Southwest Market
Group Strategy Project (Part 2): Country Assessment Analysis
A. General Instructions
1. Only use scholarly and reliable non-scholarly sources such as Bloomberg, Reuters, Money, Forbes, and Fortune (no answer.com, QuickMBA, eHow, Wikipedia…….), in addition to the weekly readings, multimedia and data resources listed in the classroom.
2. Assignment should be written in a paper format; not a question and answer format.
3. Paper should be with one inch margins, 12 point font, double-spacing, and should be posted as a PDF document. No introduction or conclusion needed All graphics should be placed in the appendix. At least 3 full pages
4. Use APA format for in-text citations and the reference list. Please use the references listed below. Feel free to use your own also
B. Overview & Deliverables
Examine each of the 4 countries that your group selected plus your client’s home country and provide a PESTEL analysis on each country. Once you have concluded your PESTEL analysis on each country, incorporate these results into the following outline.
V: Determination of the Target Country for the Proposed Acquisition or Joint Venture
Comparative risk, opportunity and overall business climate of the countries.
Comparative industry market potential and structure of the countries.
Selection, with rationale of the target country.
In developing your rationale, be sure to address the following strategic dimensions.
How would you tradeoff the degree of country risk versus the business environment ratings, taking into consideration the market size in 2020?
Note: Write this up, integrating your answers in a way that demonstrates your critical reasoning supporting your prioritization of the countries that your group researched.
Industry: Air Travel from US (International)
Client: Southwest Airlines (US based)
Countries: England (London), France (Paris), Spain (Madrid), Italy (Rome)
References:
Schmitz, A. (Trans.). 2012. International expansion and global market opportunity assessment.
Schmitz, A. (Trans.). 2012. Global strategy as business model change.
Khanna, T., & Palepu, K. (2013). Emerging markets: Look before you leap. IESE Insight, (17), 44-51. (attached)
World Economic Forum. (2014). The global competitiveness report 2014-2015.
The World Bank. Ease of doing business index.
INSEAD Global Indices. The global talent competitiveness index 2015-2016.
Kogut, B. (2006). International management and strategy. In A. Pettigrew, H. Thomas & R. Whittington Handbook of strategy and management (pp. 268-270). London: SAGE Publications Ltd. Doi: 10.4135/9781848608313.n12
Ruigrok, W. (2006). The strategy and management of international institutions. In A. Pettigrew, H. Thomas & R. Whittington Handbook of strategy and management (pp. 327-332). London: SAGE Publications Ltd. Doi: 10.4135/9781848608313.n15
PESTEL Analysis: England
Political
England is a developed country with a strong and active government. The country functions on a constitutional monarchy and parliament system. England is part of the United Kingdom (UK) and is therefore currently a member of the European Union (EU). The UK may however be withdrawing from the EU in 2019 due to Brexit. According to the Global Talent Competitiveness Index (GTCI) the UK (there was not a rating for England) is a politically stable country (45 out of 118). They ranked higher on government effectiveness (13th). The UK’s government plays an active role in ensuring businesses are treated fairly and equally.
Economy
England is one of the largest economies in the world and the largest economy in the UK. England’s currency is the British pound sterling. Given that England is part of the UK that data presented will reflect the UK as a whole and not England as an individual country. The current population is 64 million. The GDP per capita is $39,567 USD. The GDP for the UK equals 2.75% of the world’s total. The UK is also high on the list of easiest countries to do business in (5th). This is in part because of the political and economic stability in the UK and the effectiveness of the government. The government has an active role in all businesses. The UK also has a high rating for having ease of hiring. Corruption in the UK is low. They are ranked as the 10th lowest country on corruption. The Transparency International UK is an agency that fights corruption to keep the government, businesses and citizens safe. The global competitiveness index (GCI) has ranked the UK (9th) in the top 10 competitive countries to do business in. This can be because if the fact that the UK attracts a lot of talent from individuals wanting to work in the UK. he UK is financially stable their currency the British pound is one of the most traded currency.
