10 criteria in selecting a country for the internationalization of your company

Decalogue with key criteria when selecting a country to settle

Choosing the right country is of utmost importance when establishing a company's internationalization strategy. José Luis Martín, CEO of BusinessGoOn, has prepared a decalogue with 10 key criteria when selecting a country to establish yourself.

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The decision regarding the country where a company will establish its production or commercial operations during its internationalization process is of vital importance. While acknowledging that these criteria must be supplemented with additional ones based on the company's specific characteristics, BusinessGoOn, a consultancy specializing in business internationalization , has established 10 basic rules for selecting the target country in the internationalization process:

Criteria to assess market potential.

1.- Economic growth of the country.

The first data that has to be analyzed is the expected GDP growth in the coming years of each of the countries in which there is interest. A growing and sustained demand will facilitate access to the market and will make the investments made profitable.

2.- Purchasing power per capita.

A figure that also conditions demand is the income level of each country and is measured by per capita purchasing power parity (PPP). This concept, which is expressed in US dollars, includes not only the production of goods and services of a country, but also the price level and the evolution of the exchange rate of its currency; Therefore, it constitutes the best exponent of the purchasing capacity of the inhabitants of a country.

3.- Volume of imports.

An essential criterion for choosing a target market is the country's imports of the products the company sells: the volume of imports is the figure that best reflects the size of the market. To know what a country imports and exports of each product, you must first identify the tariff code.

4.- Growth in imports.

As important as the volume of imports is their evolution. The last three years must be analyzed and the average annual growth for that period calculated. A high average annual growth (above 10%) indicates that the country imports more and more of this product and, therefore, there is a growing demand. On the contrary, if growth is low (below 3%), or even there is a decrease in imports, it will be an unfavorable indicator for choosing that country.

5.- Exports from the company's country.

An important criterion for evaluating market potential is the exports of the product from the company's country to the country under analysis. This criterion must be assessed both by the volume and growth of exports in the last three years. They will indicate that products from the country are increasingly recognized and have greater acceptance.

Criteria to assess accessibility and risk.

6.- Tariff barriers.

Tariffs are taxes on the import of products that are applied at the customs of entry into the countries, so they represent a direct increase in the price of the product and, with it, a lower competitiveness of the imported products compared to the products local. As a guide, it can be said that for tariffs to be considered a significant barrier, they must be higher than 5% on industrial products and 10% on consumer products.

7.- Non-tariff barriers.

In addition to the previous barriers, there are other restrictions on the import of products that are fundamentally quantitative limitations that establish a limit on the amount of products that a country can import (quotas, quotas, licenses), as well as the so-called technical barriers that have to do with the certification and homologation processes.

8.- Commercial risks.

According to the form of entry (if the company is going to export) and the investment risks (if the company is going to establish itself in the country). Among the first are payment delays, non-payment risk and exchange rate risk. Among the latter are the risks of nationalization, confiscation, regulations on repatriation of profits and the existence of investment protection agreements.

9.-Ease of doing business.

The current dynamism of the economy means that more and more countries are valued with regulations and legislation that favor the implementation and development of businesses, while at the same time having competitive costs to carry them out. Aspects such as time and cost to establish a company, ease of obtaining credit, taxes, labor costs, logistics costs, compliance with contracts and claim procedures are assessed.

10.- Transparency and corruption.

Finally, it is necessary to take into account the ethical component of business that encompasses aspects such as transparency in information, regulations for contests and tenders, contracting practices in administrations and companies. The reference to evaluate this criterion can be Transparency international (http://www.transparency.org), which establishes a ranking of 183 countries.

 

José Luis Martín, CEO of BusinessGoOn