WHERE to do BUSINESS

WHERE to do BUSINESS


According to Goldman Sachs, as we proceed towards 2050 strategic choices for firms doing business internationally become more complex, and being in the right emerging market becomes an increasingly important strategic choice. Although we have already seen major changes in global business and the effects domestically, significant measurable impact will begin to be felt by 2009. The landscape of leading economies will be quite different from today, including several developing countries in place of the current list of leaders.[1]

How Do We Determine Where To Do Business?

Most, if not all, global strategic analyses will include developing countries as necessary market targets or sources for goods and services. Although many of the factors included in this writing are applicable to more advanced economies, they encompass somewhat different characteristics when pertaining to developing economies. There are two basic areas of analysis: a Business Culture Spectrum Analysis and a Market Analysis.

Business Culture Spectrum Analysis

Developing countries can be analyzed and placed along spectrums of development, each spectrum pertaining to a specific area or relevant theme. These spectrums assist in the understanding of a country, its business culture, and its relation to other developing or emerging markets. As a general background, it is important to understand the basic political regime and market economy, and the recent past of that country in those regards. How far has the country progressed from a communistic regime or a dictatorship? Did the country experience colonialism and in what form? Is there a ruling oligarchy? Is there a democratic form of government? How controlled is the economic development plan? These are also crucial factors that are the context for the business culture.

Following are several concepts that are important areas to consider in the Business Culture Spectrum Analysis.

v Evolutionary vs. Revolutionary

Is the country experience change as an evolutionary process or are they still going through revolutionary upheavals? The achievement of evolutionary change is one of the greatest progressions that the more advanced developing countries have attained.

v Sustainable Governing Institutions

The appearance of sustainable governing institutions is a benchmark symbol in the solid progression of a country away from authoritarian forms of government.

v Regulatory Environment

All countries have rules, laws or regulations. The nature and extent of the regulatory environment will greatly affect the ease of doing business in a country and the associated risks. Countries that are more developed in terms of free market characteristics will tend to be less regulated than those that have planned economic growth. Areas to consider include employee relations and rights, taxes, capital availability, infrastructure, corporate structures, foreign direct investment, liquidation, energy, communications, defense.

v Government Ceiling

This concept has no real significance in the US. It means the point at which a business must consider the government in its operations, almost to the extent of being a partner. In order to grow any further past this point, government connections are important and relationships must be developed and maintained. In most developing countries this ceiling is fairly low.

v Legitimization

As countries move further into development, legitimization of government institutions and processes, economic policies, and fiscal controls occur. Some examples: The black market which may have been necessary for economic survival and growth is discredited or non-lucrative. Transparency begins to occur in all governmental and financial areas. Currency becomes stable and freely traded. Taxes and tax reporting is equitably enforced. Government administration becomes more efficient and equitable.

v Liberalization

A liberal attitude begins to develop towards business. Government strives to facilitate and not impede business growth and development.

v Rule of Law

Does the concept of rule of law exist in the country? This will directly affect the risks of doing business in that country and the form of entity a company may choose to employ when entering that country.

v Education

How strong education is as a development objective may determine how quickly or totally the market may reach its full potential or capacity. It also will be an indicator of the type of opportunities, resources and areas of development the country may experience.

v Reform / Key Social Drives

The actual reform directives and key social drives may indicate opportunities present in a given country. The manner in which those reforms are carried out may be indicative of their success, and thus the ability of the country to achieve its potential in the global market.

Market Analysis

This encompasses an analysis of the more traditional market factors, including the following concepts.

v Regional Penetration

A market study or analysis will help you determine which country should be targeted as the entry market for a particular region in regards to market considerations for your products or services.

v Infrastructure

Does the country have the infrastructure necessary for your business to achieve its goals and objectives? Infrastructure includes the ports, airports, roads and other means of internal transportation, telecommunications.

v Corruption Index

Transparency International, the global coalition against corruption, issues surveys and indices on world corruption by country. The corruption level in a particular country may affect your choice of where and how to do business.

v Management Team

The local management team is essential to achieve your maximum entry into a foreign market. You must be able to assemble a team with the necessary management and financial sophistication to understand your corporate culture, including your legal and accounting requirements, and the foreign business culture. Integration of both cultures is important. They must also have the necessary political and industry contacts, be able to manage and energize the sales and marketing team, be dedicated to your company, etc.

v Country Risk Analysis

A number of services evaluate the overall risk of doing business in a country, including an analysis of the political, economic and commercial risk. This information may be valuable in deciding where to do business.

Although several of these concepts may appear to be theoretical, they have very serious and direct implications for the products and services a company may wish to commercialize in a given country. They will also directly affect the analysis and decision of doing business in a particular country, or the choice of country through which a company may enter a global region.

The developing countries have tremendous social and economic obstacles to overcome in order to achieve their full potential in the global economy, and some are more advanced than others on the development spectrum. Regardless of specific outcomes, the global economy and global considerations have already changed most aspects of our existence, and will continue to do so.

[1] Goldman Sachs; Global Economics Paper No. 99, October 2003, “Dreaming With BRICs: The Path to 2050.”