1. Instructor: Tran Nam Giang © 2008 Pearson Prentice Hall 1-1

2.  Research the environment in which a company operates or will operate in order to assess: 1.the political risks 2.the economic risks 3.the regulatory risks 4.technological risks © 2008 Pearson Prentice Hall 1-2

3.  Any governmental action or politically motivated event that could adversely affect the long-run profitability or value of a firm  Example: “… Bolivia nationalized its natural-gas industry, ordering foreign companies to give up control of fields and accept much tougher operating terms within six months or leave the country” Wall Street Journal 2006  Why do governments do that? © 2008 Pearson Prentice Hall 1-3

4.  Expropriation of corporate assets  Forced sale of equity to host-country nationals  Legal discrimination  Barriers to repatriation of funds  Loss of technology or other IP  Interference in managerial decision making  Dishonesty by government officials regarding contracts © 2008 Pearson Prentice Hall 1-4

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12.  Helps companies manage exposure to risk and minimize financial loss  Two forms: ◦ Consultation with experts ◦ Development of internal staff capabilities © 2008 Pearson Prentice Hall 1-12

13.  Avoidance  Adaptation: equity sharing, localization, development assistance  Dependency: keep subsidiary & host nation dependent on parent firm  Hedging: insurance, local debt financing © 2008 Pearson Prentice Hall 1-13

14.  Is closely related to political risk  Types of economic risks ◦ Loss of profitability due to abrupt changes in monetary and fiscal policies ◦ Loss of profitability due to changes in foreign investment policies.  E.g. barriers in profit repatriation, changes in interest rate, exchange rate © 2008 Pearson Prentice Hall 1-14

15.  Quantitative: assess economic variables (GDP, income, unemployment rate, inflation, budget, imports, exports, debts)  Qualitative: assess the competence of leaders  Checklist: easily measurable and timely criteria  A combination of these methods © 2008 Pearson Prentice Hall 1-15

16.  Protectionist policies, such as tariffs or quotas  The attractiveness of the tax system  The level of government involvement in the economic and regulatory environment © 2008 Pearson Prentice Hall 1-16

17.  The appropriability of technology: ability to profit from innovating technology maybe restricted  Inappropriate use of technology by others  Appropriateness of technology for the local environment © 2008 Pearson Prentice Hall 1-17