You are the CEO of a company that has to choose between making a $100 million investment in Russia or Poland. 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?
I would prefer to invest in Poland, rather than Russia. The decision is based on the economic and political environments of both Russia and Poland. Poland has embraced market-based economic policies, opened its markets to international trade and foreign investment, and privatized many state-owned businesses.
Poland has a more open market with market economy. There s no supply restriction and investment environment is better than Russia. Russia operates with a civil law system, which is less flexible than the common law system. Russia doesn’t not have a safe protection for the property rights, including the intellectual property. It experienced the Mafia problem. The situation in Russia improved significantly since the sass, but it still slower the economic growth and foreign direct investment. Russia also has a higher corruption rate than Poland, which also decreases the economic growth and investment.
Poland keeps improving. Steps are being taken to simplify tax saws, reduce tax rates, and remove bureaucratic hurdles to doing business in the country. Political economy impacts the benefits, costs, and risks of doing business in different nation-states. To lower the risks of investment and generate the profits, I will choose
What is the relationship between property rights, corruption, and economic progress? How important are interruption efforts in the effort to improve a country’s level of economic development? Well protection of property rights could help to improve the economic growth. And the completed and common legal system could protect the property rights. Corruption is the abuse of public office for private gain. High level of corruption significantly reduce the foreign direct investment, level of international trade, and economic growth rate in a country. Corruption also undermines economic development by generating considerable distortions and inefficiency. Corruption also reduces the benefits of Globalization. It is a major impediment to the progress of these countries. It is very important for the interruption efforts.
You are a senior manager in a U. S. Automobile company considering whether to invest in production facilities in China, Russia, or Germany. These facilities will serve local market demand. Evaluate the benefits, costs, and risks associated with doing business in each nation. Which country seems the most attractive target for foreign direct investment? Why?
Benefits: Based on the market size, Chinese market is one of the biggest market in the world and has strong purchase power. China is already the world’s second-largest national economy. It also continues to growing at a current rates and attracts the large amount foreign direct investments. It also has the first move advantage. Russia and Germany has smaller market than China. But Germany’s political environment and legal systems. It provides a safer environment to protect the property rights. Germany has a well-developed body of business contract law. Costs: A number of political, economic, and legal factors determine the costs of doing business in a country. In Russia, relative to the cost in more sophisticated economies where high-quality inputs could be purchased on the open market.
For example, to protect the quality of the product, McDonald has to set up its own dairy farms, cattle ranches, vegetable plots, and food processing plants within Russia. Germany’s local laws and regulations set strict standards with Edgar to product safety, safety in the workplace, environmental pollution. It costs more to invest in Germany. Risks: In China, the protection of property rights, including intellectual property, is not as mature as Germany. It would bring the potential risks to foreign investors. The political risks and legal risks in China are also bigger than the other two companies.
China has relatively weak property rights regimes and high levels of corruption. When legal safeguards are weak, firms are more likely to break contracts or steal intellectual property if they perceive it as being in their interests to do so. The overall attractiveness of country as a potential market or investment site for an international business depends on balancing the benefits, costs, and risks associated with doing business in that country. Even though China has many costs and risks to invest, it still achieved high growth rates and foreign investment. So it’s still the most attractive target in these three countries.
Reread the Country Focus on India, and answer the following questions: a. What kind of economic system did India operate under during 1947-1990? What kind of system is it moving toward today? What are the impediments to completing this transformation?
India adopted a democratic system of government. Since 1 990, India started privatized Indian’s state-owned businesses and welcomed the foreign direct investments. The lack of progress led the government to embark on an ambitious economic reform program. Since In 1994, Indian’s economy was still smaller than Belgium, despite having a population of 950 million.
Its GAP per capita was a paltry $310, less than half the population could read, only 6 million had access to telephones, only 14 percent had access to clean sanitation; the World Bank estimated that some 40 percent of the world’s desperately poor lived in India, and only 2. Percent of the population had a household income in excess of $2,484. B. How might widespread public ownership of businesses and extensive government regulations have affected
- the efficiency of state and private businesses
- the rate of new business formation in India during the 1947- 1990 time frame
How do you think these factors affected the rate of economic growth in India during this time frame? The economy expanded at an annual rate of about 6. 3 percent from 1994 to 2004, and then accelerated to 7 to 8 percent annually during 2005-2012. Foreign investment jumped from $150 million in 1991 to $27. Billion in 2012. Some economic sectors have done particularly well, such as the information technology sector where India has emerged as a vibrant global center for software development with sales of $100 billion in 2012, up from $150 million in 1990.
In pharmaceuticals, Indian companies are emerging as credible players in the global marketplace, primarily by selling low-cost, generic versions of drugs that have come off patent in the developed world. During this time frame, the rate of economic growth increased in a ml_ACH high speed than before. The turning point is the economic system transformation. C. How would prevarication, deregulation, and the removal of barriers to foreign direct investment affect the efficiency of business, new business formation, and the rate of economic growth in India during the post-1990 time period?
Sector with sales of $100 billion in 2012, up from $150 million in 1990, and Indian companies are emerging as credible players in the global marketplace, primarily by selling low-cost, generic versions of drugs that have come off patent in the developed world in the pharmaceuticals industry. The open market and policy in India attracts more investment, new technology, management ideas, and international competitors. All of these factors improved the efficiency of Indian companies and improved the economic growth. D. India now has pockets of strengths in key high-technology industries such as software and pharmaceuticals.
Why do you think India is developing strength in these areas? How might success in these industries help generate growth in the other sectors of the Indian economy? For information technology sector, India has emerged as a vibrant global center for software development. For pharmaceuticals industry, Indian companies are emerging as credible players in the global marketplace, primarily by selling owe-cost, generic versions of drugs that have come off patent in the developed world. India could get involve the global market and use its low cost advantage to develop these sectors.
The successful sectors would bring more income to India. India could have more resources and income to develop the infrastructure and build a better economic environment to attract more investments and generate more and more profits to improve the economic growth. E. Given what is now occurring in the Indian economy, do you think the country represents an attractive target for inward investment by foreign multinationals selling consumer products? Why? Yes. India has open market and economic environment for foreign investments now. It also has one of the biggest market in the world and keep increasing in the current growth rate.
Even though India still has long way to go to involve the global market and reform the political and legal systems, it already represents an attractive target for foreign multinationals selling consumer products right now. Pl 18-6 Reread the Management Focus on DMS-Shanghai and answer the follow questions: a. Why do you think it is so important to cultivate Guiana and gaining in China? Guiana means relationships, although in business settings it can be better understood as connections. Chinese will often cultivate a gaining, or “relationship network,” for help.
It is part of Chinese business culture. Reciprocal obligations are the glue that holds such networks together. If those obligations are not met?if favors done are not paid back or reciprocated?the reputation of the transgressor is tarnished and the person will be less able to draw on his or her gaining for help in the future. Guiana an important mechanism for building long-term business relationships and getting business done in China. This Confucian ideology has a 2,000-year-old history in China. It is very important to understand to do business in China. B.
What does the experience of DMS tells us about the way things work in China? What would likely happen to a business that obeyed all the rules and regulations, rather than trying to find a way around them as Dan Mint apparently does? The combination of trust and reciprocal obligations is central to the workings and persistence of Guiana networks in China. To build and maintain the relationship is very important for the business. It a business just obeyed all the rules and regulations in China rather than trying to find a way around, it would loss any opportunities to enter and develop the Chinese market.