UnderstandINg Country’s Economy Before Doing Business.
When a company decides to expand abroad — by opening a subsidiary, exporting, or investing — it’s tempting to focus only on the number of potential customers and the apparent size of the market. But a country is not just a mass of consumers: it’s an economic, political, and social ecosystem. And as such, it can either make a business thrive or turn it into a nightmare.
That’s why it’s essential to learn how to interpret the environment you’re entering. This is not about predicting the future, but about recognizing the clearest signals that indicate whether a market is viable — and what risks it presents.
The economy is more than isolated numbers
To get a general idea of a country’s economic health, it’s useful to start with some basic indicators. GDP, for example, tells you how much the country produces in a year and how fast (or slow) that production is growing. A stagnant or shrinking economy may not offer enough demand for new businesses. Inflation is another crucial figure: if prices rise too quickly, costs and wages can spiral out of control before you even start selling. The same goes for interest rates, which determine how expensive it is to finance local operations.
It’s also important to look at the external balance: a country that imports far more than it exports is often more vulnerable to currency crises — which can hurt businesses that rely on stable exchange rates. Finally, consider labor productivity: how much value the average worker creates per hour directly affects margins and efficiency.
For instance, imagine a tech company evaluating a market where GDP is stagnant and inflation is running at 25% annually. Even if there seems to be demand, rising costs could quickly erase any profits.
Politics matters just as much as economics
Numbers tell you a lot — but not everything. Politics, and the quality of a country’s institutions, can change the rules of the game in a matter of months. You need to ask whether the political system is stable or if laws and governments change abruptly. Also, how much does the state intervene in the economy? In some places, industries are heavily subsidized, while in others they’re burdened with regulation.
Corruption is another factor that affects both costs and predictability. To get a sense of this, you can check the Corruption Perceptions Index, which ranks countries based on expert and business surveys about institutional integrity.
For example, a machinery manufacturer considers opening in a country where business permits change unpredictably with each administration. The lack of predictability makes them hesitate, since they can’t plan beyond a year at a time.
The world is interconnected
No country operates in isolation today. Before jumping in, it’s important to study how that country interacts with the rest of the world. Does it have free trade agreements, or does it impose high tariffs? Do foreign investments flow freely, or does the government tightly control capital? Is the currency stable or highly volatile?
Social and environmental factors also come into play: water availability, migration, energy supply. A textile entrepreneur might be attracted to low labor costs, only to find that export tariffs or poor trade agreements make their products uncompetitive abroad.
Going deeper: when the decision is big
For major or long-term investments, you’ll want to go beyond the basics and look at more nuanced factors.
If many foreign companies are already investing in the country, that suggests confidence in its stability — so it’s worth looking at foreign direct investment (FDI) flows.
Demographics also matter: a very young population suggests growing demand, while an aging one might mean a shrinking market.
Other relevant aspects include the level of technological innovation, quality of education, infrastructure (from roads to telecoms), and climate risks such as droughts or floods.
Imagine an agricultural company eyeing a country with strong GDP and a young population. Upon further research, they discover frequent droughts and poor transport infrastructure that would make moving perishable goods costly and unreliable. They wisely look elsewhere.
Beyond consumers
Before rushing into a new market, it’s crucial not to limit yourself to counting potential buyers. The basic numbers, institutional quality, foreign relations, and social and environmental conditions all form a picture you need to understand.
Companies that take the time to analyze these variables are better prepared to adapt and respond to challenges — instead of discovering them when it’s already too late.
