Question

Imagine that you are working for a company that asks you to develop a political and

economic risk checklist for any direct investment decision your company might

undertake in a foreign country – your company wants to make sure it has considered

all significant external risks (as opposed to strategic, competitive, financial, or

market risks) that might affect the company's ability to generate positive returns on

its investment. One example of a risk that needs to be considered is the risk of

expropriation/nationalization such as what occurred in Venezuela after Hugo Chavez

came to power. But there are many other risks as well. The checklist should consist

of economic and political matters about a country that management should take into

account in making an investment decision. What would your checklist look like?

After you have come up with your checklist, apply your checklist to a

country of your choice (OTHER THAN the United States, Japan, or your own

country – i.e., if you are from the Philippines or Indonesia, you may not choose the

Philippines or Indonesia). This will require a little research on your part.

Answer 1

Generally, any company will do PESTEL analysis before launching operation in any other country:

PESTEL is political, Economic, Socio-cultural factors, Technological readiness and Legal factors in that country. Nowadays environmental impact assessment is also done by a few countries.

Political: A country's political stability along with political ideologies of incumbent govt and main opposition is considered. Example- Chinese and Indian investment in Maldives comes under scrutiny when India aligned and China aligned governments come in the power respectively.

Economic: a country may have prolonged economic recessions and a company may not get response it wanted from the market.

Socio-cultural : Domestic companies may campaign against foreign companies by instigating nationalist feelings and if people fall to them then a company may incur loss. ex. Increasing protectionism. Recent Huawei case in Canada and USA

Technological readiness- A country may not have techonlogical readiness- ex. Pakistan for advanced 4G and 5G mobile services.

Legal: single brand retailers like wall mart are not allowed in India yet.

Environmental impact: A host country may make it difficult for anew firm to enter by asking difficult criteria to meet.