Introduction
Learning Team A, prior to moving forward with plans to expand internationally to the country of Moldova, located in Eastern Europe, will conduct a country risk assessment. Any organization contemplating a business venture into a foreign country could encounter multiple risks. Therefore, prior to embarking on an international expansion, extensive, in-depth research of the target country is a necessity for success in the foreign marketplace. Team A will conduct a risk analysis of Moldova and its winery production and analyze all aspects of risk involved from entry to an exit plan. This paper will also describe the market risks and include a SWOTT analysis of the country.
Political, Legal, and Regulatory Risks
BDSD will encounter several risks when entering Moldova on a business level. A political risk is the current inability of the country’s parliament to elect a president. The country, divided over the election of leaders, disenchanted with the current leadership, and facing ongoing power struggles with neighboring countries has caused political deadlock. In addition, Moldova faces internal uprisings and tense relations with other nations in the region. If the country does not elect a president this year then the Moldovan Constitution calls for the dissolution of parliament. Dissolving parliament could have the potential to cause an uprising of the population creating an uncertain political forecast for the country (BBC News 2011). The legal risks of entering Moldova include financial, security, and the success of the BDSD Company’s relationship with the Moldova business partners. BDSD’s legal counsel will identify the potential legal risk of entering into a business agreement with a Moldovan company. The laws in Europe are considerably different then the United States, therefore, ensuring that the company is registered correctly, files the proper documents, obtains the correct certificates, and official stamps is a must. Additional risks include the ability to convert funds between countries and communication with Moldavian partners. International treaties must also be adhered to conduct business in Moldova. BDSD faces strict regulations when operating in Europe as a foreign investor. Several of the regulatory risks include import and export laws, employment rules, regulations, import/export taxes, and tax code enforcement (Republic of Moldova).
Exchange and Repatriation of Funds Risks
When trading and exchanging currency within Moldova, BDSD should maintain an awareness of the current foreign exchange rate and how that exchange rate will affect profits and prices the company charges for product. The current foreign exchange rate is one United States dollar per every 11.8896 Moldova leu (Official exchange, 2012). Although it appears to take a large sum of money to operate a successful winery in Europe, once currency conversion occurs the overseas profits could result in a loss. The company will have to consider the exchange and repatriation risks when contemplating investment in foreign markets.
Competitive Risk Assessment
Moldova is one of the poorest countries in Europe; however, the Moldavians have a rich heritage, a long history, and successful wineries. With four different regions, various climates and soil, Moldova produces many award-winning blends of wines. Moldovan wineries produce such varieties as rose wines, sparkling wines, ice wines and dessert wines in red and whites. The production and selling of products throughout the country assists the economy and provides some gains for the Moldovan economy. However, without an infusion of foreign investments or an increase in exports Moldova will not be in a position to resolve the debt crisis in the country (Moldova Wine Guild, 2008-2011). Developing a relationship with BDSD and allowing exports of BDSD products will increase Moldova’s financial position. Additionally, with BDSD investing in Moldova’s wineries will help decrease the unemployment rate (BBC News 2011). BDSD could encounter higher competitive risks because of the high quality wines Moldova produces. However, additional research will minimize these risks and extensive marketing of the product will place BDSD in a better position to compete regionally.
Taxation and Double Taxation Risks
Corporate, personal and social security taxes have decreased since 2005. However, the standard tax rate on imported goods and services to Moldova is 20% (Republic of Moldova). Although any decrease in taxes is good for any business, the rate of import taxes and the risks of double taxation will affect the company’s goals. BDSD will not only have to pay taxes on imported products, but also export taxes on finished wine products the company exports to Europe. The company must take into consideration the tax costs and decide if Europe is the best market to expand the winery business (Republic of Moldova).
