Andorra As A Potential Market For Service Businesses Economics Essay

Andorra has natural vale geographics, a trigon with sides about 25 kilometers long, in the Pyrenean mountain scope between France and Spain. The highest extremums reach about 3000 metres on the Gallic side whereas the chief vale descends into Spain ( Andorra – Culture of the universe ) .


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The full state is featured by a high mountain clime with a Mediterranean influence and one of the most pleasant climes in the universe. The mean one-year temperature minimizes 28°F ( -2°C ) and the mean one-year temperature maximizes 75°F ( 24°C ) . Winters are cool but non rough. Summers are mild to warm, with clear skies and bright sunlight ( Andorra – Culture of the universe ) .


Andorra is located in the Catalan part, between Barcelona and Toulouse. At the clip by someplace, Andorran was inhabited between 100s and 1000s cultural Catalans ( Secrets of the seven smallest provinces of Europeaˆ¦.. ) .

2. Cultural Environment

Nationality: Andorran.

Population: 85,200 ( 2009 State EST. ) .

Cultural groups: Catalan, Spanish, French, Portuguese.

Religion: Roman Catholic.

Annual growing rate: 2.5 % .

Languages: Catalan ( functionary ) , Spanish, Gallic.

Education: Old ages compulsory — to age 16, attending — 100 % , literacy — 100 % .

Andorra ‘s civilization is in many facets small different from the Catalans of Spain, but this little state has besides been act upon a small by Gallic civilization ( Andorra-Culture of the universe ) .


Due to Andorra is a little province and prevarications on the boundary line of bigger states that has given it a lingual advantage – many of Andorran can talk three linguistic communications – Catalan, Gallic and Spain ( World and its people ) .

Religion and Society

Roman Catholics make up 92 % of Andorra ‘s population. The others are remained 8 % includes Protestants, a little Jewish community, and non- spiritual people.

Before the twentieth century, the big moving of concern people, tourers and retail workers from Spain, Portugal, and France changed the societal mentality in a antecedently isolated community in Andorra.

In the twentieth century, Andorra changed from a rural society in which adult females were chiefly wises and female parents, working on the household land, to an urban society in which more than 65 % of adult females are paid.

Education, public assistance and wellness

Education is mandatory to age 16, and registration of pupils is 100 % . The instruction system includes free public school maintained by the Andorran governments. The linguistic communication of direction is Catalan, and Andorran sheepskins are recognized by Spanish instruction system.

Andorra citizens are treated free by beginning of insurance payments from wages, employers and part by the state. The good wellness of Andorrans is depicted by the state ‘s life anticipation, which in 2008 was 83.5 old ages – 86.8 old ages for adult females and 80.6 old ages for work forces ( CIA fact book ) .

The best provinces of wellness system in 2000 – ( 1 ) France ( 2 ) Italy ( 3 ) San Marino ( 4 ) Andorra ( 5 ) Malta ( 6 ) Singapore ( 7 ) Spain ( 8 ) Oman ( 9 ) Austria ( 10 ) Japan ( WHO, 2000 est. ) .

3. 25 old ages ago economic system and recent trade ability

GDP: $ 4.22 billion ( 2008 est. ) .

Natural resources: Mineral H2O, lumber, Fe ore, hydroelectric power, lead.

Agribusiness: baccy, sheep.

Industry: touristry, ( pillar of the economic system ) , baccy merchandises, furniture.

Trade: Major activities are commerce and banking ; Duty-free position.

Official currency: Euro.

The economic system of Andorra was transformed in the late twentieth century when the state became a major tourer Centre of skiing and a duty-free zone. Andorra is besides a Centre of banking and fiscal services, profiting from its position as a revenue enhancement oasis ( World and its people ) .

In 1993, Andorrans voted to break up their feudal links with France and Spain. The state later gained a place in the United Nation as the 3rd little member -state. Andorra established formal links with the European Union in 1991. After two old ages of tough dialogues, Andorra signed its first of all time international pact by fall ining EU usage Union, going the first non-member state to make this ( where to hoard your hard currency ) .

Table 1 – Andorra trade in 1000000s of Euros ( 25 old ages ago )
















Beginning: Andorra Business Law Handbook

Andorra ‘s GDP in 2008 was about $ 4.22 billion, with touristry as its chief constituent, do up more than 80 % one-year GDP. The international shoppers are attracted by low revenue enhancements policies. With about 280 hotels and 420 eating houses, every bit good as many stores, the cordial reception industry employs a turning part of the domestic labor force.

