Factors Influencing

International Business and

Risk Analysis

Risk Analysis

Before entering any new country , most MNCs do a risk

analysis of the concerned country.

The risk analysis are on the main risks which the company
can face in the new country. The risks are

Political

Economic

Socio cultural

inancial

!egal

Technological

Competiti"e

#nfrastructural

!a$our

1) Economic environment :

Before entering any country, the economic study is of "ital

importance

%& Si'e of the market (

most companies are looking at #ndia
$ecause of the huge potential.

% case in point is )P which is now focusing on #ndia to sell

their range of laptops and printers in #ndia.

#ndia*s middle class and upper class population is more

then the population of Europe.

B& +ross ,omestic Product -+,P& (

#f a constant good rate is maintained ,
MNCs would definitely look at such countries.

#ndia is maintaining around ./01 growth rate. #n the

2334*s it was Malaysia and #ndonesia.

1) Economic environment :

C& Purchasing Power( )igher PP leads to a highly

potential market.

,& Banking (
is the only channel through which
remittances take place and hence is a ma5or
infrastructure for #B.

Europe and %merican and the ar east

economies ha"e a highly effecti"e $anking
system.

6n the other hand, %frica and C#S are not a$le to

pro"ide good $anking ser"ices to the
#nternational $usiness community.

1) Economic environment :

E& oreign e7change (

countries with sufficient foreign
e7change reser"es, a li$eral policy on
repatriation and which ha"e demand for
the products and ser"ices are an ideal
destination for any company to do #B

1) Economic environment :

& #ncome le"els(

Economies are classified into low and high
income economies.

#ndustrialised nations are high income economies

and en5oy a high per capita income.

Companies marketing premium 8uality or high

technology products ha"e an easy entry into such
ad"anced economies with the proper strategy e.g
#P6, and Playstations.

Similarly de"eloping countries which are low

income economies are price sensiti"e.

%ccordingly foreign companies will think of

cheaper or middle le"el products for these
economies.

2) Social Environment:

2& national taste(

#n Thailand , people prefer $lack shampoo.

Nestle $rews different "arieties of instant coffee as people

in different countries ha"e different taste.

+reen is a fa"ourite colour in Middle east countries.

9& !anguage

:& demographic profile(

% num$er of demographic factors such as age,
se7 ratio, family si'e and occupation influence the $usiness
of many companies.

,ifferent companies concentrate on different segments.

e.g Bar$ie generates huge re"enues through the children*s
segment of affluent countries. %lso $rands like 6sh ;osh
B*+osh and <ini and <oni can do well in #ndia considering
the huge children population.

2) Social Environment:

=& !iteracy rate(

Countries with a high literacy rate e7perience a
$etter standard of li"ing .

)ere the need is for standardised goods,

supported $y technical ser"ices.

or a country with an educated population , the

amount of training re8uired for the staff will $e
far less than in the case of a country which has a
low literacy rate.

This is an important parameter as it influences

the costs incurred.

2) Social Environment:

>& emale workforce(

?ith economic independency in countries like
China, #ndia , women no longer depend on men to make
decisions a$out what to $uy.

%s they ha"e the re8uired purchasing a$ility, they make

decisions on their own.

#n #ndia , china , Thailand and @ussia, there is a huge

demand for categories like <ewellery, Cosmetics, "ehicles,
ready to eat foods, primarily $ecause of the working
women.

A& ,ou$le #ncome families -from to nuclear families&(B %s

the household income increase the demand for the num$er
of products, increases proportionately.

Political Environment :

)ost country political en"ironment (

The political parities in each country
ha"e different ideologies.

#t is imperati"e to know these ideologies $efore

entering any country.

Both Coke and #BM had to lea"e #ndia , when in

23.. , <anata party came to power in #ndia.

+lo$al Political en"ironment (

formation of strategic alliances like EC helps
companies in that region to enter any country in
that alliance as it $enefits them more than
companies form non EC.

egal Environment :

This relates to the laws and

regulations go"erning the conduct of
$usiness acti"ities in a country .

Before entering any country , firms a"ail

of the ser"ices of local legal firms to
understand $usiness interpretations
pertaining to la$our legislation, ta7es,
en"ironment, pollution etc.

Infrastructural Environment

( This relates to power

scenario, roads, railways , airports , the
connecti"ity across the country,
communication facilities.

This a ma5or area of concern for #ndia .

Some foreign companies ha"e still not

come to #ndia for this reason.

a!our Environment

This relates to num$er of white and

$lue collar workers, their attitude towards
work, their militant $eha"iour -if present it
has a negati"e impact&, their skill sets in
"arious fields etc.

oreign companies enter ?est Bengal and

;erala with high degree of caution
$ecause of militant la$our.