QUESTION 5: You are the CEO of a company that has to choose between making a $100 million investment in Russia or the Czech Republic. Both investments promise the same long-run return, so your choice is driven by risk considerations. Assess the various risks of doing business in each of these nations. Which investment would you favor and why?
ANSWER 5: When assessing the risks of investment, one should consider the political, economic, and legal risks of doing business in both Russia and the Czech Republic. The political risk in Russia is still high but it is undergoing continual governmental changes under Putin’s leadership, and courting foreign investment. Relatively, the Czech ...view middle of the document...
ANSWER 4: In considering expansion into Western Europe, an international manager might consider three options: FDI, licensing, and export. With export, assuming there are no trade barriers, the key considerations would likely be transport costs and localization. While transport costs may be quite low for a relatively light and high value product like a computer, localization can present some difficulties. Power requirements, keyboards, and preferences in models all vary from country to country. It may be difficult to fully address these localization issues from the US, but not impossible. Since there are many computer manufacturers and distributors in Europe, there are likely to be a number of potential licensees. But a licensing arrangement implies that valuable technological information may have to be disclosed and that the firm’s competitive advantage may be lost if the licensees uses or disseminates this proprietary knowledge improperly. FDI (setting up a wholly owned subsidiary) is clearly the most costly and time consuming approach, but the one that best guarantees that critical knowledge will not be disseminated and that localization can be done effectively. FDI will also place you in the market into which you want to sell and allow you to be near the consumer. Given the fast pace of change in the personal computer industry, it is difficult to say how long this revolutionary new computer will retain its competitive advantage. If the firm can protect its advantage for a period of time, FDI may pay off and help assure that critical knowledge is not lost. If the innovation is not core and can be easily copied, then licensing would allow the firm to get the quickest large scale entry into Europe and make as much as it can before losing advantage.
QUESTION 3: What effect is the creation of a single market and a single currency within the EU likely to have on competition within the EU? Why?
ANSWER 3: By creating a single market and currency, member countries can expect significant gains from the free flow of trade and investment. This will result from the ability of the countries within the EU to specialize in the production of the product that they manufacture the most efficiently, and the freedom to trade those products with other EU countries without being encumbered by tariffs and other trade barriers. In terms of competition, the competition between European firms will increase. Some of the most inefficient firms may go out of business because they will no longer be protected from other European companies by high tariffs, quotas, or administrative trade barriers. Companies from those countries that have not adopted the euro may find that their costs are higher as they deal with currency exchanges. In addition, because it will be easier to compare prices across markets, firms in the euro zone will be pushed to lower prices and become more efficient.
CLOSING CASE: Coca-Cola
The closing case examines...