International Investment - Notes chpt 6
Notes Chapter 6 & 16 2_5_13 – chapter 16 is key learning chapter
Midterm is in two weeks – next week talk about exam – review.
Document on Angel – outlines all of the key learning’s on the chapters.
Country risk analysis –
Try to find the factors used to measure country risk –
Country risk is the potentially adverse impact of a country’s environment on an MNC’s cash flows.
An MNC conducts country risk analysis when it applies capital budgeting to determine whether to implement a new project in a particular country or to continue conducting business in a particular country.
Political Risk Characteristics
1. Attitude of consumers in the host country - a tendency of residents to purchase only locally produced goods. Japan – cannot ship rice into japan – high tariffs – Switzerland – high quality reputation -
2. Actions of the host government - A host government might impose pollution control standards and additional corporate taxes, as well as withholding taxes and fund transfer restrictions. Can encourage or discourage investment – can be corrupt – raising the risk of doing any type of business in that country. What is the best way to tell what a govt will do – by what they have done in the past – what are they doing right now?
3. Blockage of fund transfers - A host government may block fund transfers, which could force subsidiaries to undertake projects that are not optimal (just to make use of the funds).
4. Currency inconvertibility - Some governments do not allow the home currency to be exchanged into other currencies.
5. War – Conflicts with neighboring countries or internal turmoil can affect the safety of employees hired by an MNC’s subsidiary or by salespeople who attempt to establish export markets for the MNC
6. Inefficient bureaucracy - Bureaucracy can delay an MNC’s efforts to establish a new subsidiary or expand business in a country.
7. Corruption – Corruption can occur at the firm level or with firm-government interactions.
Midterm is in two weeks – next week talk about exam – review.
Document on Angel – outlines all of the key learning’s on the chapters.
Country risk analysis –
Try to find the factors used to measure country risk –
Country risk is the potentially adverse impact of a country’s environment on an MNC’s cash flows.
An MNC conducts country risk analysis when it applies capital budgeting to determine whether to implement a new project in a particular country or to continue conducting business in a particular country.
Political Risk Characteristics
1. Attitude of consumers in the host country - a tendency of residents to purchase only locally produced goods. Japan – cannot ship rice into japan – high tariffs – Switzerland – high quality reputation -
2. Actions of the host government - A host government might impose pollution control standards and additional corporate taxes, as well as withholding taxes and fund transfer restrictions. Can encourage or discourage investment – can be corrupt – raising the risk of doing any type of business in that country. What is the best way to tell what a govt will do – by what they have done in the past – what are they doing right now?
3. Blockage of fund transfers - A host government may block fund transfers, which could force subsidiaries to undertake projects that are not optimal (just to make use of the funds).
4. Currency inconvertibility - Some governments do not allow the home currency to be exchanged into other currencies.
5. War – Conflicts with neighboring countries or internal turmoil can affect the safety of employees hired by an MNC’s subsidiary or by salespeople who attempt to establish export markets for the MNC
6. Inefficient bureaucracy - Bureaucracy can delay an MNC’s efforts to establish a new subsidiary or expand business in a country.
7. Corruption – Corruption can occur at the firm level or with firm-government interactions.