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IB 403 Lecture 02 - o Pharmaceuticals If poor...

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IB 403 01/21/08 4 Dimensions To Assess A Nation’s Political Risk o Government o Society: Demographics, Unemployment Rate, Education, Healthcare o Security: Military Expenditures, Geopolitical Alliances, Ex) Turkey problem o Economic: GDP, FDI, Ex) China is opening rapidly (diplomats, negotiators trotting the globe in search of new trade relationships to feed the country’s growth), but politically it is closed (police state, absolute control over public expression, corruption, etc.) Anatomy of India’s Political Risk o Overall, the scores are the same. Very hard to measure. Company-level Implications o Energy Industry: High tolerance for risk because of the extended time factor; rely on mitigation techniques to manage the risks o Light Manufacturers: Wait to see how situations evolve
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Unformatted text preview: o Pharmaceuticals: If poor infrastructure and IPR risks then pharmaceutical companies are not interested o ST risk o LT risk: Over 5 years • Risk Management (Mitigation) Techniques o Joint Venture with local partners o Limit R&D in countries with leaky IPR protection o Government insurance against expropriation of property, political violence, currency, inconvertibility, breach of contract (but expensive) o Hedge/Diversify (location factory in Mexico and Venezuela) o Concept of “Project Finance” (Mozal Project) Strategies That Fit Emerging Markets • BRIC countries are examples of Emerging Markets • Emerging markets are peculiar because of their institutions • Defn: Emerging Market is a country where politics matter as much as the economics...
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