Social
England is also the largest populated country in the UK. The official language used in England is English and Christianity is the most practiced religion. Within the GCI rank the UK was measured on their social sustainability. The UK was ranked high, within the top 10 on being a country that is socially responsible and is concerned with making sure the health and welfare of their citizens are a priority. The UK is also one of the safest countries to live and do business in.
Technological
The UK’s infrastructure is extremely developed. Particularly, England is the birthplace of the industrial revolution. They have a very advanced economy in regards to electricity and technology. England also has a large domestic and international aviation link. The UK the the 2nd highest country for technological readiness. 89% of individuals in the UK are utilizing the internet whether it is through broadband or mobile service. Their economy is developed enough to support any new technology that comes out. The UK’s air transport infrastructure (28th) is developed and functions very well. The UK ranked 3rd on the GCI for the number of available airline seats that are available for domestic and international flights. Each flight has a passenger carrying capacity of 67 million km/week. London’s airport is the busiest airport in the UK. Many people traveling to the UK pass through London. London’s airport is making upgrades to its terminals to meet the needs of the growing population.
Environment
England is improving their environment by creating sustainable fisheries, protecting the forest and improving their water quality. The UK is helping to make sure all countries within the UK improve. The UK has an environmental department within its government to enforce laws that will maintain a safe environment for their citizens as well as for the land and forest areas. The UK is one of the top countries with strict environmental regulations. They are also involved in international efforts to addressing global environmental change.
Legal
England as well as the UK uses common law for their legal system. The UK has various laws in place to protect and support businesses. They provide legal protection for business both domestic and international. They have policies in place that promote private sector development. UK has an excellent system of resolving legal disputes and challenging regulations.
PESTEL Analysis: France
Political
France is a developed company with a stable economic environment. France is rated as the 24th best country to do business in. France’s government is a unitary semi presidential democratic republic so the president works alongside of the prime minister. They are a member of the United Nations (U.N) and the North Atlantic Treaty Organization (NATO). The government in France is highly effective however the relationship between businesses and the government is extremely low. Their business/government relationship is ranked 103 out of 118 countries.
Economy
France currently has a population of 66.81 million people. They are considered a high income country. he GDP per capita is $39,677 USD, which is 2.62% of the total world GDP. For business the ease of doing business in France is very high. Starting a business and obtaining contacts and permits are fairly easy in France. However the ease of hiring working and employment contracts are difficult. France ranked low (104) on the GTCI list as one of the most difficult countries. This can be in part of the lack of relationship between the workers and the employer. The labour-employer relationship also fell in the bottom scores as one of the worst countries.
Social
France is one of the top populated countries in Europe. The official language is French and Catholicism is the dominate religion however freedom of religion is a constitutional right. In terms of social responsibility France landed on the 23rd spot as a socially responsible country. The health and welfare of their citizens are taken seriously and health care is provided for all citizens.
Technology
France is a contributor to science and technology which has helped to make them a very advanced country. France’s infrastructure is highly developed and capable of handling any new technology. Being that they are one of the leaders in space technology their air transport infrastructure is ranked at 17 on the GCI list. They are also ranked as the 8th best country for the number of available airline seats for both domestic and international flights. France is also highly advanced in the information and communication technology. They also have the technology to support telephone lines and wireless signals.
Environment
France is working on increasing and maintaining their environmental sustainability. Their environmental performance is ranked in the top 10. France must adhere to the EU’s laws regarding environmental sustainability as well as their own governments laws concerning energy, pollution, water, and green technologies.
Legal
France’s legal system follows written statues of the Napoleonic code. The EU also assures their laws are fair and equal for any legal issues, taxes and audits. However, the system can be quite burdensome for business regarding complying with regulations and being updated on changes in current laws or regulations. The ease of settling disputes and challenging regulations falls in the middle and can be quite difficult.
