PROJECT COUNTRY RISK PROJECT
You are the manager of an MNC considering an expansion into a new geographic market. Your management training tells you that foreign investments are risky and cost intensive in terms of coordination and management of a foreign workforce. You will present a proposal stating why you think an expansion into this country has the potential to make the firms' owners/shareholders richer (or explain why it would not). You can choose the industry and firm-specific characteristics of your company.
Where to get information
Information can be obtained from websites provided throughout your text as well as any official website for your country or any other reliable source of information for international data.
Structure of paper
The paper is meant to be a concise summary of key risk factors. The suggested format is a 2-4 page introduction, a 3-5 page summary regarding financial factors, a 3-5 page management section, and then a 2-3 page conclusion section. It is easy to minimize the amount of writing by summarizing key financial, economic, and risk characteristics data into a table and referring to it in the paper. All tables, exhibits, and supporting documents should appear in the appendix and should be referred to in the paper itself. In total, the paper should be 10-20 pages maximum. You should provide citations and references when appropriate.
I. Introduction
a. Brief Introduction. Identify your country and its characteristics - form of government, population, per capita income, economic characteristics (inflation, GDP growth, debt service, trade balance, etc), language, religion, major cities, climate, and trade block membership.
b. Recent news events related to your country
c. What is the economic outlook? Are there wage and price controls? What are the laws concerning hiring or firing? Is there a black market?
d. What is the physical infrastructure like? How extensive is the local distribution network?
e. How stable is the government? Are there insurrections, war, or civil unrest?
f. What is the level of political corruption?
g. What are the characteristics of this market that would make it attractive and/or unattractive to a US firm?
h. How developed is the legal system? Is there reasonable protection of property, including intellectual property?
i. Are there human rights issues related to entering this market?
j. How is the country liberalizing? How is the liberalization effort taking form?
k. What US multinationals, if any, operate in this country?
l. What industries are most lucrative for market entry? What type of company do you recommend for this market?
II. Financial Factors Affecting Expansion Decision
a. What are the characteristics of the exchange rate regime in your country? Is the currency convertible? How high would you assess the likelihood of an exchange rate crisis?
b. Exchange rate forecast and correlation analysis
c. Does your country have a stock market? How many firms are on the exchange? Do firms list on outside exchanges (eg. an ADR on the NYSE)?
d. Obtain stock market data for your country if it has an equity market. What is the correlation of returns between your country and the U.S. market? What does this tell you, if anything?
e. What is the rating on the country's debt? Has it changed in the past five years? Are there any World Bank loans?
f. What is the default risk spread (difference between your country's Treasury bill rate and the U.S. Treasury bill rate)? Make sure you use the same maturity. Has the spread changed over the last five years? What does this tell you?
g. Evaluate the level of country risk present in your country, both political and financial, based on the information. Have there been any expropriations of foreign assets in the last 5 years? Are there restrictions on the repatriation of profits? What is the degree of financial repression? Would you purchase political risk insurance? Is it available from MIGA?
h. How "sophisticated" is the local banking system?
i. Would you raise capital locally or in the U.S. for the venture? How would you raise capital in this market?
j. If you entered this foreign market, what kind of concessions would you require on behalf of the local government? Would you ask for tax breaks, require that the local government allow you to hire workers from your own country, and/or demand that profits be repatriated at some favorable exchange rate?
III. Management Factors to Consider
a. How would you enter the market? Acquisition, subsidiary, branch, or joint venture?
What kind of restrictions does the government place on FDI?
b. Would you choose to have a local partner when entering this country?
c. If you were a manager considering operations in this country, would cultural
factors play a role in your ability to manage the foreign workforce, and if so, how?
d. Complaints by expatriate managers are one of the leading reasons that US overseas ventures fail. How much additional compensation would you have to pay a US manager to move to and manage in this environment? How would you "sell the job?" How much training would be required in own country? Is there a demand that salary be repatriated at some favorable exchange rate?
IV. Summary and Decision
a. Do the benefits of expanding into this market offset the potential risks/costs? Explain.
V. Sources Cited