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The Future

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Country risk refers to the risk of investing or lending in a country, arising from possible changes in the business environment that may adversely affect operating profits or the value of assets in the country. For example, financial factors such as currency controls, devaluation or regulatory changes, or stability factors such as mass riots, civil war and other potential events contribute to companies' operational risks. This term is also sometimes referred to as political risk; however, country risk is a more general term that generally refers only to risks affecting all companies operating within or involved with a particular country.

Many investors choose to place a portion of their portfolios in foreign securities. This decision involves an analysis of various mutual funds, exchange traded funds (ETFs), or stock and bond offerings. However, investors often neglect an important first step in the process of international investing. When done properly, the decision to invest overseas begins with determining the riskiness of the investment climate in the country under consideration. Country risk refers to the economic, political and business risks that are unique to a specific country, and that might result in unexpected investment losses.

This country risk analysis is a fundamental step in building and monitoring an international portfolio. Investors that use the many excellent information sources available to evaluate country risk will be better prepared when constructing their international portfolios.

Country risk can be used: * to monitor countries where the MNC is presently doing business, * as a screening device to avoid conducting business in countries with excessive risk, and * to improve the analysis used in making long-term investment or financing decisions

Strategic Rationale * Global expansion is becoming increasingly attractive for firms. * Outsourcing, joint venturing, licensing opportunities, access to developing markets, and learning curve effects are all reasons firms go to foreign countries. * Benefits can be numerous, but some risks include: – Foreign entity defaulting on its debt. – Renegotiating or rescheduling obligations. – The transfer of risk (foreign exchange rates and controls).

Use of country risk analysis 1) Informing the economical agents, interested in the internalization of their activity, regarding the opportunities available, but mostly regarding the assumed risks, in real terms. Thus their flexibility will increase, considering that they can develop strategies pre and post internationalization, for situations where the risk materializes, so that they can adapt in a timely manner and they are able defend their interests. Thus it becomes a shield against the vicious effects of globalization. Of course, all of these have as a result the increase of the effectiveness of the international economic activities.

2) The introduction of "thresholds" of risk: Country risk is a useful criterion for the foreign affairs when establishing the optimal level of the investment, for the credit or for purchase of financial products, but the main disadvantage is represented by the relativity of the score assigned to quantitative factors and particularly to the political environment. This is because future developments are expected and the anticipation accuracy depends on access to information sources, relevance of data used and the level of training of those involved.

3) Rating is used in setting prices for external loans and for speculative spreads titles. Because it acts as a ceiling on the corporate rating, indirectly it influences the ability of financing by external loans and implicitly, their profitability. Thus, access to international financial markets is granted only to good rated entities (national governments or firms), whereas for others, the cost of indebtedness is very high. Although metaphorical, highly suggestive seems in this sense the words "bankers give you the umbrella when the sun comes out and they take it back when it rains”. Therefore, the rating is for the entities a real "passport" in obtaining loans.

4) When the rating is favorable, due to the credibility of this indicator, the confidence of investors and creditors is maintained, even in the periods when on the receiving market failures occur. But rankings are relative because they may indirectly reflect the interests of the evaluating institution or the position on the international scene of the country from which it originates.

-CRA is important to enhance the firm’s understanding of risks that are associated with foreign investment.
-CRA can help identify remedies to minimize or even eliminate taking on all of the risk.
-Can help a firm chose among potential locations.
-Can help identify other firms which have previously invested in risky countries.
-CRA is part of the cultural awareness

Weaknesses and Limitations
Problems that plague the CRA discipline:
-Concerns arising from data collection
-Lack of objectivity
-Looking to past events to predict the future
-Lack of specificity
-Data may not be available for under-developed nations


Luxembourg is a country with low levels of economic and political risk and very low levels of financial system risk. Accommodative monetary policy, weak commodity prices and low inflation have helped to boost economic growth, with the economy expanding 2% in 2013 and 2.9% in 2014. Tighter fiscal policy, weakness in the Eurozone and geopolitical unrest will keep growth moderate near-term, between 2 and 3%. As an open economy, reliant on trade and finance, Luxembourg is susceptible to changes in global growth.

