Comparative Country Analysis

Unilever• It’s 1960 and the Anglo-Dutch consumer goods producer

Unilever is looking at establishing operations in Asia.

• It is considering two economies that have recently established independence but have strong links to Western economies.

• Rather than merely exporting European produced products to the region, the firm recognizes the potential long term gains that may be achieved from a significant investment.

– It can only make a single investment that would constitute a (i) manufacturing facility and (ii) a local distribution network.

– The facility will produce household goods, including soaps, detergents, and shampoos.

– The planned investment represents 25% of total capital expenditure in 1960.

– Longer term goals would involve introducing their processed foods lines to Asia (such as margarine and frozen entrees).

Your Task• You are an analyst in Unilever’s strategic

planning group in Amsterdam.

• Your manager has dropped files of information on two economies (see below) that she would like you to consider, Balonia and Banchuria.

• Analyze the prospects of both countries for Unilever and provide a recommendation on which market would present the best option for Unilever to invest in and why.

Balonia and Banchuria: 1950s

Balonia: Historical Considerations

• Former colony of the island nation of Dalonia.

• Had been under colonial rule for almost 40 years and was still heavily reliant on colonial link for key resources and as a market for their goods.

• Gained independence following WWII.

• Recognized as one of the poorest countries in the world (GDP/Capita of about $227).

• Population of 21m people with a very low literacy rate and 24% living in urban areas.

Balonia: Geographical Considerations

• Balonia’s borders were created following WWII.

• Population dispersed regionally with a large centre in Balonia and another in the country of Stalonia.– Political tensions had been on-going between

Balonia and Stalonia.

• The country is located in Asia, has significant coastline and is relatively close in proximity to other developing countries, both large and small.

Balonia: Economic Foundations• Over 92% of electricity generation was in Stalonia and

most of the natural resoruces were there, too. So metal production and chemical production were established there.

• Balonia was much more focused on agriculture and light industries, including machinery and textiles.– About 44% of GNP was in agriculture.

• Nearly all of Balonia’s exports were primary products. Agricultural and fishery products made up about 80% of total annual exports. Food grain imports made up about a third of imports. – Imports are nearly 3X that of exports.

• Balonia had experienced hyper-inflation in the late 1940s. Attempts at price controls were ineffective and the Bank of Balonia was established in 1950 to lead monetary policy reform.

Balonia: Political Foundations

• Following WWII, the UN supervised democrat elections in Balonia.

• A U.S. backed candidate was elected President, defeating his competitor by a significant margin.

• President (1) immediately enacted laws to severely curtail political dissent. He was seen as authoritarian and a strong anti-communist.

• Government expenditure is less than 10% of Gross National Income.

Banchuria: Historical Considerations

• One of the two regions of a country called Chanchuria; the other region is called Ranchuria.

• Former colony of the island nation of Kingchuria.

• Had been under colonial rule for almost 150 years and was still heavily reliant on colonial link for key resources and as a market for their goods.

• Chanchuria gained independence following WWII.

• Recognized as one of the poorest regions in the world (GDP/Capita of about $150).

• Population of 50m people with a very low literacy rate, with more than 80% of the population living in rural areas.

Banchuria: Geographical Considerations

• Banchuria’s borders were created after WWII, when Kingchurian army left .

• Population dispersed regionally with a large centre in Ranchuria and another in Banchuria.

• The region Banchuria is located in Asia, has significant coastline and is relatively close in proximity to other developing countries, both large and small.

Banchuria: Economic Foundations• Most of the major industries—textile (cotton fabrics),

shoes, tobacco, power—were located in Ranchuria.

• However Banchuria was rich in agriculture. It was the world’s leading producer of a natural fiber.– About 70% of GDP was in agriculture, the country was

self- sufficient in food.

• Nearly all of Banchuria’s exports were primary products. Agricultural and fishery products made up about 90% of total annual exports. Machinery, metal and ores were main imports.– Banchuria had a trade surplus.

• Independence from the colonial empire initially set the economy into a tailspin. Currencies were overvalued and imports were subject to severe restrictions.

Banchuria: Political Foundations• Both Ranchuria and Banchuria were initially a

dominion of the colonial kingdom after its independence, and then subsequently moved to a parliamentary republic.

• In 1956, however, the civilian rule was stalled by a military coup led by the army commander-in-chief, who then established an authoritarian regime, backed by the U.S.

• The leadership initially created a six year plan to mobilize resources to build infrastructure; started making state investments in power, railroad and telecommunication.

• Most of the decision making regarding policies happened in Ranchuria.

Population

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• 35% of the population in both countries is between 0-19 years old.• 25% of the population in both countries is between 20-29 years old.• In 1959, life expectancy in Balonia was 53 years and 48 in Banchuria• In 1959, infant mortality in Balonia was 84 per 1,000 live births and 165 in

Banchuria.

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Balonia (Relative to USA) Banchuria (Relative to USA) Balonia (GDP/Capita) Banchuria (GDP/Capita)

Wealth

Composition of Economy: 1959

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Net ExportsInvestmentGovernmentConsumption