Table 2 -Visitors come ining in Andorra by season 2008




















Beginning: Cardinal Intelligence Agency. 2009, The CIA universe fact book 2010

Recent trade ability

Andorra ‘s trade in goods is characterized by a immense apparent surplus of import over export. However, these figures are delusory in what the imports of the Andorran commercial sector are recorded. Harmonizing to 1999 informations ( Andorra concern jurisprudence enchiridion ) , the chief imported goods came from EU ( 88.51 % ) , Asia and Oceania ( 5.62 % ) , remainder of Europe ( 2.30 % ) , USA and Canada ( 2.17 % ) . Exported merchandises are chiefly from EU ( 92 % ) , remainder of Europe ( 3.53 % ) , Asia and Oceania ( 0.53 % ) and USA and Canada ( 0.64 % ) .

Trade with USA from 2005 – 2009 ( in US $ 1000000s )

Old ages
























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4. Political and Legal conditions ( Beginning: hypertext transfer protocol: // )

Government type: Parliamentary democracy that retains as its caputs of province two co-princes.

Fundamental law: Ratified in March 1993.

Independence: 1278.

Branchs: Heads of State — Two co-princes ( President of France, Bishop of Seu d’Urgell in Spain ) .

Executive – Head of Government ( Cap de Govern ) and six curates ( Executive Council )

Political parties/groups: Andorran Liberal Party ( PLA ) , Social Democratic Party ( PS ) and Andorra for Change ( ApC ) Party.

Right to vote: Universal at 18.

Until really late, Andorra ‘s political system is ill-defined division of powers in executive, legislative, and judicial subdivisions. Andorra ‘s nascent political system is dominated by three major political parties ( Andorran Liberal Party ( PLA ) , Social Democratic Party ( PS ) and Andorra for Change ( ApC ) Party )

The supreme authorization are maintained by the President of France and the Bishop of Seu d’Urgell as co-princes of Andorra in all international trade pacts every bit good as all those that trade with state ‘s security, defence, Andorran district and judicial or penal cooperation.

Foreign dealingss

Andorra established its first diplomatic mission in the universe in July 1993. Andorra integrated the United Nations and about other international organisations.

Social jobs and command

Crime and corruptness job in Andorra is really low. This state is considered as a free state that provides the state ‘s first written warrant of civil right ( Freedom house study squad. 1994 ) . Foreign suspects tend to be extradited to their state of beginning. The most frequent offenses are robbery, fraud, and drug trafficking. Labor struggles, lakes and steep hills dot the landscape of Andorra.

II. Theory of Trade

1. The theory of nature advantage

This theory illustrates that every state may hold its ain natural advantages from assorted grounds such as geographics, terrain, clime or natural resources.

Andorra has a high per centum of sunlight and a by and large dry clime. The mean one-year minimal temperature is -2°C and the mean upper limit is 24°C. The highest rainfall is recorded in the fall, while winter precipitation is mostly snow.

With this natural advantage, Andorra becomes an interesting topographic point for travellers in their vacations. Furthermore, Andorra nestled comfortably in the eastern Pyrenees Mountains, is bordered by Spain and France. Its location is what makes Andorra a perfect pickup for anyone who loves to ski or snowboard. Tourism industry of Andorra counts for approximately more than 80 % sum of GDP ( 2008 province EST ) about 12 million tourers yearly, attracted by Andorra ‘s responsibility free position and by its summer and winter resorts.

2. The acquired advantage theory

This theory shows competitory advantage of a state through the processing of one of the basic factors of land, labour, policies, etc.

Andorra ‘s low revenue enhancement specialisations

There are no revenue enhancements in Andorra for companies or persons other than modest one-year enrollment fees, municipal rates, belongings dealing revenue enhancements, and a skiding scale capital additions revenue enhancement.

Andorra ‘s bank histories are really secret

As a place for money, Andorra is difficult to crush. Banks are solid, and there are no capital or exchange controls. Numbered histories are said to be known about merely to you, your banker and God. Strict anti-money laundering statute law stops condemnable activity, but excludes revenue enhancement turning away which is no offense in Andorra.

Immigration controlled by abode and work licenses

To promote in-migration by high-net-worth persons ( frequently retired ) the Government offers Passive Residence Permits, which are non inexpensive, and are capable to a quota which is determined sporadically harmonizing to the “ economic and societal demands of the Principality of Andorra ” . Otherwise, long term abode is merely possible to those with work licenses, which are controlled by quotas.

3. Porter ‘s Diamond theoretical account

The Porter ‘s Diamond theoretical account proposes that in order for an industry in a state or a state to achieve planetary competitory advantages ( Daniels, J. D, Radebaugh, L. H & A ; Sullivan, P. D, 2006 ) .

