FIN53 MNC Venturing Into New Country India
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.
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?
ΙΙΙ III. Management Factors to Consider
Ις a. How would you enter the market? Acquisition, subsidiary, branch, or joint venture?
ς
What kind of restrictions does the government place on FDI?
ςΙ b. Would you choose to have a local partner when entering this country?
ςΙΙ c. If you were a manager considering operations in this country, would cultural
ςΙΙΙ
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
VI. Appendix
