Question

Discuss the pros and cons of a US based domestic company aggressively investing in emerging economies. You may use a particular company (by name) and a particular emerging economy (by name) to provide your examples. (International Management

Answer 1

We will take example of coca cola. And the country is India. The pros are the coca cola can take advantage of rising growth in India. This opportunity is not available in usa as growth rate in usa is limited. Further it leds to diversification and enhancing of risk adjusted returns through diversification for many firms.Also the company can gain access to cheap local inputs which are not available at home like cheap sugar, labour in India. This results in cost saving. Often countries give tax concessions for Fdi, foriegn subsidiaries. This will also be beneficial. The cons are it leds to unemployment in domestic country and is hence resisted by even politicians. Triumphs selection is one such case. Also companies are subjected to foriegn exchange risk. There is also risk in investing in foriegn countries E. G India and Pakistan can go to war anytime due to their conflict on kashmir issue.