Question

What are the multiple risks that a company might face in doing business in a particular nation?. Assume a U.S. corporation, XYZ Company, is considering building a glass factory in a nation that has an authoritarian government leader, a non-convertible currency, and very strict export restrictions. Explain what are the risks XYZ Company needs to understand and weigh as the company considers making this direct foreign investment.

Answer 1

Answer - There are several risks in establishing a business in any nation. When the government is very rigid , it follows very strict business and trade policies and according to it , formulates very strict rules leading to the lack of flexibilty in operations and the cost of complying with the regulations increase because if they are not complied , they may result in heavy penalities or even stoppage of production or government cancelling the license.

If the currency of the nation is non convertible , a firm which has established its production from outside, will not be able to take the earnings back to his nation because the currency is non convertible. He will have to shift whole production in this new country , or not produce at all in this country.

The export limitations on the firm in this nation will affect the trade and expansion and profit making opportunities for this firm established in foreign nation.

Thus , these potential risks must be carefully accessed before trying to expand the production to a foreign nation.