Country & Institutional Analysis

Country & Institutional Analysis - Country Country...

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Unformatted text preview: Country Country Analysis Analysis Analyzing the Attractiveness of Regions, Economies, Industrial Sectors, and Markets for Global Business GSBA 582: GLOBE GSBA Meet Meet Question? Question? Country Analysis Analyzing the Global Analyzing Framework Framework Market: Market: What will the firm meet? Regional Analysis Country Analysis Industrial Sector Competitiveness Analysis Industry Analysis Feasibility Analysis Market Potential Analysis Competitor Analysis Profitability Analysis MOR 492: Global Strategy 2 Meet Meet question? question? Country Analysis Framework Framework Country Analysis Global Economics of Region x ASEAN, NAFTA, APEC, etc. Political Agenda Fiscal & Monetary Policies Policies toward foreign investments & control Macroeconomic Policies x x x Political Risk Analysis Institutional Voids Analysis MOR 492: Global Strategy 3 Meet Meet Question? Question? Diamond of Global Analysis Diamond Country Competitiveness Framework Competitiveness Framework Firm Strategy, Structure, and Rivalry Chance Factor Conditions Demand Conditions Related and Supporting Industries Source: Porter (1990) Government MOR 492: Global Strategy 4 Meet Meet Question? Question? Examining Relevant Examining “Distances” “Distances” Framework (Ghemawat) Country Analysis Framework Framework CAGE x Cultural Distance x Administrative Distance x Geographic Distance x Economic Distance • Global strategy must exploit/mitigate relative “distance” between the firm and the global market • CAGE can be applied at the Country level, industrial sector, industry, and firm level MOR 492: Global Strategy 5 Country Analysis Framework Framework Business “Context” Business Strategy & Operations “Soft” Infrastructure “Hard” Infrastructure Country Factor Endowments Logistics Intermediaries Professions, Debt & Equity Credentialing Markets, Search Firms Venture Capital Schools, Banks & Financial Physical & Roads, Rail Property Universities, Institutions, & Ports Rights Security Training Regulators Specialized Consultants Accountants & Legal System Functioning Independent Legal System Land Labor Capital Markets Political & Social Systems 6 MOR 492: Global Strategy Country Analysis Framework Framework The Market Pyramid Domestically focused but upwardly mobile Subsistence/ Marginal consumers Tier 1 Tier 2 Tier 3 Tier 4 Tier 5 Global Consumers Locallyfocused but with income Consumers outside the formal economy MOR 492: Global Strategy 7 Country Analysis Country Framework Framework Comparing and Contrasting Comparing Opportunities and Differences Opportunities Country Analysis Framework Framework MOR 492: Global Strategy 8 Country Analysis Framework Framework Why Country Analysis? Countries continue to achieve remarkably different rates of economic growth Countries differ in size, geographic location, resource endowments, historical experiences, cultures and income levels, and these difference are important for global strategy decisions The profit performance of similar industries differs widely from one country to another “Country effects” matter 9 MOR 492: Global Strategy Country Analysis Framework Framework Country Effects Matter Nation States make the “rules” by which businesses must abide Country “Institutions” (courts, laws, capital markets, law & order enforcement, unions, governments, etc) create the context for business and markets Countries “do” compete with each other for resources Countries do have “strategies” too Governments do play an active role Country borders (degree of openness) do matter 10 MOR 492: Global Strategy Country Borders Country Matter Matter Within Country Analysis Framework Framework countries, economic forces work efficiently to bring convergence Across countries, global economic forces are impeded by barriers to trade, capital flows and immigration and convergence is mitigated MOR 492: Global Strategy 11 Foreign Direct Investment Foreign Distribution Distribution Country Analysis Framework Framework Theory suggests that capital should flow to where the arbitrage opportunities are greatest x However, low wages may be offset by institutional voids which raise overall costs In reality, most FDI is between “rich” countries, and a select group of emerging economies (e.g. China, Brazil, Mexico, Singapore, Indonesia, Malaysia, Saudi Arabia, Argentina) 12 MOR 492: Global Strategy Country Analysis Framework Framework Institutional Voids Institutional voids are the absence of intermediaries between buyers and sellers Examples: Venture Capital Firms Private Equity Providers Finance Mutual Funds Banks Auditors Management Talent Products MOR 492: Global Strategy Business Schools Certification Agencies Headhunting Firms Relocation Services Certification Agencies Consumer Reports Regulatory Authorities Extra-judicial dispute resolution 13 Country Analysis Country Framework Framework Identification Country Analysis Framework Framework Strategy x Context x Performance x Context Strategy Performance Evaluation Prediction MOR 492: Global Strategy 14 Country Analysis Framework Framework Performance Formal economy, grey market, black market Economic Performance Measures x x x x x x x x x x Output Prices Employment Savings Investment Productivity Wages increases Unit labor costs Utilization of capital Distribution of income Net inflows vs outflows of capital, labor, etc. 15 MOR 492: Global Strategy Country Analysis Framework Framework Strategy Vision – guiding motivating values x Community solidarity vs. individual achievement Goals Policies – policy mix Foreign/Defense Policies Fiscal Policy x Spending priorities, types of taxes, balanced/ deficit/ surplus budgets MOR 492: Global Strategy 16 Country Analysis Framework Framework Strategy (continued) Strategy (continued) Monetary Policy Income Policies x Redistribution of incomes Import vs. Export Orientation Foreign Trade and Investment Policies x Industrial Policy Social Policies x Education, Population, Health Care, Religion MOR 492: Global Strategy 17 Country Analysis Framework Framework Context International Context x x Trading Blocs Historical ties Political – strong or weak governments, ability to bring about reform Institutional Context – Government, legal, financial, agricultural, transportation, energy, infrastructure. Other