Now that PepsiCo has made the decision to enter the Brazilian marketplace, the next, and
arguably most important step is the analysis of risk factors.
When an organization begins
operations in a new domestic market, many new risk variables present themselves.
new risks are real, the operation is still within the same country, government, domestic economy,
and federal laws, with the regulation differences varying from state to state.
This decision to
move to a new country now presents a new set of risks that are in conjunction with the basis risks
involved in opening a new organization or a new division of an existing organization in a new
PepsiCo can use a variety of analysis techniques, including the Delphi technique,
sensitivity analysis, checklist approach, and standard deviation of cash flows to perform a
quantitative analysis, and compare these results using both qualitative and quantitative
techniques, which include forward market hedge, money market hedge, and options.
such as economic exposure, translation exposure, transaction exposure, political considerations,
socio-economic, and environmental issues all must be included in a full risk assessment prior to
PepsiCo setting up operations in Brazil.
Economic exposure is a main risk factor that any organization must recognize and assess
when preparing to enter a new global market.
Economic exposure represents the change in value
of operations, measured by the present value of expected future cash flows, when exchange rates
Since all future exchange rate changes are uncertain, fluctuations in currency rates can
change the variability or expected amounts of PepsiCo's future cash flows.
in Brazil will begin with today’s exchange rate, and the cost involved is clearly defined.
PepsiCo continues conducting business over a future period of time, chances are that the
exchange rate will have changed, and the cost of conducting business will have become more or