PESTEL Analysis: Spain
Political
Spain is ranked as the 35th best country to do business in. Spain is a developed country with a stable political environment. They are no conflicts with neighboring countries but there may be unrest within Spain due to their financial crisis. Spain is the fourth largest country on the European continent. The country is run as a democracy under a constitutional monarchy. Spain is a member of multiple organizations such as EU, UN, NATO, Counsil of Europe ( CoE), World Trade Organization (WTO) and Eurozone.
Economy
Spain has a population of 46.42 million. Their GDP per capita is $34, 526 USD. They are considered a middle power country which means they have some influence internationally with countries that are considered super power and small power. Spain is an easy country for foreigners looking to start a business. The government is committed to ensuring the laws are enforced. The relationship between the government and businesses are very cooperative. The relationship between the employer and the employee can be better. Depending on the management or the employer there may be issues in the workplace. Spain is currently in a financial crisis that began in 2008. Spain’s financial crisis is due to the housing bubble and the labor market. Spain is also not making any income on its R&D, “imports are so cheap, and Spanish exports so expensive, the country's economy as a whole found itself spending 10% more than it was earning” (Knight, 20012).
Social
The primary language in Spain is Spanish and it is the right and duty of all Spaniards to know the language. The government in Spain ensures that the health and well-being of their citizens are cared for. “In 2009 Spain’s healthcare was once ranked seventh best in the world by the World Health Organization” (Socolovsky, 2009). Although Spain is a developed country it still has some work to do on improving living qualities. Spain is working on improving water conditions in the entire country. A few cities in Spain, Madrid being one has safe drinking water but not all. “Spaniards are slightly less satisfied with their lives than the OECD average. When asked to rate their general satisfaction with life on a scale from 0 to 10, the Spanish gave it a 6.4 grade, lower than the OECD average of 6.5” (OECD, n.d).
Technology
Over the years Spain has built up their infrastructure and made improvements in the way of science and technology in order to stay competitive in the global world. GTCI ranked Spain 29 in their ICT infrastructure and and ranked 49 in terms of being able to learn new technology. Spain’s air transport infrastructure came in as the 10th best country. However due to budget cuts because of their financial crisis there is not enough funding to help advance the technology in Spain.
Environment
In terms of environmental sustainability Spain was ranked 35 out of 144 countries. This high rank shows that Spain is taking step to reforest the land and clean up all the damage that was caused by deforestation. Spain has multiple environmental policies in place and they are working with each city to help rebuild the forest and make it more appealing to tourist.
Legal
Spain’s legal system is a civil law system that operates under Roman law. Currently Spain’s legal framework for settling disputes and challenging regulations ranked low in the GCI. This means for international business working in Spain may have a hard time getting a resolution of disputes filed or have a hard time going through the legal system to start a dispute.
PESTEL Analysis: Italy
Political
Italy is a developed country and is the 8th largest country in the world. They are parliamentary republic that is governed by a single power. They are part of the EU and is also one of the founders of the EU. Italy is also a member of the UN, NATO, WTO and OECD. Italy is also the fifth most visited country in the world. Their overall rating as a country to do business in ranked at 40 on the GTCI list. In terms of their government Italy’s government is not very effective in terms of the quality of service you receive and the amount of political pressure you may receive. The citizens of Italy do not have much trust in the politicians and government favoritism is a big deal.
Economy
Italy is the leading country in World trade and export. The currency used is the euro and their GDP per capita is $34,715 USD. Their unemployment rate is 11.7%. The ease of doing business in Italy is 50 out of 190 and in terms of corruption they ranked 56. Italy does not have a healthy work environment. Their employer/employee cooperation scored low on the charts and this can be due to the fact that there is not a stable, comfortable work environment where management is professional toward their employees.