Figure – Porter ‘s Diamond theoretical account

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Factor conditions: a state additions its competitory advantages if it bases on some factors such as human resources, capital resource, substructure, natural resources etc. Andorra has a high degree instruction system, with literacy rate at 100 % ( US section of State 2009 ) . Additionally, Andorra ‘s natural resource are less but include hydropower possible and hot spring, which have allowed the development of one of Europe ‘s largest wellness watering place resorts. The cragged terrain with snow in winter is appropriate to skiing at resorts.

Demand conditions: the nature, instead than simply the size, of the domestic demand taking to national advantage ( Czinkota, M. R, RonKainen, I. K and Moffect, M. H. 2005 ) . There is a unfairly trade activity in consumer goods, including imported manufactured merchandises which they are taxed at lower rates, are cheaper in Andorra than in adjacent states.

Related and back uping industries: One of the most permeant findings of the survey was the inclination for the successful industries within each state to be group into “ bunchs ” of related and back uping industries ( Grant, R. M. 1991 ) . Andorra has an astonishing about 12 million travellers yearly. The skiing is first-class to tourist enjoyed Snow Mountains sing every bit chief contributed resource for touristry service of Andorra. Furthermore, Andorra ‘s cordial reception industry is besides supported by tax-exempt position with stores and the best health care service in the universe.

Firm scheme, construction, and competition: the conditions exist in home-nation that either hinder or assistance in the house ‘s creative activity and sustaining of international competitory ( Grant, R. M. 1991 ) . Depending on height and orientation, Andorra ‘s authorities created a changed modern legal model for the state, approved to get down traveling from an economic system based on tax-exempt shopping to touristry and international banking and finance. Tax ordinances were besides allowed that revenue enhancements involvement from pecuniary goods and fixed-interest investings belonging to non-residents while keeping bank secretiveness

III. Recommendations for Andorra

Andorra with a per capital income above the EU norm is now a rich state based on the four chief facets of touristry, existent estate development, commercialism and fiscal services. There are demands and chances in fact illustrate clearly:

Needs for trade development

– Physical and environmental bounds to farther growing based on building activity.

– An evident shortening of the winter athletics season, due possibly to climate alteration.

– A tonss of competitory advantage by the commercial sector in relation to nearby Gallic and Spanish commercial Centre.

– Powerful external force per unit areas constrain offshore fiscal services worldwide to use international financial and regulative criterions.

International concern chances

– First, it has invested already in a modern urban substructure, of some size, capable of going the base of turning bunchs of high value – added service activities.

– Second, its resident population is multi-lingual and cosmopolite, and offers a favourable human capital base for international service sector activities.

– One-third, Andorra can seek to work the new advantages of information engineerings, which allow many service sectors to take any location that offers back uping commercial and concern services, leting electronic offices to be plugged into broad European and international markets and corporate constructions.

– Fourth, these “ location-free ” concern activities are particularly sensitive to the offer of a low-tax environment combined with a high quality of life environment ( e.g. motive athletics diversions ) .

– Fifth, Andorra already has a significant services sector which can seek its ain niche in the quickly developing European fiscal services market.

SWOT analysis on Andorra ‘s international trade



Strong physical substructure for service sectors ( geographics, natural advantage and supported service systems )

Good relationship to the universe ‘s major economic parts ( European and USA ) .

Stable political, economic and societal conditions ( free state book ) .

A high educated work force.

A strong legal system and concern low- revenue enhancement construction ( US section ) .

A banking system is the safest in the universe ( where to hoard your hard currency )

Relatively high costs of operation ( particularly land rental and rewards ) .

Small geographic infinite and domestic market.

Country ‘s industries are fragmented and deficiencies graduated table, with really few planetary participants with planetary aspirations ( International SEMs: Andorra ) .

The economic base is really narrow.

The trade shortage is really ample.

The economic system will non be immune to the world-wide economic lag ( Country brief Andorra ) .

Andorra has no existent national conveyance web. This restricts flow of merchandise out of state ( Handbook of research on European )



Despite of low revenue enhancements and a trade shortage, Andorra has a budget excess and low national debt. This reflects Andorra ‘s medium – term growing chances and the support of a wealthy with a competitory services sector and a stable political and institutional model ( Handbook of research on European ) .

The authorities has taken stairss to promote foreign investing in order to diversify the economic system off from its great dependance on touristry and banking ( Country brief Andorra ) .

Bank system of Andorra is considered as the one of the safest in the universe ( where to hoard for your hard currency ) . It will be chances developing fiscal invested services and banking web expand in Andorra.

