BSB119 T W 3

8 Pages
Unlock Document

Queensland University of Technology
Management and Human Resources

1 BSB119 – GLOBAL BUSINESS TUTORIAL 3: MARKET POTENTIAL 1. Briefly discuss six (6) conclusions you can draw from an examination of the country data for the Republic of Mazuwa? When analysing business potential on an international scale, it is necessary to analyse whether a country is going to offer the greatest potential for growth and profit as a production location and a market. This potential can be impacted by a multitude of factors including the economic, social, cultural and political-legal environments. In order to determine the potential for success when operating in the Republic of Mazuwa, 6 factors will be considered. Gross National Income (GNI) GNI refers to the total value of income accruing to a nation’s residents (Hill, C., Cronk, T. & Wickramasekera, R, 2011). The GNI per capita for the Republic of Mazuwa is $4,930 (US$) per annum or approximately $94 per week. In contrast, the GNI of the USA in 2009 was $45,640 (US$) whilst the GNI of Australia was $38,210 (US$) (The World Bank, 2009). Thus, the residents of Republic of Mazuwa have on average, low income which would be reflected in their purchasing power. It is reasonable to deduce, that the majority of income would be spent on necessities such as food and housing. It is highly likely that there exists only a small market in the Republic of Mazuwa for luxury items such as plasma televisions. However, it is possible that there exists a highly uneven distribution of income within the country and a market may exist for such products. Based on this factor alone, it can be concluded that products which are low priced commodities are the most likely to appeal to the broad market in the nation.  Low level of purchasing power  Low literacy rates  Low level of infrastructure  Low life exptancy Population Density Population density refers to the number of people per square kilometre in a country (Internet Geography, 2008). Typically in highly density areas such as major capital cities, many business factors are made considerable easier. For example, it is often easier and less costly to transport products to high density areas. Once in the area, distribution costs are also low as the business does not have transport products across further terrain to reach a larger number of consumers. Furthermore, a high density area also increases the ability of an entity to successfully promote their product to a larger number of consumers. The population density of the Republic of Mazuwa is 40 people per square kilometre, with only 30% of people living in urban areas. In contrast, figures from 2007 show that that Mumbai in India has one the densest population in the world with over 23,000 people per square kilometre (Malone, R. & Van Riper, T. 2007). Based on this factor alone, it can be concluded that the population density of the Republic of Mazuwa is quite low. It is also provided that 70% of the population live in a rural area. This potentially could have a high impact on advertising, transporting and distribution costs as well as additional problems which international business would be concerned with.  Sparse population – increased density in city Current Account Deficit The current account deficit refers to the amount by which payments to foreigners exceed receipts from foreigners for (Hill et al, 2011). Imports for the Republic of Mazuwa were approximately $27 billion (US$) compared to exports of $23 billion (US$). This results in a current account deficit or trade deficit of $4 billion (US$). Action to reduce a current account deficit typically involves increasing exports or decreasing imports (Hill et al, 2011). Generally, this is achieved by introducing import restrictions, quotas or tariffs to make imports less attractive to domestic consumers. If the Republic of Mazuwa were to take this approach, it is highly likely that these increased costs will negatively impact on the profitability and business success of entering this country via importing. However, a current account deficit can provide an incentive for a nation to promote an investor friendly environment through foreign direct investment (Hill et al, 2011). Income 2 from foreign direct investment positively contributes to the current account, thus reducing any deficit. If the Republic of Mazuwa were to adopt this approach, it is highly likely that investment through foreign direct investment would prove to be the most financially successful method. Therefore, depending on the mode of entry chosen the current account deficit may have positive or negative implications on a business.  Period of expansion  Other trading markets may have currency issues  Exports are poor quality Political Environment The form of government within the Republic of Mazuwa is a constitutional multi-party democracy. A constitutional democracy is a system of government based on popular control in which the powers and limits of government are set forward in the constitution (Central Intelligence Agency, 2011). A multi-party democracy is a system in which multiple political parties are allowed to run for and have the capacity to gain control of government separately or in a coalition (Central Intelligence Agency, 2011). As the ruling party is decided by democratic vote, it is likely that the political environment within the Republic of Mazuwa is quite stable. Typically, countries with this political environment are relatively prosperous with an equitable distribution of wealth (Hill et al, 2011). This would have positive implications on potential business investors in the country. Furthermore, political environments such as this are characterised by open economies that are market driven with low government intervention. For a foreign company, it is likely that there would be very few barriers to investment or exporting to the Republic of Mazuwa. Based on the political environment, it can be deduced that the political environment would have positive implications on any business ventures into the nation. Main Industries The main industries of the Republic of Mazuwa are oil, mining, construction, agriculture, manufacturing, and transportation sectors. Typically, work in these industries is physical and does not require a high level of education. When considering these factors in addition to the GNI per capita of the nation, it is highly likely that remuneration levels are low. Thus, it could be deduced that labour costs within the country are low. This may positively impact on costs for a business seeking to produce a product in the country and export it or a firm seeking a joint venture or foreign direct investment opportunity. Furthermore, developing economy is an ideal location for investment, as typically these nations are seeking to increase foreign investment to improve economy activity. However, the implications of this factor on purchasing power should be carefully noted when considering the nation as a potential market. Main Exports The main exports of the Republic of Mazuwa include coffee, bananas, sugar and non-replaceable minerals or substances such as petroleum, coal, gold and emeralds. The potential for these industries to decline or negatively impact on the economy in the near future is substantial. Any agricultural based exports have the potential to be destructively impacted by weather factors including drought, floods and earthquakes. If a devastating natural
More Less

Related notes for BSB119

Log In


Don't have an account?

Join OneClass

Access over 10 million pages of study
documents for 1.3 million courses.

Sign up

Join to view


By registering, I agree to the Terms and Privacy Policies
Already have an account?
Just a few more details

So we can recommend you notes for your school.

Reset Password

Please enter below the email address you registered with and we will send you a link to reset your password.

Add your courses

Get notes from the top students in your class.