How Best To Manage Country Risk, Essay Example
Porter explained in Chapter 4 of his text entitled, “The Dynamics Of National Advantage,” that a single component may affect the other factors determining the attractiveness of a country for investment (Porter, 1998.). If a country’s political and social statuses are not stable, ultimately it will affect its economic conditions. If a country is experiencing political instability such as leadership overthrow riots, the people will be all over the streets, participating in violent activities. With these events underway, it is not surprising to see several people in the country get injured and die. The safety of the country in these instances would be in peril. Effective leaders who can manage the economic conditions of the country fail to exist. Due to unattractive safety and economic systems, foreign investors would be scared to invest in the country.
The previous records of the success rates of investment in the country accounts for the attractiveness exhibited by investors to invest in the country (Porter, 1998). If a country has had positive economic growth due to successful investments in the past, it is likely able to provide successful investment gigs for future investors. The CEO of Starbucks would likely invest in opening franchises of its business in countries where patronizing US brands have been huge. The CEO would likely avoid investing the coffee shop on anti-US countries.
Global competition has been commonly used as the basic strategy for successfully determining the feasibility of country risk on a given country (Porter, 1998). By studying global competition before the application of country risk, the CEOs of leading companies would likely get overviews of the preferences, needs and wants of the population of a country before risking to invest in that country. Doing so would enable the CEOs to avoid failures when investing in a country.
The preferences of the population in the cities and states within a nation must also be given priority when deciding to invest in a country (Porter, 1998). For example, Philipino restaurants which invest their businesses in the United States target to build their establishments in cities and states where there is a huge population of Philipino community. Doing so enables them to make sure that their investments in that country would succeed.
Explanations On How Hofstede Helps Relate To My Understanding Of How Best To Manage Country Risk
The United States and other western countries make their big decisions to invest in Asia, in terms of importing labor, after carefully studying the traits of Asian people when it comes to discipline at work (Hofstede & Bond, n.d.). Also, the cheap labor in the Asian region accounts for the decisions of the western countries to offshore their imports in that region (Hofstede & Bond, n.d.). Several workers in Asia are known to be hardworking and industrious even if the compensation for their labor is not that huge. During the recession in western countries occurring nowadays, expensive imports and labor cannot be tolerated.
Investors choose the best countries to invest in, in terms of economic success. The Five Dragons in East Asia, Singapore, Taiwan, South Korea, Hong Kong and Japan, have all proven their worth in terms of the application of country risk (Hofstede & Bond, n.d.). All of these countries have shown stability in its currency, wealth power and stability in its political and social statuses. The additional factor which makes these countries attractive to investors is its leaders’ strict implementation of laws and regulations. If the leaders of countries can strictly enforce laws and regulations in his country, it means that his people are disciplined as well.
The neo-Confucian theoretical belief accounts for the success in business activities among the population in the Five Dragons (Hofstede & Bond, n.d.). Most of the people living in these countries believe in inheriting the positive traits and values of their ancestors. Because of this, most of the people in these countries acquire the good business skills that their parents and ancestors possess. These people’s close family ties enable them to get help from family and relatives whenever they encounter any problem running their businesses.
Culture plays an important role in making the countries successful in attracting future investors (Hofstede & Bond, n.d.). If the culture of a country is that of constantly applying natural honesty in dealing with business partners, naturally more investors would have the trust invested towards the country as a safe bet to put a business investment in. In a country where corruption is high, naturally investors would fear that the procedures of doing business in that country is likewise at risk of dishonest business dealings.
Explanations On How Huntington Helps Relate To My Understanding Of How Best To Manage Country Risk
Civilizations in various countries have presently made huge impacts on the decisions of investors to invest their businesses in a country (Huntington, 1993). Civilizations may be classified in terms of categorical classifications of technology, science and division of labor. The technologies in a certain country naturally have effects on the attractiveness of that particular country on international investors. For example, several American home-based business process outsourcing companies likely target the Philippines as a potential investment country for their businesses. This is due to the cheap wages the country has to offer. Furthermore, several Phiilipinos can speak fluent English as compared to other countries in the world. However, at times, investors get turned away from investing in the country due to the bad technology it has to offer. At times, the internet connection within the country is slow and lagging. This makes things difficult for the customers of the BPO industry.
The availability of scientific components to aid in the businesses is also taken into consideration by investors. If they need to budget their investment money in order to invest in a particular country, naturally, they would look for scientific components to aid the services and products that they have to offer within the host country at low prices.This helps the investors to provide the best quality of services at a budget suitable for their pockets.