Andorra has a good banking repute, a lag in the banking sector, nevertheless, could happen at any clip ( Handbook of research on European ) .

Andorra with no haven, no airdrome and no railway, connected to the outside universe by Internet. It will curtail Andorra ‘s concern operations if the cyberspace trade web becomes excessively “ busy ” ( The universe that trade created ) .

Andorra ‘s economic system depended strongly on touristry and its neighbours came from France and Spain. A weak relationship between these states can take to its economic recessions ( Work and its people ) .

Andorra will confront challenges from development rural economic to urban societal jobs as new edifices, population, and pollution, nutrients ( universe and its people ) .

Due to Andorra is a little state with a comparatively little economic system ; it can non prolong large concern endeavors. Consequently, the huge bulk of concerns in Andorra are in the micro to medium-size scope ( Handbook of research on European ) . Therefore, Andorra is indispensable to construct and plan a multi-economy system relied on uniting little and average companies going bigger corporations viing in globalisation.

Andorra ‘s constituted houses in sectors, 2008


Number of constitution ( estimations )







Retail stores




Agricultural processors


Mining operations


E – commercialism operation

& gt ; 12,000

Trading operation


Beginning: Cardinal Intelligence Agency. 2009, The CIA universe fact book 2010

In the sense, internationalisation came to Andorra, largely, because of favourable revenue enhancement policies, and the state took advantage of imports. An of import portion of this type of internationalisation was Andorra ‘s engagement as a 3rd or intermediate party in shadow economic activity ( Andorra – Culture of the universe ) . This will necessitate revenue enhancement steps in Andorra to acquire Spain and France to raise their withholding revenue enhancement on its service exports. Expand economic relationships with other states in European ; South America and Asia bring advantages of Andorra on bilateral trade dealingss to Spain and France.

The restraints of Andorra are comparatively narrow and extremely unfastened nature on its economic system. Bank system is expanded to satisfied demand. This means Andorra money washing offense jobs can increase in the hereafter ( Handbook of research on European ) . To work out this issue, Andorra has to strongly keep its political and lawful systems, at the same time, ever well-connecting with jurisprudence organisations in the universe.

IV. Mention

Allan, T et all. 2010, World and its peoples – France, Andorra, and Monaco, Marshall Cavendish Corporation, USA.

Czinkota, M. R, RonKainen, I. K and Moffect, M. H. 2005, International Business, 7th edition, South-Western, USA.

Augustin, B. D. 2009, Andorra – Culture of the universe, Michelle Bison, USA.

Cardinal Intelligence Agency. 2009, The CIA universe fact book 2010, Skyhorse Publishing Inc, USA.

Dana, L. P, Welpe, I. M, Han, M and Ratten, V.2008, Handbook of research on European concern and entrepreneurship, Edward Elgar Publishing Limited, UK.

International Business Publication. 2008, Andorra concern Law enchiridion, 6th edition, International Business Publications, USA.

Emerson, M. 2007, Andorra and the European Union, Centre for European Policy Studies, Brussels.

Ahlquist, S. A. 2005, Secrets of the seven smallest provinces of Europe: Andorra, Liechtenstein, Luxembourg, Malta, Monaco, San Marino and Vatican City, Eccardt, T. M, USA.

Ring, T, Salkin, R. M, Boda, S. L. 1995, International lexicon of historic topographic points: Southern Europe, Volume 3, Fitzroy Dearborn Publishers, USA.

Ball, D. A et all. 2008, International Business: The challenge of planetary competition, McGraw-Hill companies, Inc, USA.

Daniels, J. D, Radebaugh, L. H & A ; Sullivan, D. P. 2006, International Business: Environment and Operations, 11th edition, Pearson Prentice Hall, New Jersey, USA.

Grant, R. M. 1991, Porter ‘s ‘Competitive advantage of state ‘ : an appraisal, Strategic Management Journal ; Oct 1991, Volume 12, pg 535 – 548.

Estandardsforum. 2009, Country Brief Andorra, Financial Standards Foundation, April 7, 2009. Retrieved from: … /brief-Andorra.pdf?

Bauman, R. E. 2007, Where to hoard your hard currency lawfully: offshore oasiss of the universe, 2nd edition, The Sovereign Society, Ltd, USA.

Freedom house study squad. 1994, Freedom in the universe: the one-year study of Political rights and civil Autonomies, 1993-1994, Freedom house, USA.

Pomeranz, K and Topik, S. 2006, The universe that trade created, the: society, civilization, and the universe economic system 1400 to the present, 2nd edition, M.E. Sharpe, Inc, USA.

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