Components of country risk :
Political Risk
It refers to the probability that political decisions, events, or conditions will significantly affect the profitability of a business or the economy as a whole. A low level of political risk in a given country does not necessarily correspond to a high degree of political freedom. Indeed, some of the more stable states are also the most authoritarian. Political risk factors can be divided into macro- and micro-risks. Macro-level political risk looks at non-project specific risks. Macro political risks affect all participants in a given country. A common misconception is that macro-level political risk only looks at country-level political risk; however, the coupling of local, national, and regional political events often means that events at the local level may have follow-on effects for stakeholders on a macro-level. Other types of risk include government currency actions, regulatory changes, sovereign credit defaults, endemic corruption, war declarations and government composition changes. These events pose both portfolio investment and foreign direct investment risks that can change the overall suitability of a destination for investment. Moreover, these events pose risks that can alter the way a foreign government must conduct its affairs as well. Macro political risks also affect the organizations operating in the nations and the result of macro level political risks are like confiscation, causing the seize of the businesses' property.
Micro-level political risks are project-specific risks. In addition to the macro political risks, companies have to pay attention to the industry and relative contribution of their firms to the local economy. An examination of these types of political risks might look at how the local political climate in a given region may affect a business endeavor. Micropolitical risks are more in the favour of local businesses rather than international organizations operating in the nation. political decisions by governmental leaders about taxes, currency valuation, trade tariffs or barriers, investment, wage levels, labor laws, environmental regulations and development priorities, can affect the business conditions and profitability. Similarly, non-economic factors can affect a business. For example, political disruptions such as terrorism, riots, coups, civil wars, international wars, and even political elections that may change the ruling government, can dramatically affect businesses’ ability to operate.
Political risk can affect the operations and profitability of a business as directly and quickly as any financial, physical, or market risk factor. The impact of political risk is considered to be long-term because the risk rises over time, given the greater potential for events and changes over time. Although political risk is extremely difficult to quantify, companies and investors must examine and understand the potential for political risks by closely examining the location's history, political institutions, and political forces at work in the region. Financial Risk
Financial risk refers to the risk that a country may not be able to repay its foreign liabilities. It Centers around the ability of a national economy to generate enough foreign exchange to meet payments of interestand principal on its foreign debt. Without doubt countries with high financial risk cannot easily withdrawn FDI when its financial situation is worse. Country financial risk is important indetermining the value of a currency. Therefore, foreign firms are very sensitive to the financial risk of the host .
Economic Risk Meaning and definition of economic risk

Generally speaking, economic risk can be described as the likelihood that an investment will be affected by macroeconomic conditions such as government regulation, exchange rates, or political stability, most commonly one in a foreign country. In other words, while financing a project, the risk that the output of the project will not produce adequate revenues for covering operating costs and repaying the debt obligations.

Example of economic risk

The economic risk can be looked upon in a variety of ways, with a wide range of modeling systems. In a simple example, let us presume a planned housing development. In this case, the economic risk is that the gains from the development will not cover the development costs, leaving the developer in debt. This can take place due to downturns in the real estate market, lack of interest in the housing, unexpected cost overruns, and various other factors.

Why economic risk matters
Economic risk is one of the reasons for international investing carrying higher risk as compared to domestic investing. Bondholders and shareholders generally put up with the risk undertaken by international companies. Investors dealing in sale and purchase foreign government bonds are also exposed.
Moreover, economic risk can also provide additional opportunities for investors. For example, foreign bonds allow investors to involve themselves circuitously in the foreign exchange markets as well as the interest rate environments of various countries. However, the foreign regulatory authorities can impose different requirements on the sizes, types, timing, credit quality, disclosures of bonds, and underwriting of bonds issued in their countries.
Economic risk can be, however, reduced by opting for international mutual funds for they proffer instantaneous diversification, time and again investing in various countries, currencies, instruments, or international industries.