Division of the labor in the manufacture of imported products in connection with the business to be invested in is also considered prior to investing in a country. Investors consider whether or not the country they wish to invest in requires that the products they would be offering the customers be manufactured in that country itself. Sometimes, investors feel risking to invest in a country that has such a requirement can risk them incurring more expeditures than income.
Competition among civilizations between countries around the world has also been an important factor to be considered by the investors (Huntington, 1993). Enhanced technology in a country ensures good business for the investors. However, they must weigh in the costs of investment in such a country and the history of success of the type of business they would like to establish. Selecting a middle class technology with a high rated success of the same line of business are good criterias for a country when considering to be invested in.
Explanations On How Friedman Helps Relate To My Understanding Of How Best To Manage Country Risk
According to Friedman, business investors consider the social values of business investment, such as employment, before investing in a business in certain countries (Friedman, 1970). When considering employment as a one of the components in the decision making process, the business investors consider the majority of educational attainment and experiences of most of the population of the country before establishing such business in the country.
Before establishing business investments in a certain country, business investors would have to consider the fact whether or not they can hire competent corporate executives. Corporate executives are responsible for overseeing the operations of the company (Friedman, 1970). They make daily reports to their superiors on the performances of their subordinates and the overall operations of the company (Friedman, 1970). Business investors should consider the competency of potential corporate executives in a country before they make their investment. Competency includes the ability to be a leader effectively within the organization with minimal supervision.
The majority of the education of potential corporate managers would likely be scrutinized. Business investors would likely study the majority of educational attainments of the population of a country before they risk to establish investments in the country. By doing so, they ensure that they would get numerous potential candidates for their corporate manager positions, thus, widening the prospect of success of investing a business in the country. Corporate managers play the leading role in enabling the success of the business in a country as they are known as ‘the leaders’ in corporations.
The customers’ preferences according to the current trends also play vital roles in the social status of a country, which determines the attractiveness to invest in that particular country (Friedman, 1970). For example, a country whose people have high US colonial mentality such as the Philippines may easily attract US investors to invest in the country. US investors who are in desperate need to earn profits in businesses may easily overlook the lagging technological system and the risky safety measures in the country just so because of the several potential customers they would get from investing in the said country.
Explanations On How Neipert Helps Relate To My Understanding Of How Best To Manage Country Risk
Ultimately, when investing businesses internationally, the federal laws governing the businesses would ultimately be based from the federal laws governing the countries where businesses are established (Neipert, 2002). Because of this, several business investors think twice before deciding to invest in certain countries. Countries where the laws are lenient may be unattractive to investors whose primary goal is to be able to establish businesses according to proper lawful procedures.
International companies such as Starbucks and McDonald’s are examples of companies which strictly adhere to the federal laws of a country. In cases that these two companies establish franchises in countries where laws are not strictly adhered to, they make sure that their establishments would become exceptions in these countries when it comes to being catered to their legal needs. They make this clear to the franchise head of the host country in the agreement and contract signing before they pursue investing in the country.
State laws like laws established in the states within the United States are the laws which overseas businesses must comply with in terms of operations and in the event of legal disputes (Neipert, 2002). International businesses like the Philipino restaurants established in California must adhere to these laws. Failure to do so would likely have their business licenses suspended or revoked. They must be careful in being knowledgeable of the laws and regulations of the state before investing in establishing more branches within California. They must not take the laws of the state for granted and think of them as lenient as the laws in the Philippines before they risk to establish more business franchises within the state.
International investors who wish to establish businesses in Islam nations should consider the fact that with it come being familiar with the religion of the nations (Neipert, 2002). The religion of the nations reflects the laws the nations ultimately enforce (Neipert, 2002). Business investors would need to be open minded in accepting the Islam religious rulers as the likely dictator of the laws in such nations. Even if investors feel that some of the beliefs of the said religion reflected in laws are unfair, they need to accept them if they wish to do business with Islam nations.
Friedman, M. (1970, September 13). The Social Responsibility Of Business Is To Increase Its Profits. The New York Times Magazine.
Hofsted, G. & Bond, M.H. (n.d.) The Cofucius Connection: Frromm Cultural Roots To Economic Growth. Elsevier Publishing Company, Inc.
Huntington, S.P. (1993). The Clash Of Civilizations. Foreign Affairs.
Neipert, D.M. (2002). Law Of Global Commerce: A Tour. Upper Saddle River, NJ: Prentice Hall.
Porter, M.E. (1998). On Competition. HBS Publishing.
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