Grp15 country risk analysis

• 1. Country Risk Analysis is assessment of potential risks and rewards from doing business in country.Country risk represents potentially adverse impact of a countrys environment on the cash flow of the firm.

2. Country risk represents the potentially adverse impact of a countrys environment on the MNCs cash flows. Country risk can be used: to monitor countries where the MNC is presently doing business; as a screening device to avoid conducting business in countries with excessive risk; and to improve the analysis used in making longterm investment or financing decisions. 3. Used to monitor countries where the firm is presently engaged in international businessUsed by the firm as a screening device to avoid countries with excessive riskUsed to assess particular forms of risk for a proposed project considered for a foreign country 4. PoliticalFinancialFactorsEconomic ConditionsSubjective5 5. Attitudeof host government War Currencyinconvertibility Bureaucracy Blockage of fund transfers Corruption 6. HAZARDS BASED ON GOVERNMENT ACTION. Marketers should consider a number of political risks : Confiscation : Is a process of a Government taking ownership of a property without paying any compensation. Eg : Chinese confiscation of American Property after coming to power in 1949. Expropriation : The Government takes ownership and offers some compensation. 7. Nationalization : Involves government ownership and it is the Government itself that operates the business being taken over. Domestication : Foreign companies offer voluntarily or are asked to offer control to a Nations Citizens. Eg : Pepsi, Coke, GM sold stake to locals. General Instability Risk : In relate to the uncertainty of the future viability of a host countrys political system. 8. Ownership / Control Risk : Possibility that a host countrys Government might take action to restrict investors risk. Operation risk : Possibility that a host countrys government might constraint an investors business operation in any one or all areas like production, marketing, finance etc. Transfer risk : Any future act by a government that might constraint the ability of a subsidiary to transfer payments, capital, profits out of a host country. 9. Attitudeof Consumers in the Host Country Some consumers may be very loyal to homemadeproducts. Attitudeof Host Government The host government may impose specialrequirements or taxes, restrict fund transfers, subsidize local firms, or fail to enforce copyright laws. 10. Blockageof Fund Transfers Funds that are blocked may not be optimally used. CurrencyInconvertibility The MNC parent may need to exchange earningsfor goods. 11. War Internal and external battles, or even the threat ofwar, can have devastating effects. Bureaucracy Bureaucracy can complicate businesses. Corruption Corruption can increase the cost of conductingbusiness or reduce revenue. 12. Currentand potential state of the countrys economy Financial distress Additional host government restrictions Interest rates, exchange rates and inflation 13. Currentand Potential State of the Countrys Economy A recession can severely reduce demand. Financial distress can also cause the governmentto restrict MNC operations. Indicatorsof Economic Growth A countrys economic growth is dependent onseveral financial factors - interest rates, exchange rates, inflation, etc. 14. Diversificationof the economy Degree of reliance on a few key exports and the effects of a decline in the worldwide prices of those exports Exchange rate devaluation Frequency of government intervention in the money market and the ceilings of interest rates Possibility of recession 15. Countrysattitude towards privateenterprise Risk of currency devaluation Risk of government`s income reduction External flows dependence, Productivity restrictions Social pressures Attitude of consumers in the host country 16. Macro-assessment of country riskCountry characteristics that affect profitsMicro-assessment of country risk 17. Amacro-assessment of country risk is an overall risk assessment of a country without consideration of the MNCs business. A micro-assessment of country risk is the risk assessment of a country as related to the MNCs type of business. 18. Theoverall assessment of country risk thus consists of : Macro-political risk Macro-financial risk Micro-political risk Micro-financial risk 19. Achecklist approach involves rating and weighting all the identified factors, and then consolidating the rates and weights to produce an overall assessment. The Delphi technique involves collecting various independent opinions and then averaging and measuring the dispersion of those opinions. 20. Quantitativeanalysis techniques like regression analysis can be applied to historical data to assess the sensitivity of a business to various risk factors. Inspection visits involve traveling to a country and meeting with government officials, firm executives, and/or consumers to clarify uncertainties. 21. Iraqsinvasion of Kuwait was difficult to forecast, for example. Nevertheless, many MNCs promptly reassessed their exposure to country risk and revised their operations. The 1997-98 Asian crisis also showed that MNCs had underestimated the potential financial problems that could occur in the high-growth Asian countries. 22. Large government deficit relative to GNP High rate of money expansion Substantial government spending yielding low rate of return High taxes Vast state-owned firms Attitude that governments role is to maintain living standards Pervasive corruption Absence of basic government institutions almost all are common for the developing countries!!!!!! 23. Country risk rankings Least risky countries, Score out of 100Source: Euromoney Country risk March 20131 Country risk rankings Least risky countries, Score out of 100Source: Euromoney Country risk March 2013 Overall scoreRankPreviousCountry11Norway95.0522Luxembou rg96.3533Switzerlan d88.6544Denmark87.5556Finland85.8165Sweden83.8177Austria87.50811Canada89.0998Netherland s81.86109Australia88.16 24. Potential risk & rewards of doing business in a country Factors Political Financial Economic Risk Assessment Measurement & comparison of country risk Terrorism