Market Risks When an organization contemplates an expansion into a foreign market, that organization will face some risks. The primary market risks associated with overseas expansion fall into four categories, place, promotion, price, and product. The organization that fails to address each of these categories adequately prior to implementation of an expansion plan risks failure. Therefore, BDSD Corporation will research the regional market to determine a marketing mix that will mitigate, if not eliminate those risks. Identifying the appropriate market to place a product represents perhaps the greatest challenge any company faces when considering an expansion. Although the regional market of the European Union (EU) and the Commonwealth of Independent States (CIS) consists of hundreds of millions of potential customers, not all of these markets will accept product from Moldova. This could limit product placement initially, although name recognition and advertising will eventually minimize any resistance to BDSD Corporation product. Additionally, with Moldovan wines returning to Russia “after a period of stagnation” (Republic of Moldova, 2009, para. 3) will provide an immediate export market for product manufactured by BDSD Corporation. In addition to Russia as an export market, BDSD Corporation can rely on current distributors for BDSD branded product throughout Europe. The promotion of BDSD Corporation’s wine products can take several forms. The “180 newspapers and magazines” (Press Reference, 2012, para. 1) published in Moldova offer an excellent avenue for advertising and promotion of the company’s product. Promotion of product within the EU region however should entail the use of an advertising organization with the expertise and knowledge of the market. Perhaps the simplest path to take when advertising in Europe is to source a reputable advertising organization through the European Association of Communications Agencies (EACA) (European Association of Communications Agencies, 2005). Using an agency such as the EACA will minimize the risk of the company hiring an ad agency that lacks knowledge of the rules and regulations of the EU. The markets that BDSD Corporation enters will determine the prices charged for the company’s product. Although this could result in accusations of “price discrimination” (Hill, 2009, p. 336) by some competitors, the local markets will determine the selling price of the product.
“Price discrimination involves charging whatever the market will bear; in a competitive market, prices may have to be lower than in a market where the firm has a monopoly. Price discrimination can help a company maximize its profits. It makes economic sense to charge different prices in different countries” (p. 608).
Distribution and Supply Chain Risks The establishment of a winery operation in the country of Moldova, a country well versed in the production of wine and wine products minimizes BDSD’s supply chain risks. The country of “Moldova ranks among the most significant wine regions of Eastern Europe” (Wine-Searcher.com, n.d., para. 4) and has an abundant supply of grapes for wine production. Additionally, with over 190 operations in Moldova producing wine and cognacs the ingredients and supplies for wine production are in adequate supply (Republic of Moldova, 2009, para. 2). Distribution of finished product should not be an issue in Moldova. Even though Moldova is one of the poorest countries in Europe, it has benefited from years of Soviet occupation (CIA, 2011). The Soviet Union, during the occupation of Moldova built over 800 miles of railroad tracks, which are of decent quality and the Moldovan government has done a good job of maintaining these tracks (Encyclopedia of the Nations, 2012, para. 1). Additionally, moving goods from the production site to a railroad terminal for export will not be an issue as the country has over 6500 miles of improved roadways (para. 1).
Physical and Environmental Challenges The physical challenges in Moldova are two-fold. The primary source of livelihood for Moldovans is in agriculture. This has resulted in over 75% of the arable land surface used for growing crops, primarily grapes for wine and cognac production (European Bank for Reconstruction and Development, 2010). Although this is not bad, as everyone deserves the chance to make a living, the farmers have failed to rotate the types of crops grown. This failure to rotate crops has resulted in a degradation of the soil quality and has caused extensive soil erosion (Geology.com, 2011). The greatest challenge for any venture into Moldova is the environmental concerns. The country spent almost 100 years under the control of the Soviet Union. During this time, the Soviets made extensive overuse of chemicals to control agricultural pests (Mongabay.com, 1995). This practice became a normal everyday occurrence that has resulted in the contamination of the soil, loss of biodiversity, and poor water quality (European Bank for Reconstruction and Development, 2010). Moldova has made some progress in reducing the amount of chemicals used in agriculture production in recent years and the Moldovan government has ratified 18 different International Environmental Conventions during this time. That said, the past use of pesticides, herbicides, and artificial fertilizers have contaminated the soil and will do so for many years to come.
Social and Cultural Risks Social and cultural risks vary between countries. Moldovan society has a rich history of elaborate celebrations for weddings, Christmas, and Easter. The company may also have to vary its approach to “take into account local differences in culture, economic conditions, competitive conditions, product and technical standards, distribution systems, (and) government regulations” (Hill, 2009, p. 611). Having a clear understanding of this will allow BDSD to integrate operations in a manner that will accommodate these occasions. Additionally, government officials in Moldova have the propensity to expect bribes from companies starting business operations within Moldovan borders (Business Anti-Corruption Portal, 2011). As an American company, BDSD Corporation must follow United States law, which forbids the payment of bribes, and as such will need to come to an understanding with Moldovan officials that addresses this issue.