COUNTRY RISK ANALYSIS: [IRAN] ECONOMIC RISK : Price controls and subsidies, particularly on food and energy, burden the economy. Due to its relative isolation from global financial markets, Iran was initially able to avoid recession in the aftermath of the 2008 global financial crisis. Yet, following increasingly stringent sanctions imposed by the international community as a result of the country's nuclear prog, oil exports fell ram by half, allowing Iraqi oil exports to overtake Iran's for the first time since the 1980s. In September 2012, the Iranian rial fell to a record low of 23,900 to the US dollar. POLITICAL RISK : International Sanctions Sanctions contribute to inflation and Rial devaluation since the embargo raised the cost of goods, especially imported materials for Iranian industries, manufacturers and producers. The supply of goods decreased as a result of sanctions; this increased the cost, and thus, increased inflation
The danger of war between Iran and the West or Israel is another potential threat to foreign investment. Even if relations between Iran and the West improve, this may have the second-order effect of causing or lifting a constraint on the Iranian military against other potential foes. As global alliances shift and regional powers rise, military tensions between Iran and neighbors or regional powers, including Saudi Arabia, Iraq, Russia, is not inconceivable in the near or distant future.
Iran’s extensive, slow, and sometimes painfully complex bureaucratic and administrative procedures have created fertile ground for corruption in its various forms. While Iran is certainly not alone in this feature, Iran’s red-tape and business practices are idiosyncratic, varying by sector and location
A commonly acknowledged fact in the foreign exchange market was that the Iranian currency was very weak against the dollar. It was so weak that people had begun investing in the dollar currency in order to preserve the value of their earnings. However, immediately after the nuclear deal was signed, the Iranian rial began to appreciate against the US dollar. This lead to investors in the dollar currency to quickly exchange their money back into rials before the valued dropped too far. This influx of dollars being sold within Iran lead to a depreciation of the value of the dollar.

Credit rating establishes a link between risk and return. They thus provide a yardstick against which to measure the risk inherent in any instrument. An investor uses the ratings to assess the risk level and compares the offered rate of return with this expected rate of return (for the particular level of risk) to optimize his risk-return trade-off. The risk perception of a common investor, in the absence of a credit rating system, largely depends on his familiarity with the names of the promoters or the collaborators. It is not feasible for the corporate issuer of a debt instrument to offer every prospective investor the opportunity to undertake a detailed risk evaluation. It is very uncommon for different classes of investors to arrive at some uniform conclusion as to the relative quality of the instrument. Moreover they do not possess the requisite skills of credit evaluation. Thus, the need for credit rating in today’s world cannot be overemphasized. It is of great assistance to the investors in making investment decisions. It also helps the issuers of the debt instruments to price their issues correctly and to reach out to new investors. The analysis is based on an all-round analysis of quantitative as well as qualitative factors like past performance, economic environment, market positioning, quality of management and predictions about future, and is thus as complete as can be. The increasing levels of default resulting from easy availability of finance, has led to the growing importance of the credit rating. The other factors are: i. The growth of information technology. ii. Globalization of financial markets. iii. Increasing role of capital and money markets. iv. Lack of government safety measures. v. The trend towards privatization. vi. Securitization of debt.

CRAs' role has expanded with financial globalization and has received an additional boost from Basel II which incorporates the ratings of CRAs into the rules for setting weights for credit risk. Credit rating agencies (CRAs) specialize in analyzing and evaluating the creditworthiness of corporate and sovereign issuers of debt securities. Issuers with lower credit ratings pay higher interest rates embodying larger risk premiums than higher rated issuers. Moreover, ratings determine the eligibility of debt and other financial instruments for the portfolios of certain institutional investors due to national regulations that restrict investment in speculative-grade bonds. In making their ratings, CRAs analyze public and non-public financial and accounting data as well as information about economic and political factors that may affect the ability and willingness of a government or firms to meet their obligations in a timely manner. However, CRAs lack transparency and do not provide clear information about their methodologies. Ratings tend to be sticky, lagging markets, and then to overreact when they do change. This overreaction may have aggravated financial crises in the recent past, contributing to financial instability and cross-country contagion. The failure of big CRAs to predict the 1997–1998 Asian crisis and the bankruptcies of Enron, WorldCom and Parmalat has raised questions concerning the rating process and the accountability of the agencies and has prompted legislators to scrutinize rating agencies.

Credit rating is expected to improve quality consciousness in the market and establish over a period of time, a more meaningful relationship between the quality of debt and the yield from it. Credit Rating is also a valuable input in establishing business relationships of various types. However, credit rating by a rating agency is not a recommendation to purchase or sale of a security. Investors usually follow security ratings while making investments. Ratings are considered to be an objective evaluation of the probability that a borrower will default on a given security issue, by the investors. Whenever a security issuer makes late payment, a default occurs. In most of the cases, holders of bonds issued by a bankrupt company receive only a portion of the amount invested by them. Thus, credit rating is a professional opinion given after studying all available information at a particular point of time. Such opinions may prove wrong in the context of subsequent events. Further, there is no private contract between an investor and a rating agency and the investor is free to accept or reject the opinion of the agency. Thus, a rating agency cannot be held responsible for any losses suffered by the investor taking investment decision on the basis of its rating. Thus, credit rating is an investor service and a rating agency is expected to maintain the highest possible level of analytical competence and integrity. In the long run, the credibility of rating agency has to be built, brick by brick, on the quality of its services provided, continuous research undertaken and consistent efforts made.

