Introduction
Business growth requires the adoption of various corporate levels strategies such as diversification into new markets. With that, it is necessary to identify the most suitable market regarding market demand and policies. That is because the country’s productivity determines the living standards, hence, the demand while policies determine ease of doing business and the productivity level. In that view, this report presents a recommendation and analysis of the most suitable country for Apple to expand to for its iPhone brand. To achieve the objective, the report presents a summary of the country of choice followed by an overview of the factors that determine its productivity. Also, the report explains how the country’s policies determine the productivity and how the financial system relates to the macroeconomic variables. Further, there is an overview of the current unemployment rate and its forecast in the next five years. Finally, there is a conclusion summarizing the country’s suitability for the brand.
Country choice
Given the Level of GDP per Capita and Productivity Dataset presented in Appendix 1, Luxembourg is the best choice for Apple to expand its iPhone’s operations to. The decision is informed by the country’s substantial productivity that has also demonstrated significant growth from the year 2005 compared to the other countries in the database (OECD, 2016).
Factors that determine Luxembourg’s productivity
The key factors determining the country’s productivity are its physical and human capital, natural resources and technological knowledge.
Physical and human capital
The high-income, stable and small economy benefits from proximity to Belgium, Germany, and France and has historically shown substantial growth, low unemployment, and low inflation. Its industry was initially marked by the steel sector but has become highly diversified to consist of rubber, chemical as well as other products.
On the other hand, the country depends mostly on cross-border and foreign workers for over 40 percent of the labor force. The Luxembourg, like the rest of the members of EU, suffered from economic crises that affected the global that began in 2008, but its unemployment has always been below the EU’s average. After strong expansion between 2004 and 2007, the economy of contracted to 3.6 percent by the year 2009, rebounding in the year 2010 and 2011 before it started a decline in the year 2012. However, Luxembourg continues to benefit from extraordinarily improved living standards, being ranked among the countries with the highest GDP per capital across the globe, and the highest within the Eurozone.
Even during the financial crisis as well as during its recovery, the country retained highest surplus in current account as a share of the GDP in the euro zone. That was largely due to its strength in the financial services that greatly define its capital resources (CIA, 2016).
Natural resources
The countries natural resources determining productivity include iron ore for steel production. On the other hand, permanent crops account for 0.58 percent use of the arable land (CIA, 2016).
Technological knowledge
How Luxembourg’s policies influences its productivity growth
Although Luxembourg has been a favorable location for foreign businesses, it has in recent past lost some its advantages on tax basis because of EU and OECD pressure (CIA, 2016).
Also, labor market regulations influence the country’s productivity measured through the effect on the employment level that is suitable for the country. Policies may have considerable direct effects on personal levels of growth/production by encouraging the workers to invest in training, facilitating resources’ reallocation to where they are more productive and generating/maintaining high-quality employment matches. With that, the policies on minimum wage, protection legislation, and the unemployment benefits influence productivity via many channels. Further, parental leaves also enhance productivity (Mankiw, 2009). Other labor-related policies include the laws on immigration that allows the country to depend highly on a foreign labor force that enhances its productivity (CIA, 2016).
In another policy response, the turmoil in global financial markets as well as lower demand across the globe during the years 2008 and 2009 prompted the country’s government to intervene by injecting capital in the sector of banking and implement measures for stimulating the economy hence enhancing productivity. The support and stimulus measures by the government for banking sector resulted in a deficit in the government budget of 5 percent in the year 2009. Nevertheless, this deficit was reduced to 1.0 percent in the year 2011 and the year 2012 it was cut further to 0.9 percent (CIA, 2016).
Further, the public is still the lowest in the Eurozone although since 2007 it has doubled as a percentage of the GDP. Finally, the authorities have increased supervision of the domestic banks as a result of exposure to foreign banks’ activities (CIA, 2016).
How the nation’s financial system is related to key macroeconomic variables
The country’s financial sector growth, which currently account for 27 percent of the GDP, has compensated for the decline in the steel sector. Most of the banks are foreign owned and have wide foreign dealings (CIA, 2016).
