INVESTING RISK IN ANY COUNTRY

Investing Risk In Any Country

Table of Contents

Chapter - I3

Introduction3

Chapter - II5

Literature Review5

Research methodology14

Chapter - IV17

Discussion of the findings17

Chapter - V24

Conclusions and implications24

References27

Appendix35

Introduction

The rapid growth of international business activity has meant that many corporations are crossing national boundaries to either exploit new opportunities or minimize any potential threats. The rapid growth of trade and investment flows and the need to make decisions about assets or activities in other countries, require multinational corporations (MNCs) to assess commercial risks such as local markets and competition, transportation costs, availability of labour and the level of other relevant local costs. They also require, as suggested by Alon and Herbert (2009) and Marshall et al. (2009), to make an assessment of the country risks such as the stability of government and potential changes in the treatment of non-domestic corporations (Alon and Herbert 2009).

Little effort, according to Al Khattab (2006) and Al Khattab et al. (2008a), has been made to explain the sources of information used to assess country risk in international business. Somewhat, the main focus of preceding lessons have been descriptive. The objective of this paper is to address this deficiency and to examine critically the sources of information used by multinationals to assess country risk.

This broad objective of examining sources of information that are used for country risk assessment, is divided into two sub-objectives: a) to analyse current managerial practices in multinational corporations with regard to the sources of information used for country risk assessment and b) to explore the correlations between the sources of information used and corporation-specific characteristics of the multinationals surveyed.

Discussion

The place of risk management in modern organisations is now well established. (Economist Intelligence Unit, 2007). One leading published standard (AIRMIC, ALARM, IRM, 2002), defines risk management as the procedure whereby organisations systematically deal with the risks connecting to their actions with the aim of achieving constant advantage within each activity and across the collection of all activities. This standard highlights the first stage in risk management as risk assessment. The International Organization for Standardization (ISO/IEC, 2002) defines risk assessment as the overall process of risk analysis and risk evaluation. The aim of risk assessment, according to the European Environment Agency (1998) and Waring and Glendon (2001), is to provide knowledge on which decisions can be made about planned actions, the adequacy of risk controls and what development may be necessary.

It is self-evident that when an organisation conducts business in different countries the range of information needed to assess risk is multiplied. 'Country risk' is the term often used in connection with cross border investments and is analysed from the foreign investor's perspective (Oetzel, 2005). This is also referred to as 'political risk' though 'country risk' is a more common word, which usually only denote risks upsetting all companiess operating within a specific country. According to Hood (2001, p. 49), country risk "encapsulates the socio-political and economic factors which determine the degree and level of risk associated with undertaking business in a particular ...