How Cost, Benefit, Risk and Opportunity Analysis Define Financial Viability of Foreign Market - Assignment Example

Answer the following questions: 1. WTO: What is WTO and what are its functions? WTO (World Trade Organization) is an international organisation that deals with the rules of trade between countries. It acts as a forum for governments to negotiate trade agreements and to settle disputes in trade. WTO has several functions, which include ensuring that trade negotiations between nations run smoothly, supporting the implementation and monitoring of international trade agreements, settling trade disputes, enhancing the trade capacity of nations, and conducting outreach activities to educate the public on various aspects of international trade. What are trade barriers and non trade barriers? Trade barriers are restrictions imposed by the government on trade. These include tariffs and non-tariff barriers to trade such as export licences, import licences, subsidies, voluntary export restraints, embargoes, currency devaluation, and local content requirements. Non trade barriers are restrictions to that are not imposed by governments or other organisations. These include cultural differences between peoples of different regions and lack of access to some markets due to distance or geographical separation. Why is it important for nations to abolish trade barriers? It is important for nations to abolish trade barriers because doing so will lower the costs of doing business and hence reduce prices of goods and services. Removal of trade barriers is also likely to increase competition and the range of products and services available in the market, hence giving consumers a wider selection of goods and services at competitive prices. 2. How could a costs, benefits, risks and opportunities analysis determine the financial viability of a foreign market? Explain. A costs, benefits, risks and opportunities analysis helps an investor (company) to determine the economic standing of a foreign country and thus make a decision on whether to invest in that country or not. The information obtained in the analysis also helps companies to determine the best approach of investing in a given country if they do decide to invest in that country. Doing a costs, benefits, risks and opportunities analysis in regard to doing business in a foreign market involves analysing the economic, financial and economic risks as well as opportunities that are available in that country. Such analyses provide information on a country’s government stability, the capacity of the nation to finance its debt obligations, GDP, exchange rate stability, loan default, and economic strengths and weaknesses among other issues. This information is important since it can determine whether the county has a stable financial environment, the investment opportunities that are available, whether it has institutions that can offer credit, whether it is appropriate for long-term investment and so on. A country that has a stable government and a relatively stable exchange rate for instance may have predictable levels of inflation as opposed to a country with an unstable government and exchange rate, whose inflation levels will fluctuate significantly in accordance with the rapidly changing conditions of the country. Markets whose conditions are steady can be considered financially viable while those whose conditions fluctuate rapidly can be regarded to be financially unviable. 3. What is a PESTLE analysis and how would it benefit a company looking to enter a new international market? Political factors: Changes in government can change the priorities and values of a country, hence affecting business operations in that country. For instance, some governments intervene too much in business activities, thus distorting the market, while others promote free trade. Governments also affect the stability of the international market. Economic change: Includes cycles of growth and decline (taking into account issues such as employment, levels of income, inflation among others) that impact the environment of the international market. Socio-cultural factors: This includes factors such as the culture of people in a given country, family sizes, lifestyle trends, and so on – all of which affect how people view various types of goods and services. Technological changes: New technologies such as Internet and computer technologies, mobile devices, fuels, energy-saving equipment among others, change the way many industries and the market operate. A company that is going into the international market must consider new changes in technology in its field. Legal factors: There are laws governing employment, taxation, competition, insurance, corporate governance, patents, consumer protection and many other areas. Different international markets have different laws, which any new player must familiarise with. Environmental factors: A company going into the international market must be familiar with environmental issues – whether legislated or steered by civil society groups. Some areas that are under scrutiny include pollution, management of waste, energy use, animal welfare and general protection of the environment. Benefit The benefits of a PESTLE analysis are that first, it encourages a company to search widely for all the external factors in the international market that may be pertinent to its activities and then pays attention to trends in those factors. Secondly, a PESTLE analysis relates to the marketplace in which the company operates (in this case the international market), thus avoiding the approach that looks only on the internal requirements of the company. 4. What is a Porter’s Five Forces Analysis and how would it benefit a company looking to enter a new international market? Force 1: The risk of entry by prospective competitors - that is companies that are not currently operating in an industry but have the potential to do so. Force 2: The level of rivalry among well-known firms within the industry. This includes exit barriers, industry concentration, and diversity of rivals among other factors. Force 3: Bargaining power of buyers – the ability of buyers to bargain down prices set by the companies operating in the industry or to increase the costs of firms in the industry by demanding better services or product quality. Force 4: Bargaining power of suppliers – refers to the ability of suppliers to determine prices or to raise the cost involved in the industry in various other ways, such as providing low-quality service or products. Force 5: The threat of substitutes to a firm’s products. This includes capacity of customers to switch from one product to its substitute and buyer inclination to a substitute. Benefit Porter’s Five Forces Analysis enables a business to determine the competitive intensity as well as attractiveness of a market. The company will for instance examine in detail the culture and behaviours of customers and suppliers, the ease of access of the industry, and the presence of substitutes or the capacity of competitors to come up with a substitute. When for example the analysis reveals that suppliers have too much power over limited supply, customers are content with existing products, the industry and market is too accessible and that too many products are present in the market with a similar focus, then it will be advisable for the company not to venture into that market. 5. What is a SWOT Analysis how would it benefit a company looking to enter a new international market? Strengths – Refer to the competitive advantages or core capabilities that present a company with an upper hand over other companies in catering for the needs of its target market. Weaknesses – These are limitations that a company faces in the process of developing or executing a market strategy, such as venturing into a foreign market. Opportunities – These refer to positive conditions in a market environment that can generate rewards for the company if the company acts upon them. Threats – These are hindrances that could obstruct the company from attaining its objectives in the new market. Benefit Carrying out a SWOT analysis enables a company to focus its effort on those areas that offer the greatest opportunities and those competencies in which it has an advantage in the international market. At the same time, the company will look into ways of mitigating its weaknesses and come up with strategies and plans to deal with any threats that are observed. Read More

 

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