- Background
You are working as a senior economist for a company based in Australia. The company is contemplating an expansion plan overseas for the first time. You have been requested by the CEO to select a potential target country among Australia’s top trading partners (e.g. China, Japan, the United States, South Korea, Singapore, New Zealand, the United Kingdom, Thailand, Malaysia, Germany, Indonesia, Canada, Philippines, France, Italy and India).
Your job is to compose a research report in which you analyse and assess the macroeconomic conditions of the country you have chosen. The report should highlight the potential advantages as well as the possible risks for a long-term investment venture in the country. The report will be presented to the CEO and major shareholders and should assist them in making their final investment decision.
The report should focus on how the country’s major macroeconomic variables together with its economic policies (fiscal & monetary) shape it into a promising/risky investment destination. The macroeconomic variables and policies that need to consider are as follows:
• General business environment (starting a business, ease of doing business, perceived corruption level, country’s competitiveness, labour force productivity, getting credit, protecting minority investors, paying taxes, trading across borders, enforcing contracts, etc.) Data source: http://www.doingbusiness.org/data
• Economic growth and business cycles Data source: http://data.worldbank.org/indicator/NY.GDP.MKTP.KD.ZG
• Unemployment Data source: http://data.worldbank.org/indicator/SL.UEM.TOTL.ZS
• Average wage rate Data source: http://data.un.org/Data.aspx?q=wage&d=LABORSTA&f=tableCode%3a5A
• Human Capital Data source: http://data.worldbank.org/indicator/SE.TER.ENRR • Inflation Data source: http://data.worldbank.org/indicator/FP.CPI.TOTL.ZG
• Real Interest Rate Data source: http://data.worldbank.org/indicator/FR.INR.RINR?view=map
• Government expenditures in the economy Data source: http://data.worldbank.org/indicator/NE.CON.GOVT.ZS
• Domestic credit to private sector Data source: http://data.worldbank.org/indicator/FS.AST.PRVT.GD.ZS
• Taxation policy in the target country Data source: http://data.worldbank.org/indicator/GC.TAX.TOTL.GD.ZS
• Government expenditures on infrastructure (e.g. internet, road, water, electricity) Data source: http://data.worldbank.org/topic/infrastructure
• Exchange rate regime and exchange rate fluctuation Data source: http://www.bis.org/statistics/eer.htm
• Two examples of monetary policies in the target country in recent years
• How the economy performed since the Global Financial Crisis (GFC) in 2008
Please decide and select the variables you feel the most relevant. You do not have to; nor should you cover all of the variables outlined above.
In your analysis of each and every macroeconomic variable, you should compare the target country against Australia. This is to articulate the advantages and disadvantages of for the company to invest in the country as opposed to investing for further expansion in Australia.
- Recommended Report Structure Your report should consist of the following section
➢ Executive Summary (2 marks): Summarise and highlight the key findings of the report, including the final conclusion as to whether an investment plan in the target country should be sanctioned. A properly written executive summary should allow readers to grasp the key ideas of the report without spending time reading the entire report
➢ Introduction (3 marks): Provide background information surrounding your company and the target country. While your company is not necessarily a real one, you should describe in details the industry your company operates in (e.g. specify what the industry is, recent performance, future growth prospect, key success drivers, any competitive advantage this industry currently holds compared to the rest of the world). As for the target country, provide general information such as demography, locations, political stability, economic trends, etc. Please note: You should articulate whether your operation in the country is to cater for the local market demand; OR to set up a manufacturing hub to for international distribution.
➢ Analysis & Discussion (10 marks): Analysis of the key macroeconomic variables of your choice should go here. You should take a “quality over quantity” approach, that is, you should select a handful of variables that are deemed relevant. For each variable, I expect the analysis to be deep and thorough. You should keep comparing the target country against Australia and other countries in the same region to justify your country selection. Apart from key macroeconomic indicators (e.g. economic growth, unemployment, inflation, etc.), please do NOT forget to discuss the country’s fiscal and monetary policies (e.g. whether the government has the tendency of conducting aggressive expansionary fiscal policy, whether the Central Bank is independent from the government, etc.)
➢ Conclusion and Recommendations (2 marks): Summarise your findings and form your investment decision. If you recommend investing in the target country, emphasise on the reasons leading you to such a decision. You should also alert the readers to any potential risks/drawbacks pertaining to the investment decision.
➢ Format, Style and Referencing (3 marks) The report should be free from grammatical and spelling errors. The report should be structured appropriately to ensure cohesion and cohesiveness. In terms of references, you must adhere to the Harvard style for in-text referencing and compiling your list of references. - Other important information
➢ Word limit: There is no word limit. I would like to see your best work, thus, shall not restrict the length & depth of your report with any sort of word limit. Having said that, the average word count for this assignment in the past was around 4,500 words.
Tips from the Lecturer:
Hi guys,
I have received many questions regarding the case study assignment.
I’ve decided to share some tips in this announcement.
- Make sure you describe in details the industry your company wants to invest in, for instances, construction (commercial or residential), manufacturing (steel, cars, etc.), retailing (food, apparels, etc.), service (healthcare, age care, education, financial services, etc.) This should be done in the introduction of your report.
Also, elaborate on the purpose of your expansion into the targeted country, whether you want to cater for the domestic demand in the country (e.g. Australian company providing age care in China, Bluescope set up steel factories in the US); or set up a hub to manufacture and distribute regionally/internationally (e.g. Dyson to manufacture their electric cars in Singapore) - Before analysing any macroeconomic variables, I’d like to see a discussion regarding the general business environment of the chosen country (e.g. ease of doing business, transparency, corruption level, the local market’s competitiveness, etc.) There are numerous indexes and rankings available that you can make use of.
- It depends on the country of your choice and especially the purpose of your investment that many macroeconomic variables are relevant and some are not.
I suggest that you pay attention to the following:
• Economic growth: Especially relevant when you want to fight for market share in the domestic market. You want to step in when the economy is growing strongly and there is plenty of demand to compete for.
• Unemployment: Low unemployment is generally favourable since it suggests workers in the targeted country are having stable employment; thus; have disposable income to spend. I’d imagine now is a good time for a beauty brand to establish in the US, for example since unemployment there is low and particularly unemployment among female is at an all-time low.
• Average wage rate: Is particularly relevant if the operation you set up in the country is for international distribution and the product involved is labour intensive and competition is predominantly on cost. Note: Anyone who selects China, it’d be great if you can explain why China and not Vietnam, Philippines or Indonesia. As wages in China have already outstripped that in those countries.
• Human capital: Is particularly relevant if the operation is high-tech and requires high-skilled workers. I trust this is the reason why Dyson chose Singapore to produce their electric cars despite labour being expensive there.
• Real interest rate: Can determine whether your parent company should lend to the subsidiary or the subsidiary will borrow directly from banks in the targeted country.
• Taxation: Countries like Singapore or Hong Kong are competitive thanks to their low corporate tax rate, about half compared to Australia (Probably why McDonald’s makes Singapore their headquarter and pays tax there instead of Australia). Corporate tax rate in the US has also been recently lowered. It could be one of the reasons why you want to move to those countries
• Exchange rate: A country with a stable currency will be desirable. You wouldn’t want to operate in Argentina right now and buy materials from overseas given how much value the Argentine peso has lost in recent years. A stable exchange rate versus the AUD also means when you transfer profits back to Australia, there won’t be much loss to suffer.