Blog

You are the manager of an MNC considering an expansion into a new geographic market. Your management training tells you that foreign investments are risky and cost intensive in terms of coordination and management of a foreign workforce. You will present a proposal stating why you think an expansion into this country has the potential to make the firms’ owners/shareholders richer (or explain why it would not). You can choose the industry and firm-specific characteristics of your company. Information can be obtained from websites provided throughout your text as well as any official website for your country or any other reliable source of information for international data. The paper is meant to be a concise summary of key risk factors. The suggested format is a 2-4 page introduction, a 3-5 page summary regarding financial factors, a 3-5 page management section, and then a 2-3 page conclusion section. It is easy to minimize the amount of writing by summarizing key financial, economic, and risk characteristics data into a table and referring to it in the paper. All tables, exhibits, and supporting documents should appear in the appendix and should be referred to in the paper itself. In total, the paper should be 10-20 pages maximum. You should provide citations and references when appropriate. I. Introduction II. Financial Factors Affecting Expansion Decision What are the characteristics of the exchange rate regime in your country? Is the currency convertible? How high would you assess the likelihood of an exchange rate crisis? Exchange rate forecast and correlation analysis Does your country have a stock market? How many firms are on the exchange? Do firms list on outside exchanges (eg. an ADR on the NYSE)? Obtain stock market data for your country if it has an equity

market. What is the correlation of returns between your country and the U.S. market? What does this tell you, if anything? What is the rating on the country’s debt? Has it changed in the past five years? Are there any World Bank loans? What is the default risk spread (difference between your country’s Treasury bill rate and the U.S. Treasury bill rate)? Make sure you use the same maturity. Has the spread changed over the last five years? What does this tell you? Would you raise capital locally or in the U.S. for the venture? How would you raise capital in this market? If you entered this foreign market, what kind of concessions would you require on behalf of the local government? Would you ask for tax breaks, require that the local government allow you to hire workers from your own country, and/or demand that profits be repatriated at some favorable exchange rate? III. Management Factors to Consider a. How would you enter the market? Acquisition, subsidiary, branch, or joint venture? What kind of restrictions does the government place on FDI? b. Would you choose to have a local partner when entering this country? c. If you were a manager considering operations in this country, would cultural factors play a role in your ability to manage the foreign workforce, and if so, how? Complaints by expatriate managers are one of the leading reasons that US overseas ventures fail. How much additional compensation would you have to pay a US manager to move to and manage in this environment? How would you “sell the job?” How much training would be required in own country? Is there a demand that salary be repatriated at some favorable exchange rate? IV. Summary and Decision a. Do the benefits of expanding into this market offset the potential risks/costs? Explain. VI. Appendix