2. 
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.

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; and
to improve the analysis used in making longterm investment or financing decisions.

4. 
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

5. Political
Financial
Factors
Economic
Conditions
Subjective
5

6.  Attitude
of host government
 War
 Currency
inconvertibility
 Bureaucracy
 Blockage of fund transfers
 Corruption

7. 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.


8. 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.


9. 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.


10.  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.

11.  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.

12.  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.

13.  Current
and potential state of the country’s
economy
 Financial distress
 Additional host government restrictions
 Interest rates, exchange rates and inflation

14.  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.

15.  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 recession

16.  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 country

17. 
Macro-assessment of country risk

Country characteristics that affect profits

Micro-assessment of country risk

18. 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.

19.  The
overall assessment of country risk
thus consists of :
 Macro-political risk
 Macro-financial risk
 Micro-political risk
 Micro-financial risk

20. 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.

21.  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.

22.  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.

23. 








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!!!!!!

24. 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
score
Rank
Previous
Country
1
1
Norway
95.05
2
2
Luxembou
rg
96.35
3
3
Switzerlan
d
88.65
4
4
Denmark
87.55
5
6
Finland
85.81
6
5
Sweden
83.81
7
7
Austria
87.50
8
11
Canada
89.09
9
8
Netherland
s
81.86
10
9
Australia
88.16

25. 




Potential risk & rewards of doing business in a country
Factors
• Political
• Financial
• Economic
Risk Assessment
Measurement & comparison of country risk
Terrorism