Problem : Your company, headquartered in Netherlands, is considering making a major FDI in South Africa. This planned acquisition will be your company's first investment in South Africa. Despite the exciting potential investment, there are some concerns in the company regarding differing financial systems, potential agency problems, and political risks present in South Africa. Your group is tasked with answering the following questions in a 15-18 minute (3 minutes per group member) presentation in your week 11 or week 12 tutorials (each group member must present 3 minutes):
1. What are the primary mechanisms of corporate governance in Netherlands? Are they required by legal mandate or adopted at the discretion of the company?
2. What are the primary mechanisms of corporate governance in South Africa? Are they required by legal mandate or adopted at the discretion of the company?
3. How would you compare the effectiveness of these mechanisms? Would it be possible to use some of the mechanisms of Netherlands in South Africa?
4. Given the exchange rate systems of both countries, what type of exchange risk would this investment face? How would you recommend hedging this risk?
5. How would you compare the financial development of both countries? What issues may these differences cause?
As part of the task above, you have also been asked to submit a 1-2 page (A4 paper, double-spaced, 10-12 point font, length not including reference list) report answering each of the following questions.
1. How would you compare Netherlands's and South Africa's corruption percentage index? What might be driving these differences? What issues could this create?
2. In general how would you rate the overall political risk of both countries? Are there any recent examples of political risk? What are some possible methods, as well as potential drawbacks, to hedge against such risk?