Country Attractiveness and Risk Assessment

Country attractiveness and risk assessment

Group project 3- Clothing store in Poland

Hao Cheng

Professor

Massood V. Samii, PHD

Southern New Hampshire University

Introduction

   This section focuses on the investment attractiveness of Poland to investors and venture investment in the actual investment risk. Mainly from the political, economic, the population structure and market angles analyze advantages and disadvantages of clothing industry investment in Poland. By analyzing help investors know what they should be of concern, if they want to invest clothing industry in Poland and how to reduce investment risk and increase investment profits.

Political system

        Currently, the polish Prime Minister Donald Tusk is becomes the European Union president. He helped Poland avoid recession since 2007 and Poland is the only country in the 28-nation EU (BloomBerg, 2014). That might be a good sign for our company because it demonstrates that the government makes the country in good situation. The republic of Poland is a democratic state ruled by law that means the basis for the political system of Poland is the constitution, it can guarantees the civil rights and freedoms (Poska, n.d). The Polish constitution can provide freedom of economic activity and private ownership. Therefore, Poland is an attractive country with a stabile political and legal situation.

Degree of corruption in Poland

[pic 1]According to the corruption perceptions index of 2013, there have a significant issue in Poland. Poland’s rank is 38 of the 177, and the score is 60 of 100. It indicates Poland ranks very high on the corruption index. Because compare with United States of America, the rank is 19 of 177, and the score is 73 of 100 (Transparency International, 2014). It illustrate that Poland is the country, which is corrupt. There is a direct correlation with the degree of risk of corruption in the state. In the process of business activities may have some links with corruption. There is a real risk of corruption for relationships with suppliers in Poland. So try to minimize any risks associated with trading and corruptness.

GDP (Gross domestic product)

        GDP can show the level of a country’s economy. The gross domestic product in Poland enlarged 3.3% in the second quarter of 2014 (Trading Economics, 2014). But from 2012 to 2014 the data shows Poland GDP has not been consistent. For instance, record Q1 of 2013. Poland GDP growth rate just achieved 0.4%. The growth of GDP is not stable. This means the consumers are cautious for their purchases and they will be extremely selective with how they spend their money. This is a huge risk for our company to enter and operate in.

Unemployment rate

        Furthermore, Poland has a relatively high unemployment rate that is 11.5% of September 2014 and the highest unemployment rate is 20.70%(PUR, 2014). It shows that consumers will be very selective in the products and services that they purchase. High unemployment is the primary source of economic risk. It will bring the risk is difficult to estimate for investment. For our company, this is a large risk to operate in Poland, because unemployment has been relatively high for the last few years, which gives us an indication that Poland’s economy is not very stable. Again, to operate as a clothing company in country with an unstable economy, would be a very large risk.

CPI (Consumer price index)

Moreover, consumer price index (CPI) growth rate in Poland growth rate was negative 0.3% of 2014 in August at 0.4% drop, marking the second consecutive decline in the annual price: July each year CPI growth rate of negative 0.2% in the 0.2% drop. This is extremely bad signal for investment. Generally, deflation means there is no enough money for the economy or no enough money on the market, lack of demand and the producer can not selling their goods. The increase in inventory to force them to reduce the price and limited ongoing production scale. However, if they are in the lower the price of the goods sold, they will suffer a loss, they tried to cut through the cost compensation. As a result, there is a risk for us.

Inflation

According the inflation rate in Poland was recorded at -0.30 % in September of 2014 (Poland Inflation Rate, n.d). The inflation is not rising; this this means that prices are either steady or falling. It seems that inflation expectations in Poland do not face the major requirement of the rational expectations hypothesis (NBP, n.d). For our company, we will be selling luxury goods, at middle range prices. Poland’s negative inflation has the ability to help our company and hurt our company. If prices are steady and do not go up or down too much, we can sell consistently in our market. However, if the inflation rate goes up or down, this will impact our ability to sell products at the prices that are best for us. This means we want to sell our products and still make the most profit possible, by keeping costs at a minimum—but not too low, or else we will lose money.

Economic freedom

Poland has a very high level of economic freedom. This is a good factor of Poland’s economy, because it means that overall, the country has a good ability to choose how to operate in many different industries. For us, a business freedom level of 70.1 is excellent, because it allows us to be able to make the decisions we want as a clothing company operating in Poland. Another good factor is Poland’s trade freedom is relatively high, which mean Poland is trading with other countries. This provides our company with great opportunities to work with other businesses in Poland’s trade network.

CIT (Corporate income tax)

Poland[pic 2]

US

[pic 3]

        From 2006 to 2014, the corporate income tax rate is 19% in Poland, which is generally low when compared with United State of America. Due to the basic corporate income tax rate is 40% of the tax base in USA. Based on the data shows, company will earn more benefit from revenue. Obviously, this is a good thing for our company establishing business in Poland, because it will not be taxed a lot of money.

Population structure

The projected population of Polish people is 38 million in 2015. The population in Poland is very balanced for the segment of consumers we are targeting. Which are men and women, between the ages of 20 and mid 40’s(Population Pyramid, n.d). This balance of population is another attractive indicator for our company to move into Poland, because it shows promising information for the demographics that we sell our clothing to. Meanwhile, a large proportion of people belong to the age group (20’s and 40’s). It’s a good report for our company, because it means a large number of potential consumers and this is an opportunity for our company open the market in Poland.

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