Social
The current population is 60 million people. The official language is Italian and their most widely practiced religion is Catholicism. Italy’s social sustainability is still very low since coming out of their recession in 2015. Their unemployment rate is still considered high (11%0 for the Eurozone and their youth unemployment rate is also high. Italy “has one of the lowest literacy rates in Europe, and the number of citizens moving into poverty has explode since 2008” (Vita, 2015).
Technological
“Italy has an efficient and modern infrastructure, even though it performs poorly compared to other Western European countries of comparable size” (National Encyclopedia, n.d). Their ICT infrastructure is modern and reliable but it too is not as good as their neighboring countries. Italy’s air transport infrastructure fell low on the index chart as well. Although Italy has 129 airports and they all are modern and up to date they do not perform as well as other countries. Italy is working on developing their infrastructure especially their advanced technology.
Environmental
Pollution is a big problem for Italy. Air pollution, water pollution, unsanitary waste disposal efforts are all problems that Italy faces. Being that Italy is part of the EU they must follow their laws and regulations regarding steps necessary to fight their pollution crisis. Italy is taking steps at moving into a greener society but it will take many years to combat their environmental issues.
Legal
Italy uses the Roman Law and the French Napoleonic code as their judicial system. For businesses Italy’s legal framework for settling disputes and challenging regulations fell low in the index chart. Italy’s lack of trust in politicians and high rates of organized crime and lower ethicical behaviors of firms can be reasons why the legal system may be difficult.
PESTEL Analysis: United States
Political
The United States (US) is a developed country with a strong government with political and financial stability. They are one of the largest economies in the world. The US is known as a superpower and considered the only superpower in the world. The US is a constitutional federal republic. They are the founding member of the UN and also a member of the Organization of American States and the World Bank.
Economy
The US population is 321 million. They are considered a high income country with a GDP per capita of $55,836 USD. The US ease of doing business per the GTCI list was ranked as the 6th top country. Their ease of hiring beat all the other countries as was ranked as number 1. In terms of doing business in the US there is a strong correlation between upper management and employees.
Social
The national language in the US is English and Christianity is the most practiced religion. Although the US Constitution allows individuals free exercise to practice the religion of their choice. In terms of social sustainability, the US was ranked number 3. This shows that the US is concerned with their citizen’s health and sanitation issues, the US has various social programs that are in place to help those that are in need.
Technology
The United States’ infrastructure is very well developed. They have many advanced systems that allow them to remain a superpower. The US air transport infrastructure is rated number 9, per the GTCI. They have also ranked in the top 20 for their roads, railroads, port and electric infrastructure. In terms of technology the US ranked number 2 for having the latest technologies and they ranked 3rd on the number of businesses that adopt the new technologies.
Environment
The US has multiple laws and regulations in place to be environmentally sustainable. They are concerned with protecting the environment not just within the US but around the globe. They have issued federal laws to address pollution (air and water), endangered species and National forest management, to name a few.
Legal
The US follows the American federalist system and citizens are subject to three levels of government: federal, state and local. The US has many laws in place to protect businesses as well as employees, the legal framework for settling disputes and challenging regulations is fairly easy as they ranked 23 and 18 respectively on the GCI list. The US has laws in place that will also protect businesses property rights and intellectual property.
V.1. Comparative risk, opportunity and overall business climate of the countries. (RAHSHAE)
England
The risk involved in doing business in England are fairly low. Beside the U.S, the UK (England) is the next in line as one of the top countries to do business in. England is a stable country with a stable political and business environment. The government is active in forming relationships with businesses and this allows for a more relaxed atmosphere. There is a lot of opportunity for a U.S based company to expand into England. It’s close proximity to the U.S allows for easy access to and from England when starting up the business as well as importing and exporting. Given that England is the largest populated Country in Europe and the amount of tourist that come to England daily, there is a big opportunity for business to succeed with the right business plan. The overall business climate is made to help business succeed. “U.S. companies have traditionally found establishing a base in the UK to be an effective means of accessing the EU market (Bureau of Economic, n.da.). The UK issued an infrastructure plan for 2016-2021 where they are updating and improving their digital and telecommunication infrastructure, energy, airports, roads, water, waste and social infrastructure just to name a few. Improving the infrastructure is important because is allows the UK to grow and prosper and stay an international key player.
