Country Risk Analysis Ppt Sec B Group 3
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Transcript of Country Risk Analysis Ppt Sec B Group 3
Country Risk
Ankit KumarAnkur Verma
Anustup SreemaniArpit MangalAshish Dogra
Ashutosh Dubey
Arpit Mangal
Definition
Country Risk Analysis is assessment of potential risks and rewards from doing business in country.
Country risk represents potentially adverse impact of a country’s environment on the cash flow of the firm.
Arpit Mangal
Definition
04/10/2023Country Risk Analysis 3
Country risk represents the potentially adverse impact of a country’s environment on the MNC’s 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; andto improve the analysis used in making long-term investment or financing decisions.
Arpit Mangal
Importance
Used to monitor countries where the firm is presently engaged in international business
Used by the firm as a screening device to avoid countries with excessive risk
Used to assess particular forms of risk for a proposed project considered for a foreign country
Arpit Mangal
Awareness of Country Risk
Crisis in Mexico 1982 Crisis in China in 1989 1997 East Asian Currency crisis Crisis in Iraq Crisis in Iran, Afghanistan Recent sub-prime crisis starting in USA
Arpit Mangal
Factors
Political
Economic Conditions
Subjective
Financial
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Ashutosh Dubey
Political Risk Factors
Attitude of host government War Currency inconvertibility Bureaucracy Blockage of fund transfers Corruption
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Ashutosh Dubey
Political Risk
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.
Ashutosh Dubey
Political Risk
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 country’s political system.
Ashutosh Dubey
Political Risk
Ownership / Control Risk : Possibility that a host country’s Government might take action to restrict investor’s risk.
Operation risk : Possibility that a host country’s government might constraint an investor’s 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.
Ashutosh Dubey
Political Risk Factors
Attitude of Consumers in the Host Country› Some consumers may be very loyal to
homemade products. Attitude of Host Government
› The host government may impose special requirements or taxes, restrict fund transfers, subsidize local firms, or fail to enforce copyright laws.
Ankur Verma
Political Risk Factors
Blockage of Fund Transfers› Funds that are blocked may not be
optimally used. Currency Inconvertibility
› The MNC parent may need to exchange earnings for goods.
Ankur Verma
War› Internal and external battles, or even the
threat of war, can have devastating effects.
Bureaucracy› Bureaucracy can complicate businesses.
Corruption› Corruption can increase the cost of
conducting business or reduce revenue.
Political Risk Factors
Ankur Verma
Financial Risk Factors
Current and potential state of the country’s economy
Financial distress Additional host government restrictions Moratorium on fund transfer Interest rates, exchange rates and
inflation
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Ankur Verma
Financial Risk Factors
Current and Potential State of the Country’s Economy› A recession can severely reduce demand. › Financial distress can also cause the
government to restrict MNC operations. Indicators of Economic Growth
› A country’s economic growth is dependent on several financial factors - interest rates, exchange rates, inflation, etc.
Ankit Kumar
Economic Conditions
Diversification of 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 recession04/10/2023Country Risk Analysis 16
Ankit Kumar
Subjective factors
Country’s attitude towards private enterprise
Risk of currency devaluation Risk of government`s income reduction External flows dependence, Productivity restrictions Social pressures Attitude of consumers in the host
country04/10/2023Country Risk Analysis 17
Ankit Kumar
Types of Country Risk Assessment
Macro-assessment of country risk
Country characteristics that affect profits
Micro-assessment of country risk
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Ankit Kumar
Types of Country Risk Assessment A macro-assessment of country risk is
an overall risk assessment of a country without consideration of the MNC’s business.
A micro-assessment of country risk is the risk assessment of a country as related to the MNC’s type of business.
Ashish Dogra
Types of Country Risk Assessment The overall assessment of country risk
thus consists of : Macro-political risk Macro-financial risk Micro-political risk Micro-financial risk
Ashish Dogra
Techniques of Assessing Country Risk
A checklist 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.
Ashish Dogra
Techniques of Assessing Country Risk
Quantitative analysis 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.
Ashish Dogra
Applications ofCountry Risk Analysis
Iraq’s invasion 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.
Ashish Dogra
Indicators of high country risk
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 government’s role is to maintain living
standards Pervasive corruption Absence of basic government institutions almost all are common for the developing countries!!!!!!
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Anustup Sreemani
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Country risk rankings Least risky countries, Score out of 100Source: Euromoney Country risk March 2010[1]
Rank Previous Country Overall score
1 1 Norway 94.05
2 2 Luxembourg
92.35
3 3 Switzerland
90.65
4 4 Denmark 88.55
5 6 Finland 87.81
6 5 Sweden 86.81
7 7 Austria 86.50
8 11 Canada 86.09
9 8 Netherlands
84.86
10 9 Australia 84.16
Country risk rankingsLeast risky countries, Score out of 100Source: Euromoney Country risk March 20101
Anustup Sreemani
Summary
Potential risk & rewards of doing business in a country
Factors› Political› Financial› Economic
Risk Assessment Measurement & comparison of country risk Terrorism
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Anustup Sreemani
THANK YOU
Country Risk Analysis
Anustup Sreemani