RISK ANALYSIS

PERFORMING A PRELIMINARY COUNTRY RISK ANALYSIS
Background
Country risk reflects potentially adverse effects on company operations and performance caused
by changes in countries’ political and legal environments. It may appear as harmful government
intervention in foreign firms’ trade and investment activities. Governments may impose legal
and regulatory burdens that increase business costs, delays, or lost opportunities. Governments
may restrict access to important markets, impose complex bureaucratic procedures, or limit the
amount of profits realizable from foreign operations. Political or legislative actions can harm
business interests, even when this is not their intent. Laws may be unexpectedly strict, favor host
country interests, or result in unintended consequences. Country risk is especially prevalent in
emerging markets and other countries with developing economies.
Your Task and Methodology
In this exercise, assume you are an employee with a company that plans to build a factory
abroad. Management is considering each of three countries as locations to build the factory, and
must decide which one is best. Management prefers to establish operations in the country with
the lowest risk. Your task is to conduct market research on each country by searching various
websites that deal with country risk. You are to assess the level of country risk in each of the
three countries: India, Poland and Malaysia.
Specifically, in this exercise you are to:
(i) Evaluate the level of country risk in each country by examining the following
variables: corruption, political rights, civil liberties, freedom status, and economic freedom;
(ii) Make a spreadsheet using the country risk variables across the top and the three countries
along the vertical axis;
(iii) Obtain data on the variables from online sources, and complete the spreadsheet;
(iv) Evaluate each country using the following scale: High risk, medium risk, and low risk;
(v) Rank the countries from lowest to highest overall risk; and
(vi) Write a brief report to your superior in which you briefly evaluate each country, and
then make a recommendation on which country to build the factory.
Suggested Resources for this Exercise
Transparency International (TI) ( www.transparency.org (Links to an external site.)) is an
independent organization that fights against corruption. TI publishes the annual Corruption
Perceptions Index (CPI), which ranks corruption in more than 150 countries. Visit the CPI at
TI’s website to obtain the CPI Score. In your analysis, you may find other TI resources useful,
such as the Global Corruption Barometer, a survey that assesses public attitudes and experience
on corruption in dozens of countries.
Freedom House (FH) ( www.freedomhouse.org (Links to an external site.)) is a non-
governmental organization that assesses freedom around the world. In numerous countries, FH

assesses conditions regarding the level of government accountability, the rule of law, and
freedoms of expression and belief. At its website, FH annually publishes its Freedom in the
World Comparative Rankings, an annual comparative assessment of the state of political rights
and civil liberties in over 190 countries. The rankings are provided in spreadsheet style, where
‘PR’ stands for ‘Political Rights’ and ‘CL’ stands for ‘Civil Liberties.’ ‘Status’ refers to the
countries’ freedom status. ’F,’ ‘PF,’ and ‘NF,’ respectively, stand for ‘Free,’ ‘Partly Free,’ and
‘Not Free.’
The Heritage Foundation (HF) (www.heritage.org (Links to an external site.)) is a think-tank
that annually publishes the Index of Economic Freedom. The index measures levels of economic
freedom and government interference in 161 countries. The index uses criteria such as level of
trade barriers, rule of law, ability to enforce contracts, level of business regulation, and the
degree of protection of intellectual property rights.
globalEDGE™ (globalEDGE.msu.edu) provides links to additional information on country risk.
Template
An example is provided below on how to organize your report. Write a brief report in which you
summarize the results of the table, and provide any additional information that you deem useful.
You may wish to write the report in the form of a memo.