Country Risk Analysis is assessment of
potential risks and rewards from doing
business in country.
Country risk represents potentially
adverse impact of a country’s
environment on the cash flow of the firm.
Country risk represents the potentially adverse
impact of a country’s environment on the MNC’s cash
Country risk can be used:
to monitor countries where the MNC is presently
as a screening device to avoid conducting
business in countries with excessive risk; and
to improve the analysis used in making longterm investment or financing decisions.
Used to monitor countries where the firm is
presently engaged in international business
Used by the firm as a screening device to avoid
countries with excessive risk
Used to assess particular forms of risk for a
proposed project considered for a foreign country
of host government
Blockage of fund transfers
HAZARDS BASED ON GOVERNMENT ACTION.
Marketers should consider a number of political risks
Confiscation : Is a process of a Government taking
ownership of a property without paying any
compensation. Eg : Chinese confiscation of
American Property after coming to power in 1949.
Expropriation : The Government takes ownership
and offers some compensation.
Nationalization : Involves government ownership and
it is the Government itself that operates the business
being taken over.
Domestication : Foreign companies offer voluntarily
or are asked to offer control to a Nations’ Citizens’.
Eg : Pepsi, Coke, GM sold stake to locals.
General Instability Risk : In relate to the uncertainty
of the future viability of a host country’s political
Ownership / Control Risk : Possibility that a host
country’s Government might take action to restrict
Operation risk : Possibility that a host country’s
government might constraint an investor’s business
operation in any one or all areas like
production, marketing, finance etc.
Transfer risk : Any future act by a government that
might constraint the ability of a subsidiary to transfer
payments, capital, profits out of a host country.
of Consumers in the Host Country
• Some consumers may be very loyal to homemade
of Host Government
• The host government may impose special
requirements or taxes, restrict fund
transfers, subsidize local firms, or fail to enforce
of Fund Transfers
• Funds that are blocked may not be optimally used.
• The MNC parent may need to exchange earnings
• Internal and external battles, or even the threat of
war, can have devastating effects.
• Bureaucracy can complicate businesses.
• Corruption can increase the cost of conducting
business or reduce revenue.
and potential state of the country’s
Additional host government restrictions
Interest rates, exchange rates and inflation
and Potential State of the
• A recession can severely reduce demand.
• Financial distress can also cause the government
to restrict MNC operations.
of Economic Growth
• A country’s economic growth is dependent on
several financial factors - interest rates, exchange
rates, inflation, etc.
of the economy
Degree of reliance on a few key exports
and the effects of a decline in the
worldwide prices of those exports
Exchange rate devaluation
Frequency of government intervention in
the money market and the ceilings of
Possibility of recession
attitude towards private
Risk of currency devaluation
Risk of government`s income reduction
External flows dependence,
Attitude of consumers in the host country
Macro-assessment of country risk
Country characteristics that affect profits
Micro-assessment of country risk
macro-assessment of country risk is an
overall risk assessment of a country
without consideration of the MNC’s
A micro-assessment of country risk is the
risk assessment of a country as related to
the MNC’s type of business.
overall assessment of country risk
thus consists of :
checklist approach involves rating and
weighting all the identified factors, and
then consolidating the rates and weights to
produce an overall assessment.
The Delphi technique involves collecting
various independent opinions and then
averaging and measuring the dispersion of
analysis techniques like
regression analysis can be applied to
historical data to assess the sensitivity of a
business to various risk factors.
Inspection visits involve traveling to a
country and meeting with government
officials, firm executives, and/or consumers
to clarify uncertainties.
invasion of Kuwait was difficult to
forecast, for example. Nevertheless, many
MNCs promptly reassessed their exposure
to country risk and revised their
The 1997-98 Asian crisis also showed that
MNCs had underestimated the potential
financial problems that could occur in the
high-growth Asian countries.
Large government deficit relative to GNP
High rate of money expansion
Substantial government spending yielding low rate of return
Vast state-owned firms
Attitude that government’s role is to maintain living standards
Absence of basic government institutions
almost all are common for the developing countries!!!!!!
Country risk rankings Least risky
Score out of 100Source: Euromoney
Country risk March 20131
Country risk rankings Least risky
countries, Score out of 100Source: Euromoney
Country risk March 2013
Potential risk & rewards of doing business in a country
Measurement & comparison of country risk