Cyber-Technology
Eastern European countries, not traditionally considered technological powerhouses, have been witness to increased cyber-crime. Hackers from Eastern Europe and Russia have advanced capabilities and often work for less than 65 Euros per day. An article in Wired Magazine referred to Romania as “cyber-crime central”. The country of Moldova ranks the 8th in the world in terms of download speeds compared to the United States, which ranks 30th (The Atlantic Wire, n.d.). In an attempt to modernize the country, Moldova signed the EU/Moldova Individual Action Plan for 2005-2007 that increases the level of communication and information technology to European standards. Through the United Nations, Moldova has committed to improvement of global postal services, enhancement of global telecommunications systems, and taking part in monitoring the global information society building process by its membership in The World Summit on Information Society (WSIS). The Information Society has a global interest in the actions of member states in the process of building an information society. The design of these actions is to improve the communication and information technology infrastructure, implement information technology in education, and the development and effective performing of electronic services (Ministry of Information Technology and Communications of the Republic of Moldova [Moldova], n.d.).
Mission and Objectives
The mission of BDSD Corporation is to enhance the company’s global position and at the same time improve the quality of life for the communities in which they do business. Its objectives are to establish a winery in the country of Moldova, produce quality products for domestic consumption as well as export, and provide an additional resource for local grape growers within the region. Long-term objectives include establishing an international trading presence and wine industry sustainability.
SWOTT Analysis
Generally, an organization will analyze the strengths, weaknesses, opportunities, threats, and trends (SWOTT) of new products introduced into a specific market. Strength and weaknesses are internal organization factors of the analysis. Obstacles, threats, and trend are external factors that may affect the products profitability (Perreault, Cannon, & McCarthy Jr., 2009). In this case, a SWOTT analysis is on the economic and political climate of the country of Moldova.
Strengths
Moldova enjoys a favorable climate and good farmland but has no major mineral deposits. As a result, the economy depends heavily on agriculture, featuring fruits, vegetables, wine, and tobacco (CIA World Factbook, 2011). Fifty-four percent of the country’s land is arable, allowing the expansion of agricultural activities. The geographic location is suitable for collaborations with EU partners. In 2001, Moldova joined the World Trade Organization (WTO), and entered into free trade agreements with nearby Albania, Bosnia, Bulgaria, Romania, and other Eastern European countries. Local businesses have the language and localization skills for Eastern European, Central European, and Russian markets.
Weaknesses
Moldova is one of the poorest countries in Eastern Europe and imports almost all of its energy supplies. In addition, the region and country are experiencing political unrest. Since its independence from Russia, Moldova has experienced a prolonged economic decline with its gross domestic product (GDP) declining by 60%. In addition, Moldova relies on traditional trade relations with CIS economies of the former Soviet Union (DMI Associates, 2005).
Opportunities
Moldova is the only country with EU autonomous trade agreements and CIS country free trade agreements. Because Russia and Ukraine have joined the World Trade Organization, the prospect for more open and stable trade relations exists. With BDSD Corporation’s existing business partners, the company has the opportunity to integrate Moldova into the global economy on favorable terms. Moldova offers new opportunities and cheaper labor forces for investors. Corporate tax rates are also among the lowest. Currently, the corporate tax rate is 0%. The expected rate is to be between 10% and 12% beginning in 2012. However, this rate is far below the 30% rate of Germany and the 27% rate in China.
Threats
Moldova faces many threats to a new business. The most worrisome is the lack of access to financing. The country also faces high tax rates and complicated tax regulations. Political instability along with the presence of organized crime threatens business operations within the country. Another major threat to Moldova is its dependency on foreign fuel. The country currently imports 70% of its fuel consumption. Informal barriers such as corruption and high transportation costs affect local business. Because of the country’s steep sloping landscape, agricultural areas are subject to landslides.
Trends
As stated above, political unrest is a threat to the country of Moldova. However, the decline of the communist party because of the tiredness of old leadership, rising unemployment, and unpopular policies is a recent trend. In addition, the country has seen an increase in the industrial growth rate. In addition, the government of Moldova has reduced the inflation rate to just 11.99%.