institutions like union, religions Domestic Context x x MOR 492: Global Strategy 18 Country Analysis Framework Framework Context (Continued) Context (Continued) Ideological x Context Rights vs. Obligations x Individual vs. Group (minority rights protection) International x Context GATT, WTO, IMF MOR 492: Global Strategy 19 Country Analysis Framework Framework Context (Continued) Resources x – The equipment and recruiting system Human capital, physical capital, natural resource wealth, and technological skills The x Players in the Game Firms, government actors, and nongovernment organizations 20 MOR 492: Global Strategy Country Analysis Framework Framework Context (Continued) The Rules of the Game x x Written and unwritten rules of conduct Formal Laws, property-rights Business practices which come for culture heritage x Informal x Rules define what is possible and what is not Role of multinational corporations International organizations like IMF, World Bank, WTO 21 International Dimension x x MOR 492: Global Strategy Country Analysis FRAMEWORK FOR COUNTRY ANALYSIS Framework Framework Strategy Goals Higher per-capita income level and growth, equality of income, stability, autonomy, defense, etc. Context National Resources Labor, capital, natural resources, technology, geography Performance Economic GNP National income accounts Policies Fiscal & monetary policies Exchange rate policies Trade and investment policies Sectoral policies Industrial policies Constitutional reform Players in the Games Firms Government actors Non-state organizations: Unions, employer associations, religious groups, political parties, etc. Prices Inflation Unemployment Social Income distribution Rules of the Game Formal rules economic (e.g. property rights, contract law), political (e.g. federal system, separation of powers), treaties Fertility, mortality, literacy, etc. Political Political stability, political freedom, etc. Informal rules - conventions, culture, religious beliefs, ideology International International Location International Organizations Balance of payments Exchange rates Tariffs, quotas MOR 492: Global Strategy Treaties on Trade and Investment, International Monetary System 22 stitutional Voids Analys Examining the Institutional Context for Business in New and Emerging Markets GSBA 582: GLOBE GSBA Country Analysis Framework for Analyzing Framework Framework Framework the “Fitness” of Emerging Markets Markets The creation or replication of a global business strategy in a new market presupposes the existence of supporting “infrastructure” and complementary “institutions” x Physical infrastructure, specialized intermediaries, legal support, contract-enforcing mechanisms, dispute mediation, regulatory systems, etc. Adapt to local “institutional voids” and market conditions Change the local markets and “fix” the institutional voids Stay out of the market altogether 24 Firms have three choices: x x x MOR 492: Global Strategy Country Analysis Framework Framework Business “Context” Business Strategy & Operations “Soft” Infrastructure “Hard” Infrastructure Country Factor Endowments Logistics Intermediaries Professions, Debt & Equity Credentialing Markets, Search Firms Venture Capital Schools, Banks & Financial Physical & Roads, Rail Property Universities, Institutions, & Ports Rights Security Training Regulators Specialized Consultants Accountants & Legal System Functioning Independent Legal System Land Labor Capital Markets Political & Social Systems 25 MOR 492: Global Strategy Political and Social System x x Country Analysis Spotting Institutional Spotting Framework Framework Voids: Voids: Hard Infrastructure Role of government in supporting/controlling business/market activities Transparency in regulatory environment Quality of ports, roads, rail Energy, water, housing stock, etc. Personal safety – atmosphere of security, law & order Health care Legal protection of personal property, intellectual property, etc. Physical Infrastructure x x Personal and Property Protection x x x MOR 492: Global Strategy 26 Country Analysis Spotting Institutional Spotting Framework Framework Voids: Voids: Hard Infrastructure Openness x x x x x x Role of media, non-government institutions, churches, social groups, etc. Restrictions on foreign investment, repatriation of profits, etc. Restrictions on foreign intermediaries (e.g. auditing firms, ad agencies, consulting firms, banks, insurance, etc. Free trade agreements (WTO compliant, FTAs, RTAs) Freedoms on business activities – restrictions on where and in what sectors foreign businesses are allowed to invest Freedom of foreigners and locals to travel within, and into and out of country MOR 492: Global Strategy 27 Spotting Institutional Voids: “Soft” Infrastructure Country Analysis Framework Framework Product Markets x x x x x x Existence of reliable data on consumer behavior Access to quality raw materials, local manufacturing of components Quality of retail sector Consumer credit (credit cards, cheques, etc.) Regulation of quality standards, product content, etc. Environment and safety standards Logistics and transportation specialists Distribution channels, wholesale markets, warehousing 28 Supply Chain Intermediaries x x MOR 492: Global Strategy Spotting Institutional Voids: “Soft” Infrastructure Country Analysis Framework Framework Labor Markets x Quality of basic and specialized education Technical and professional training Accreditation of education x x x x x x Prevalence of “English” (Int’l language of Business) Free movement of employees Compensation practices (merit pay, seniority based, stock options) Enforcement of labor contracts Workers’ rights, Unions Regulations on layoffs, etc. MOR 492: Global Strategy 29 Spotting Institutional Voids: “Soft” Infrastructure Country Analysis Framework Framework Capital Markets x x x x x x Prevalence and effectiveness of banks, insurance companies, savings & loan institutions Access to banking for consumers, businesses Transparency in Banking practices Debt & equity raising, venture capital Standards of financial reporting, protection for stockholders, bankruptcy laws/protections Market for acquisitions/takeovers MOR 492: Global Strategy 30 ...
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Country & Institutional Analysis - Country Country...

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