Country Risk Analysis:
John D. Young
January 16, 2010
Country Risk Analysis
When entering any market, analyzing the business risks is an important process. Many sources of risk exist and responsible organization will examine every possible source in preparation for managing a variety of issues. These risk types include political, legal, and regulatory risk, exchange and repatriation of funds risk, competitive risk, taxation and double taxation risk, market risk, distribution and supply chain risk, physical and environmental risk, social and cultural risk, and cyber-risk or technological risk.
Political, Legal, and Regulatory Risks
Politically, ...view middle of the document...
Information from formal relationships may also be helpful in reducing any risk.
Exchange and Repatriation of Funds Risk
Historically, Chinese currency was pegged to the value of the U.S. dollar. After receiving praise during the 1998 Asian Financial crisis, this policy came under criticism in 2003 following the decline in the value of the dollar, dropping the value of the Chinese Renminbi. This allows China to bring goods to market at increasingly competitive prices despite a growing economy. China changed this policy and began pegging the Renminbi to multiple foreign currencies, which stabilizes the price and availability for exchange (Poleg, 2005).
Despite the global economic downturn in 2008, China weathered the storm well. Despite a sharp decline in Foreign Domestic Investment (FDI), China released a stimulus package that afforded them GDP growth in 2008 and 2009 of 9.6% and 9.2% respectively, rising above their pre-crisis GDP in 2010 (Morrison, 2011). This led to unprecedented tax exemptions on repatriation taxes for certain American companies in an effort to encourage FDI (Marshall, 2007). However, the potential exists that with an up-turn in the economy and FDI that China will again re-impose a high repatriation tax for profits made in their country.
Exchange and Repatriation of Funds Risk Management
“The predominant way to manage foreign exchange risk is to offset foreign currency holdings or expected revenue with futures or forwards (ehow).” Demanding a level of stability by creating a foreign bank account for the organization, by creating this account the company can mitigate the effects of currency values. The fluctuation on revenues of foreign currency can also provide better returns, depending on the experience of the company’s accounting department dealing with investments as well as any tax shelters.
China has already embraced the concept of the electric car. China has invested in expanding infrastructure to support electric cars by expanding their power grid, especially in the southern region, and by installing electric car charging stations throughout most of their urban centers (Bradsher, 2012). However, they have fallen short as a nation in their commitment to going electric. Many agree that the problem most consumers have with the electric car is universal. Most electric cars do not have an appealing design.
Competitive Risk Management
A method of pushing the envelope against any company competing with the LUXX brand must start with mandates from the United States government as well as foreign policies and government officials. Creating an electric automobile market using government stimulus earmarks, encouraging the public by using the same products (federal electric vehicle fleets). Review the most popular car designs within the last 40 years and provide the body design and an interior that provides a functional and luxury balance. Teaming with energy companies to...