets
Stronger competition and stimulus for technological and product innovations
Higher economic growth, higher employment and better standard of living
Easier and more efficient interaction with the international organizations and institutions