Strategy Selection Several strategies exist that an organization could pursue when contemplating expansion in the global market. Those strategies include global standardization strategy, localization strategy, transnational strategy, and an international strategy (Hill, 2009, p. 436). Although each of these strategies have potential benefits for a company, each of these strategies also have negative aspects. Following a thorough review of each of these strategies, BDSD Corporation has determined that a global standardization strategy is an effective strategy that provides the company with the best option to meet corporate objectives. The primary objective of the corporation is to reduce product costs while simultaneously expanding production capabilities. Implementing a global standardization strategy provides an opportunity to reduce production costs using the lower-cost of labor in Moldova and reduce shipping costs to the European market.
Mode of Entry Whenever an organization makes the determination to enter a foreign market, the organization has choices for the mode of entry. Three primary methods of entering a foreign market exist: providing a license to an existing company in the foreign market to produce BDSD product, entering into a joint venture with an established organization in the targeted market, or setting up a wholly owned subsidiary in the foreign market (Hill, 2009, p. 33). Although each of these modes of entry has advantages and disadvantages, business climate, political stability, and property rights, if any, granted to transnational organizations of the target country will ultimately determine the optimal entry mode. Following a review of the laws of Moldova, BDSD Corporation has determined that initially entering into a joint venture with an existing company in Moldova represents the logical choice. A joint venture will minimize the risks by allowing the company the opportunity to capitalize on local expertise and experience of an established business in Moldova.
Control and Evaluation
When implementing control systems an organization has four choices to choose between “personal controls, bureaucratic controls, output controls, and cultural controls” (Hill, 2009, p. 466). Although many companies implement a portion or all of each, the primary factor when choosing controls systems varies according to the type of strategy the firm implements. BDSD Corporation will implement the output control system. “Output controls involve setting goals for subunits to achieve and expressing those goals in terms of relatively objective performance metrics such as profitability, productivity, growth, market share, and quality” (p. 466). The various types of goals the company sets will assist in evaluating the effectiveness of the business and support its success. Additionally, reviewing the profitability of the venture provides BDSD with an opportunity to monitor sales, profits, and expenditures.
Setting goals and implementing controls also provide BDSD with the ability to compare sales and to identify discrepancies or deficiencies in the operation. Additionally, controls provide a method of comparing sales with competitors and assist in determining the real cost of sales. Controls also provide methods for managing customer satisfaction, customer complaints, and suggestions. Customer satisfaction surveys offer another method to analyze the reasons why customers switch to a competitor’s product (Marketing, 2012). Instituting controls and evaluations insures that the company identifies methods that will improve the business and make the changes required for continued success of the operation.
Contingency Plan Developing a contingency plan is a necessity for every business. Contingency plans provide the organization with options when facing an emergency, whether that emergency is a natural disaster or comes from a change in the political climate of the host country, or the need to cease operations. The failure to develop contingency plans can lead to devastating financial losses, loss of credibility, and have the potential to cause the failure of the company. Operating a company in a foreign country presents additional problems for an organization. If calculations are incorrect, the business can bleed money, thus making the company non-operational. For BDSD, the risk is simply capital. The organization does not intend to make major purchases of land or acquire an existing business, but rather use existing growers, bottlers, etc. In the event of political turmoil or a misjudgment by the organization, BDSD has two contingency options available. Those options are liquidation or sale. Liquidation is the easiest for the company. Everything ends. There are no negotiations or transfer of control. The drawback is the company will only receive the market value of its assets. Finding another buyer of the company’s assets is another option. BDSD can sell the product name, its client lists, and its goodwill. BDSD does not expect to encounter business problems. Nevertheless, should this occur, the company would be in a position to quickly exit the country.
Conclusion
Prior to moving forward with plans to expand internationally to the country of Moldova, BDSD must conduct a country risk assessment. Any organization contemplating a business venture into a foreign country could encounter multiple risks. Whether it is political, competition, taxation, technology, or market risk, each region presents challenges for an organization. Therefore, prior to embarking on an international expansion, extensive, in-depth research of the target country is a necessity for success in the foreign marketplace. Because of the region and political environment, Moldova presents many risks for an organization. For BDSD, the rewards of success far exceed the risk of capital.

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