1. The security issuer’s ability to service its debt. In order, they calculate the past and likely future cash flows and compare with fixed interest obligations of the issuer.
2. The volume and composition of outstanding debt.
3. The stability of the future cash flows and earning capacity of company.
4. The interest coverage ratio i.e. how many number of times the issuer is able to meet its fixed interest obligations.
5. Ratio of current assets to current liabilities (i.e. current ratio) is calculated to assess the liquidity position of the issuing firm.
6. The value of assets pledged as collateral security and the security’s priority of claim against the issuing firm’s assets.
7. Market position of the company products is judged by the demand for the products, competitor’s market share, distribution channels etc.
8. Operational efficiency is judged by capacity utilization, prospects of expansion, Modernization and diversification, availability of raw material etc. 9. Track record of promoters, directors and expertise of staff also affect the rating of a company.


Pakistan has a high level of economic risk and very high levels of political and financial system risk. The lack of political stability, regional and domestic security risks, and increased levels of bureaucracy are challenges to the Pakistan’s economic outlook. Higher government spending and a steady expansion in manufacturing and services will be the main drivers for the economy in 2015. Gross domestic product (GDP) growth is projected at 4.3% for 2015, with growth ranging between 4.7 - 5.0% over the next few years.

Techniques of
Assessing Country Risk
Checklist Approach
A checklist approach involves rating and weighting all the identified factors, and then consolidating the rates and weights to produce an overall assessment. * A checklist approach will require the following steps: * Assign values and weights to the political risk factors. * Multiply the factor values with their respective weights, and sum up to give the political risk rating. * Derive the financial risk rating similarly * Assign weights to the political and financial ratings according to their perceived importance. * Multiply the ratings with their respective weights, and sum up to give the overall country risk rating.
Delphi technique * The Delphi technique involves collecting various independent opinions and then averaging and measuring the dispersion of those opinions. The Delphi technique is characterized by the following sequential- steps: * The problem is identified and a set of questions are built relating to the problem so that the answers to these questions would generate solutions to the problem. These questions are consolidated in the form of a questionnaire. * Experts in the problem area are identified and contacted. The questionnaire is sent to each member who anonymously and independently answers the questions and sends it back to the central coordinator. * The results of this questionnaire are compiled and analyzed and on the basis of the responses received, a second questionnaire is developed, which is mailed back to participating members. * The members are asked again to comment, suggest and answer the questions, possibly generating new ideas and solutions. * The responses to this second questionnaire are compiled and analyzed and if a consensus has not been reached, then a third questionnaire is developed, pinpointing the issue and unresolved areas of concern. * The above process is repeated until a consensus is obtained. Then the final report is prepared.
Quantitative analysis * Quantitative analysis techniques like regression analysis can be applied to historical data to assess the sensitivity of a business to various risk factors. The use of ratios and statistics to determine risk, such as the debt-to-GDP ratio or the beta coefficient of the MSCI index for a given country. International investors can find this information in reports from ratings agencies, magazines like the Economist, and through various online sources like Wikipedia
Qualitative Analysis

The use of subjective analysis to determine risk, such as breaking political news/opinion or realistic market rumours. International investors can find this information in financial publications like the Economist and the Wall Street Journal, as well as by searching on international news aggregators like Google News. But, the most common way that investors assess country risk is through sovereign ratings. By taking these quantitative and qualitative factors into account, these agencies issue credit ratings for each country and give investors an easy way to analyze country risk. The three most-watched ratings agencies are Standard & Poor's, Moody's Investor Services, and Fitch Ratings.

Inspection visits
Inspection visits involve traveling to a country and meeting with government officials, firm executives, and/or consumers to clarify uncertainties

Country Risk Checklist & Other Tips
International investors can determine country risk using this simple three-step process: * Check Sovereign Ratings Look-up the country's sovereign ratings issued by the S&P, Moody's and Fitch to get a base-line look at the country's level of risk.

* Read the Latest News Search on Google News or other international news aggregators for any economic news surrounding a country as a form of qualitative research.