Regarding the financial system relation to the macroeconomic variables, the economy is marked by financial markets and intermediaries that are summarized as follows.
Financial market share marked by the bond and stock market that greatly determines the level of the interest rate as well as foreign exchange gave that they provide an opportunity for local and foreign investment. On the other hand, the financial intermediaries that include the banks and mutual funds also play a crucial role in determining macroeconomic variables such as the interest rate and inflation that are low providing enhancing market prospects for foreign investments and businesses such as Apple (Trading economics, 2016b).
How the company can reduce the relocation risks
When any firm having the managerial capability or value-generating technology such as Apple invests abroad, the shareholders and host country’s people stand to both benefits. However, regardless of how good apparent fit that is between the foreign companies and the host economy, there is no assurance for success. That is because elections, some other key political events, varying societal attitudes and economic crises may disrupt the laid down plans for both advanced and emerging economies. These forces interplay- and implications for political choices made by the multinational firms become crucial. Other factors risks that require management are the foreign exchange related risks as well as country risk. With that, the business needs to effectively address issues including executive compensation, taxation, exchange rate fluctuation effect and political risks (Samuelson & Marks, 2003).
With that, there will be a need for the use of a mix of legal, trade and insurance contracts as well as financial instruments hedging strategies so as to protect earnings in the foreign market. However, those still provides little protection from political risk, hence a need for proactive political risk management strategies, which lessens the incentives of government officials to divert returns of the investors. That requires effective assessment of the country’s political landscape as well as effective modeling of the political decisions, which can be achieved by consulting employees as well as key local chain partners (Witold and Bennet, 2010).
Current and projected unemployment rate over next five years
Source: (Trading Economics, 2016).
Finally, given Appendix 2 presenting the country’s economic forecasts, the unemployment rate is expected to decrease to 5.3 percent by the year 2020.
Conclusion
Given the analysis, it is clear that Luxembourg is the best country that Apple should expand for its iPhone product. The country has a substantial productivity and suitable policies to enhance it while lower and decreasing unemployment favors the Apple’s strategy to expand into the market where the premium product; the iPhone would have a key market to target (Kotler & Keller, 2006). Finally, it has been identified that the business has to implement suitable strategies to manage the political, country and financial risks associated with operations in the foreign country.
References
CIA. (2016). World Factbook: Luxembourg. Retrieved 29 May 2016 from, https://www.cia.gov/library/publications/the-world-factbook/geos/print/country/countrypdf_lu.pdf
OECD. (2016). The level of GDP per capita and productivity. Retrieved 29 May 2016 from, http://stats.oecd.org/Index.aspx?DataSetCode=PDB_LV#
Kotler, P. & Keller, L. (2006). Marketing Management. 12th Ed. New Jersey: Pearson Prentice Hall.
Mankiw, N. (2009). Principles of Economics. 5th Ed. Boston: Cengage Learning.
Samuelson, W. and Marks, S. (2003). Managerial Economics. 4th Ed. New Jersey: Wiley.
Trading Economics. (2016a). Luxembourg Unemployment Rate. Retrieved 29 May 2016 from, http://www.tradingeconomics.com/luxembourg/unemployment-rate
Trading Economics. (2016b). Luxembourg Economic Forecasts: 2016-2020 Outlook. Retrieved 29 May 2016 from, http://www.tradingeconomics.com/luxembourg/forecast
Witold, J. H., and Bennet, A. Z. (2010). The Hidden Risks in Emerging Markets. Harvard Business Review April 2010 Issue. https://hbr.org/2010/04/the-hidden-risks-in-emerging-markets
Appendices
Appendix 1: Level of GDP per Capita and Productivity Dataset
Source: (OECD, 2016)
Appendix 2: Luxembourg’s Economic Forecasts
Luxembourg | Economic Forecasts | 2016-2020 Outlook
Source: (Trading Economics, 2016b).