France
Some risk involved when deciding to invest in France are “the tax environment, the high cost of labor (with the minimum wage, called the SMIC for Salaire Minimum Interprofessionnel de Croissance, at EUR 1,466 per month), rigid labor markets, and occasional strong negative reactions toward foreign investors planning to restructure, downsize or close” (Bureau of Economic, n.db). The opportunities in France are endless. Their location in Europe attracts many people as well as investors. France has a good infrastructure, modern technology and they have a skilled labor force. France has a modern business climate. They are open to foreign investors and the French government has made changes to “attract foreign investment, through policy incentives, marketing, its overseas trade promotion offices, and investor support mechanisms” (Bureau of Economic, n.db). France’s business climate is also favorable to the US. The US is one of France's top foreign investors. “Around 1,200 U.S. companies in France (affiliates with assets, sales, or net income greater than $25 million) are responsible for over 450,000 jobs” (Bureau of Economic, n.db).
Italy
Italy has a few risk that must be considered before investing in their country. “Italy's large public debt, public sector deficit, low productivity growth, and burdensome and complex tax system, are generally blamed for the poor state of the economy” (National Encyclopedia, n.d). Some opportunities in Italy is that they are actively looking for foreign investments. Since Italy is a member of the EU they are obligated to follow the EU’s rules and regulations when dealing with foreign investors in Italy especially with US companies. “Italy is generally obliged to provide national treatment to U.S. investors established in Italy or in another EU member states” (Bureau of Economic, n.dc).The business climate in Italy is not good. They are high in debt, they do not have much access to credit and they have high corporate tax. “Italy’s economy has emerged from its longest recession in recent memory and the current government is making progress on its efforts to improve Italy’s investment climate” (Bureau of Economic, n.dc).
Spain
Although Spain is starting to recover from their recession, there still is some concern in political stability and trust in their politicians. Other risk in Spain include government spending, government regulations, favoritism among government officials and intellectual property protection. Spain is looking to attract foreign investors who can help them recover from their financial crisis. But through all the bad Spain still has an excellent infrastructure and a highly educated work force. Which is good for attracting investors. Per the GTCI rank, Spain’s overall rank for their infrastructure is 13 out of 144 countries. Their railroads, air transport and post infrastructure all ranked in the top 10 countries.
Spain is offering various incentives to foreign investors who are willing to come and do business. Spain’s incentives are provided through the EU since Spain is a member. Most of the incentives are for investors who want to come and work in economically depressed regions that will help benefit Spain. There are also incentives offered through the Central Government and the Regional Governments in Spain and the funding through those programs are also backed by the EU.
V.2. Comparative industry market potential and structure of the countries.
Spain
Spain’s market size ranked 14 out of 144 countries. Per GTCI they scored a 5.4 with 7 being the highest. They have proven to have a strong infrastructure having 3 infrastructures in the top 10 (air, port and railroad). They have a strong health and primary education rating. Spain does not see major illnesses such as tuberculosis or HIV having any effect on their business culture. Spain is technologically ready. Spain is able to support broadband internet as well as international bandwidth and they have a high usage of mobile broadband subscriptions. Also they have a highly educated workforce. Spain has quality management schools and a high number of citizens going back to school to learn a skill or trade. Spain is starting to regain some stability in their economy. Government spending still remains high accounting for almost half of their DGP. However they have lowered their tariff rate and is currently the 5th country with the lowest tariff rate. This is good for investors looking to get into the importing/exporting business. “Imports and exports account for 64% of Spain’s GDP” (2017 index, n.dc). In the financial market it is difficult to obtain a business loan and business cannot obtain financing through local equity markets. However there are some protection for business in regards to bankruptcy laws that will protect their rights.