* Check the Stock's Risk Determine the specific investment's risk by looking at quantitative factors, such as the beta coefficient - a higher beta coefficient equates to greater risk.
But just because a country is risky doesn't mean investors should ignore it. Sometimes increased risk equates to higher potential returns. For instance, a country undergoing an economic reform may be riskier now, but its long-term future may be brighter as a result. International investors can therefore still incorporate risk into a diversified portfolio in order to enhance potential returns.
Here are a few tips to keep in mind when considering riskier investments: * Stay Diversified A diversified portfolio can help mitigate the effects of any one security falling sharply. Try and limit any one security from accounting for more than 5% of a portfolio's value.

* Hedge Your Bets Some strategies, such as writing covered calls or buying index put options, can help hedge against a market downturn. Advanced investors may want to consider these options.

* Monitor the Situation: Always keep an eye on your investments. Things can change rapidly in international markets - particularly risky ones - so make sure you see any dark clouds before the storm hits.


Norway is a country with very low or low levels of risk across all three categories. While not a member of the European Union, Norway does have access to European markets and relies heavily on trade with its European neighbours.
Norway is a large petroleum and natural gas exporter which has helped to insulate the country from the economic weakness in the Eurozone in recent years. Economic growth of 2.2% in 2014 is expected to slow to 1.0% in 2015 due to weaker oil and gas prices reducing investment, revenue and consumption levels.

BBB- Rating has been given to India by S&P and Fitch. It is given as a long term rating and the description states BBB- countries as "Lower Medium Grade".
+ and - stand for High and Low respectively, Excellent starts from AAA, AA+, AA, AA-, etc with the lowest rating being D.

Global ratings agency Standard & Poor's (S&P) on Monday retained India's long-term sovereign credit rating and the outlook as stable, citing reforms measures and the country's economic strength.

The agency retained the 'BBB-' long-term rating on India, which is the lowest investment grade, but comes at a time when the government is unveiling reform measures to bolster growth and revive investment and is expected to be a shot in the arm for policy makers.

The ratings on India reflect the country's sound external profile and improved monetary credibility. These factors, combined with strong democratic institutions and a free press, both of which yield policy stability and predictability, underpin the investment-grade rating on India. It said these strengths are balanced against vulnerabilities stemming from the country's low per capita income and weak public finances.

The government has made progress in building consensus on a passage of laws to address long-standing impediments to India's growth. These include strengthening the business climate (such as through simplifying regulations and improving contract enforcement and trade), improving labour market flexibility, and reforming the energy sector.

Upward pressure on the ratings could build if the government's reforms markedly improve its general government fiscal out-turns and with them the level of net general government debt, so that it falls below 60% of GDP.
It cautioned that downward pressure on the ratings could re-emerge if growth disappoints (perhaps as a result of a stalling of reforms), if, contrary to expectations, the new monetary council is not effective in achieving its targets, or if the external liquidity position of the nation deteriorates more than currently expected.

The reforms being undertaken by the RBI and the plan to set up monetary policy committee augured well. We believe that these measures will support the RBI's ability to sustain economic growth while attenuating economic or financial shocks.

Strong inflows to the financial sector combined with higher inflation in India vis-a-vis its trading partners could pressure the real and nominal effective exchange rates, which in turn could hurt competitiveness if not matched by strong productivity growth.

S&P said India's external position was a credit strength and expects the current account deficit at 1.4% in 2015 and at similar levels through 2018. This reflects its limited reliance on external savings to fund its growth.
Our forecasts are partly informed by our view of increased monetary credibility, which dampens the demand for monetary gold imports. In addition, we expect India to fund this deficit mostly with non-debt, creating inflows.

In the medium term, we expect improved fiscal performance primarily from revenue-side improvements, brought about by the planned introduction of the general sales tax and administrative efforts to expand the tax base.
Indian economy expanded 7.2% in the first half of the fiscal and the 7.5% growth forecast implies acceleration in the second half.
The Reserve Bank of India's policy rate cuts of 125bp in total in 2015 are also likely to contribute to higher GDP growth, even though monetary transmission is impaired by relatively weak banking sector balance sheets.


Corruption, bribery and corporate frauds are now being recognized as the number one risk affecting businesses in India. This is a result of a number of major frauds and scandals that have been uncovered in the last few years. In particular, theft of physical assets, corruption and bribery, internal financial frauds and information theft are most prevalent.
Due to the nature of these risks, corruption, bribery and corporate frauds are likely to impact foreign direct investments in India.
In India, there has been a surge of strikes leading to civic disturbance and violence as publicized throughout international and national media coverage. As the second largest risk in India, strikes disrupt daily business. For example, a strike in the Maruti’s Manesar plant in Haryana cost the company a loss of INR 1 billion and resulted in a 10% decline of its operations. This is just one of many strikes over the past few years that has resulted in the loss of millions of rupees due to strikes, closures, and unrest.

