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Country Risk Management

Prof: S.B. Choughule

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Country risk

The risk that economic Social, politicalcondition and events in a foreign country

will adversely affect the companysbusiness in foreign country

This includes

Economic conditions-political & socialunrestnationalization of assets exchangecontrol & currency fluctuation

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Types of Country risk

Political risk

Legal risk

Social risk

Cultural Risk

Economics Risk

Competitive RiskTransaction Risk

Logistics Risk

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Country risk involved in business

Merchandised export-African countriesbuyer are not paying

Merchandised import-accident in minesService export including projects-

cancellation of contract

Investment in subsidiaries-no control &return on investment

Banking transaction- L/c from China

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Political risk

Slow down in Govt decesion due to Politicalinstability13 days BJP Govt

Pakistanno political system

Somalia-civil war

Opposition to FDI on political ground

Example-No entry to D.P.world in US port sector

FDI will slow in US due to national securityproblem-

Economic report of US president to Congress

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Political battle in India for FDI

Chinese Companies can not entred in sensitive

area of Indian Economy

Example-Port & telecommunication India rejected Chinese co in port sector

Opposition to FDI on political ground

Example-Wal-Mart Entry into retail Indian Govt suspended SEZ policy for last 3

month and W.B. Govt banned on SEZ policy

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Legal Risk

Legal framework of India is very complicated

Example-Entry in to infrastructure sector

National security-JNPT dredging

MCA-Port contract

Shipping Trade Practice Act

CRZ-Costal regulation zone actUSA-Official bankruptcy

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Social risk

Social customs- Islamic countriesPakistan-Bangladesh & Gulf countries

Social attitudeIndiaFishermencommunity opposing to port projects

Opposition to SEZ in west Bengal

NGO-Medha PatkarGreen piece movementopposition by ship

On environmental ground

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Corruption in the Asia

Philippines 9.40 out of 10

Indonesia 8.03

Vietnam 7.54

India 6.67

South Korea 6.30

China 6.29

Malaysia 6.25

Taiwan 6.23 Japan 2.10

Hongkong 1.87

Singapore 1.20

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Cultural risk

India

Many holidays -Many religious Many

languagesMany tradition

Mentality of Indian people

China new yearno work for a week

African countiestraditional practice

Islamic CountriesReligious barriers

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Economic Risk

External debt of country

Ability to raise the fund from International

market or other country-India 1991

position japan helped to India

Assets of forex Reserve

Stability of exchange rate

Inflation rate