Italy
Italy’s market size ranked 12 out of 144 countries. Per GTCI they scored a 5.6 with 7 being the highest. They have proven to have a strong infrastructure in terms of providing electricity, mobile telephone and having fixed telephone lines. Italy’s air transport infrastructure is moderate but it is not one of the best infrastructure compared to other countries in Europe. Italy's business sophistication score is along the same lines as advanced economies. Italy ranked number 1 as having a number of suppliers in products and services that are spread throughout the country. Italy’s “economy remains burdened by political interference, corruption, and poor management of public finances” (2017 index, n.db). Italy’s government spending accounts for over 50% of the GDP and with their inefficiency to settle legal disputes may deter investors from coming to Italy to invest. Trade is important for Italy’s economy it accounts for 57% of the GDP. Just as Spain does, Italy also has one of the lowest tariff rate on imports and exports. Financially it is hard to obtain business loans and it is extremely difficult for entrepreneurs to find venture capitals.
France
France’s market size ranked 8 out of 144 countries. Per GTCI they scored a 5.7 with 7 being the highest. They have proven to have a strong infrastructure in both transportation and electricity. France’s best infrastructures are roads, railroads and fixed telephone lines. They also have a strong health and primary education. There are no major concerns that any illnesses will affect their business culture. France is ready to support modern technology. They have a high number of individuals utilizing the internet and has a high number of fixed broadband users. They can also support international internet bandwidth. France has a stable financial market that allows easy access to loans and financing through local equity markets. France ranked high on their foreign market size. Like Italy and Spain government spending accounts for more than half of the GDP. “The labor market is burden with rigid regulations and lacks the capacity to generate more vibrant employment growth” (2017 index, n.da). The relationships between the employee and employer is low and their flexibility of how employees’ wages are considered low as well.
England (UK)
The UK’s market size ranked 6 out of 144 countries. Per GTCI they scored a 5.7 with 7 being the highest. The UK has proven to be an advanced economy. They have a strong transportation, electric and telephone infrastructure. In health and primary education, they have a high number of people enrolled in primary education as well as they have no major or life threatening health concerns that will affect their business climate. The UK has a number of opportunities for citizens to further their education. The UK also has low tariff taxes in goods and they encourage foreign ownership. The UK attracts a high number of talented individuals looking to work in the UK. They are flexible and fair when determining wages and they look to higher professional individuals based on your qualifications.
Their financial market is stable. The financial institutions in the UK offer a wide variety of services that meet the needs of the customers. There are legal protections for both borrowers and lenders in the UK and they provide financing through local equity markets. The UK is equipped to handle modern technology and so are the citizens. They have a high number of individuals using the internet and using mobile internet. They are also able to support international internet bandwidth. Companies in the UK have the support to be able to innovate. The UK is ranked number 2 in having quality scientific research institutions.
V.3. Selection, with rationale of the target country.
To expand Southwest airline destinations internationally, we have chosen to enter into England (UK). The UK is ranked as the 5rd best country to do business in. The US is right behind the UK at number 6. Based on the GCI stage of development out of all 4 countries the UK was the only country that matched other advanced economies. The UK has a number of qualities a business from the US needs to survive and make a large profit. The UK’s economy matches the US more closely that Spain, Italy and France. They have a stable political and financial environment that will make it easy for Southwest to venture into. The UK has modern and up to date infrastructures that will allow Southwest to expanded into the market easily.
The country has the bandwidth needed to support domestic coverage and international coverage. Also a high number of citizens utilize the internet through broadband subscription and mobile subscription which will help to get Southwest recognized in the new market. Unlike the US, the UK does not have the ease of accessing loans so Southwest will need to raise a lot of capital is they decide to move into this market. However, if Southwest needs to raise additional capital the UK allows for easy financing by issuing shares on the stock market.
