Assessing a Country as a Market (Edexcel A Level Business)

• When businesses are considering new markets, they have to consider the attractiveness of the market
  
  
• This will involve businesses carrying out extensive market research, and using models such as the Boston Matrix  and PESTLE
   

Factors to consider before entering new countries

Infrastructure

• Infrastructure considers factors such as roads, transportation and communication (mobile coverage/internet)
  • Good infrastructure improves the production process and delivery of goods/services to the customer which reduces costs and increase sales
     

Ease of doing business

• Rules and regulations involved in establishing a business in a particular market may be relatively simple or extraordinarily hard
  • Issues to consider include accessing credit, registering properties and enforcing contracts
  • If businesses face significant challenges setting up a business, this may lead to delays in operations and the business generating sales
    
    
• The World Economic Forum (WEF) has established a ranking of countries by the ease of doing business
   

A scoring system that rates how easy it is to conduct business activities in different countries
(Source: World Economic Forum)

 

Levels of growth and disposable income

• Disposable income is the income individuals have left after paying direct taxes (e.g. income tax) and other deductions (e.g. pension contributions)
  • 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 potential growth in sales in the future 

 

Exchange rates

• An exchange rate is the price of one currency in terms of another e.g. £1 = $1.10
  
  
• Exchange rates can be subject to extreme fluctuations due to external factors
  • Businesses should look at the historical trends of the currency of the country
• Businesses moving to countries with stronger currencies can import raw materials and components for production at a lower price
  
  • Exports from this country will be more expensive to customers abroad 
     

Political Stability

• 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 and higher levels of crime
  • It is more likely to have disruption to trading
• An economy with a stable economy and government is seen as a less risky investment for a business