List of countries by GDP (PPP) Image via Wikipedia
This "Economic Analysis" is the second part of "PEST analysis" in Macro Environments and below points will be helpful when you plan to do economic analysis.
1. Type of economic system: if the economic system is free trade oriented, good for the international companies, but if it is protectionism, good for local companies but they can not get more ideas on doing business in global standard because they are only working in local boundary.
2. Government intervention in the free market; In case of bankruptcy, how ready is the government to bail out the company. Like in USA, the government helped many companies when they are about to bankrupt.
3. Comparative advantages; Compared other countries, what advantages can you get from this particular country?, Low labor cost advantage? Location advantage? Technology advantage?
4. Exchange rates & stability of host country currency; If you are selling your product to USA, if the exchange rate is high ($1=35 bahts), you will get more money. But if the exchange rate is low ($1= 30), you will less because, your customers will give you in dollars then you will have to change it again. For example, after calculating all your cost of product, you price it 30 bahts and sell it to USA for $1 because the exchange rate was $1=30 baht. But now because of your Thai baht is appreciating or dollar is depreciating, the exchange rate becomes $1=35 bahts. So this time you will get extra 5 bahts per product while cost per product is the same as before. But it is up to your contract which currency to use or you have fixed rate with your contractor or partner.
5. Efficiency of financial markets; When you have some business overseas, it is important to find money easily. Is there stock exchange, government bond, or mutual fund in the country?
6. Infrastructure quality; What about the infrastructure quality such as hospitals, roads/high ways, schools and communication (post, internet, phone). For example, You want to run a business in a country where there is no international school, how can you bring your family with young children there? Or how can you manage for your trusted people who you send overseas. Without proper transportation, how can you transport your products easily and less costly?
7. Skill level of workforce; If you can not get the workforce that you need, can you send all the people from your country? Should be too costly! Then, you wouldn’t have labor advantage.
8. Labor costs; How much lower you pay for the local labor? If you send your own people, how much can save you. It depends one the country of origin. From developed to developing country or vice versus ?
9. Business cycle stage; If business is in the introduction stage, you will need to spend a lot of money for advertising and brand awareness. If the business in growth stage, you will have more competitors, if it is in maturity stage, you will need to find ways to innovate/revitalize your business. If it is a declining stage, you should not go there.
10. Economic growth rate; How much the GDP growth rate? The higher the better. If the GDP growth rate is less than inflation, it is not a good sign for you because people will have less purchasing power.
11. Discretionary income; How much is per capital income? Do people have extra money after they spend for basic needs, food, water, shelter? If they don’t have extra money, they won’t have good purchasing power. But it depends on the type your products and what kind of needs it fulfils.
12. Unemployment rate; If there is high unemployment rate, people will not have job, so they will be very careful in spending money. It will automatically affects the sales of your product whatever you sell.
13. Inflation rate; When the inflation is going so fast, people stable income can not offset. They get the same amount of money from their work or business but the price for everything is going higher and higher. So they will have less purchasing power.
14. Interest rates; How much is the interest rate? If it is high, it will not easy for you to finance your business. But if your business is banking, it may be good for you.
1. Type of economic system: if the economic system is free trade oriented, good for the international companies, but if it is protectionism, good for local companies but they can not get more ideas on doing business in global standard because they are only working in local boundary.
2. Government intervention in the free market; In case of bankruptcy, how ready is the government to bail out the company. Like in USA, the government helped many companies when they are about to bankrupt.
3. Comparative advantages; Compared other countries, what advantages can you get from this particular country?, Low labor cost advantage? Location advantage? Technology advantage?
4. Exchange rates & stability of host country currency; If you are selling your product to USA, if the exchange rate is high ($1=35 bahts), you will get more money. But if the exchange rate is low ($1= 30), you will less because, your customers will give you in dollars then you will have to change it again. For example, after calculating all your cost of product, you price it 30 bahts and sell it to USA for $1 because the exchange rate was $1=30 baht. But now because of your Thai baht is appreciating or dollar is depreciating, the exchange rate becomes $1=35 bahts. So this time you will get extra 5 bahts per product while cost per product is the same as before. But it is up to your contract which currency to use or you have fixed rate with your contractor or partner.
5. Efficiency of financial markets; When you have some business overseas, it is important to find money easily. Is there stock exchange, government bond, or mutual fund in the country?
6. Infrastructure quality; What about the infrastructure quality such as hospitals, roads/high ways, schools and communication (post, internet, phone). For example, You want to run a business in a country where there is no international school, how can you bring your family with young children there? Or how can you manage for your trusted people who you send overseas. Without proper transportation, how can you transport your products easily and less costly?
7. Skill level of workforce; If you can not get the workforce that you need, can you send all the people from your country? Should be too costly! Then, you wouldn’t have labor advantage.
8. Labor costs; How much lower you pay for the local labor? If you send your own people, how much can save you. It depends one the country of origin. From developed to developing country or vice versus ?
9. Business cycle stage; If business is in the introduction stage, you will need to spend a lot of money for advertising and brand awareness. If the business in growth stage, you will have more competitors, if it is in maturity stage, you will need to find ways to innovate/revitalize your business. If it is a declining stage, you should not go there.
10. Economic growth rate; How much the GDP growth rate? The higher the better. If the GDP growth rate is less than inflation, it is not a good sign for you because people will have less purchasing power.
11. Discretionary income; How much is per capital income? Do people have extra money after they spend for basic needs, food, water, shelter? If they don’t have extra money, they won’t have good purchasing power. But it depends on the type your products and what kind of needs it fulfils.
12. Unemployment rate; If there is high unemployment rate, people will not have job, so they will be very careful in spending money. It will automatically affects the sales of your product whatever you sell.
13. Inflation rate; When the inflation is going so fast, people stable income can not offset. They get the same amount of money from their work or business but the price for everything is going higher and higher. So they will have less purchasing power.
14. Interest rates; How much is the interest rate? If it is high, it will not easy for you to finance your business. But if your business is banking, it may be good for you.
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