NO. 3 RISK | POLITICAL GOVERNANCE INSTABILITY Indian democracy though largest isn’t the best in the world. Latest reports state that 162 members of parliament have legal charges levied against them and are being investigated. There is a high level of criminalization in politics, which is now getting regularly exposed.
The confusion in Indian democracy is higher as multi-party system exists and no party has a clear majority in parliament. Government is formed with alliances from other parties. The coalition government is not effective as agendas of various party chiefs have to be met. Hence, the reform bills do not get passed.
Secondly, a number of parties have states control with insignificant presence at national level. Therefore, multinational organizations need to build relationships with political parties at each state to enter into local markets. All permissions for land, infrastructure, and licenses are given at state level.
The Indian crime rate has been steadily rising, especially within major cities. This is a serious concern for the Indian economy. Many countries, including the United States, have issued travel warnings for those considering travel in India.
There has been a rising trend towards thieves specifically targeting female tourists. The states which have a robust tourism industry are the most sensitive to this increase in crimes against foreigners. In the past, there had also been spurts in crime involving foreigners but educating those on the front lines reduced risks significantly.

In 2012, information and cyber insecurity was India’s top risk. Since then, an increased awareness of IT security among India’s IT companies has spread. However, ransom ware, identify theft, phishing attacks, and mobile cyber crimes continue to be areas to watch.
Additionally, social media and the subsequent spread of information must be monitored for misuse. For example, online rumors regarding the Muzaffarnagar riots in 2013 and the Bangalore cyber terror attacks in 2012 led to mass exodus and displacement.
India has Asia’s oldest stock market and a fairly vigorous regulatory system for equities and debt. The economic risks of doing business in India have more to do with inflation and with lack of fiscal discipline at the government level. Huge transfer payments to the rural poor, subsidies for food and fuel, and disproportionate raises for state employees and retirees have bled the economy from time to time. Foreign companies need to watch exchange rate risks and interest rate risks carefully in India.
Many other risks are specific to the company, the industry, the location and the state of the competition. It’s best to see bi-culturally savvy guidance to identify, manage and mitigate the risks of doing business in India.
India has evolved into an attractive investment destination as both foreign and domestic companies are increasingly making their presence felt in one of the largest markets in the world.

The premise for entering Indian market is to use the workforce at a lower cost. India has a huge young population. Multinationals entering India assume that India has a large workforce. However, most of Indian population resides in rural areas and illiteracy rates are still high in India. Secondly, a high percentage of people even in urban areas are self-employed. Moreover, with increase in urban middle class incomes, the percentage of working women have decreased. Hence, the employable English-speaking workforce is less than quarter of the urban population.
The next aspect is that India’s traditional culture is subservient to elders and seniors. The power distance index is high which makes an Indian employee far more compliant than a western employee. The downside is that if the organization has bureaucratic culture, the employees will follow orders blindly. Secondly, they will not disclose ground realities to senior management in straightforward conversation. Hence, there is a high likelihood of risks remaining hidden until crises time.
The critical point is that in India roughly 25% of resumes submitted are either fake or inaccurate in some aspects. This indicates that workforce is willing to resort to unethical practices to get and retain employment. It again reduces the possibility of transparent communication with management.
Lastly, the labour laws are strict for the manufacturing sector blue-collar employees but those aspects are not relevant for the service sector white-collar employees.

In India, customer requirements change by each state and within the state. The staple food of North Indians is wheat, and of South Indians is rice. Due to differences in religion, culture, language, weather and infrastructure, customer demands changes nearly every 100 kilometer. Hence, though on the surface the market size is huge for the country, the products have to be localized according to customer tastes. This means, multinationals have to enter a number of niche markets and may not enjoy the large economies of scale for selling a single product across the country.
Therefore, the 10,000 feet view to formulate business strategy does not work without understanding of ground level realities of local community. This is one of the key reasons for failure of multinational business strategies. It takes global senior management a couple of years to understand the issues and localize the business strategy.

India provides tremendous growth opportunities to multinational companies. The economy is growing by 8-10%. However, to leverage the opportunity effectively management needs to understand the risks. While developing business strategy and doing due diligence, a detailed risk analysis and mitigation plan must be developed. Else, the probability of failure is extremely high

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