Country Risk Analysis

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  • Published : April 22, 2013
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Contents
Executive Summary3
Introduction3
Economics of the Automobile Industry5
Production5
Supply Chain6
International Trade7
Methodology7
Market Size and Growth Indicators8
GDP8
Inflation8
Employment & Labor Cost9
Macroeconomic Indicators9
Balance of Payments9
Foreign Exchange Reserves9
Geopolitical10
Immediate Risks10
Corruption Perception11
Ease of Doing Business11
Infrastructure12
Current State of the Automotive Industry12
Supplier Industries14
Presence of Export Processing Zones14
Transport Infrastructure15
Proximity to Maritime Shipping Routes16
Conclusion16
Bibliography17

Executive Summary

Companies constantly assess business environments of countries they operate in, as well as the ones they are considering investing in. Similarly, private and public investors are interested in determining which countries offer the best opportunities for sound investments. In this context, this study examines which country amongst – Bangladesh, Nepal and Sri Lanka – will be most suitable for setting up a production plant for the extension an automobile firm based in India. This is the area of country risk analysis --- assessing the potential risks and rewards associated with making investments and doing business in a country. Companies are interested in the economic policies of these countries, because economic policies determine the business environment. However, country risk assessment cannot be only economic in nature. It is also important to consider the political factors that lead to economic policies. Some of the other factors that need to be taken into account include the environmental, geopolitical, societal and technological factors of the target country. There are many excellent sources of information on assessing the potential of countries across these various factors. Some of the most reliable sources include data from the World Bank and the Doing Business reports and the associated website that is maintained by the International Finance Corporation, which is part of the World Bank group. Other important sources include the Economist Intelligence Unit website. Apart from this there are a couple of specialized websites such as those of Transparency International, Emerging Market Potential Index that include very detailed information on various country indicators. Newspapers, such as the New York Times, the Wall Street Journal and the Financial Times dedicate significant coverage to overseas events. There are also many excellent weekly magazines covering international economics and politics; the Economist is generally considered to be the standard bearer among weekly publications. Introduction

The automotive sector is one of the fastest growing sectors in the developing world today. The most dramatic shift in the automobile industry is the growth of newly industrializing countries in production and sales, notably China and India. China has emerged as the fastest-growing producer, surpassing Germany in 2006, the United States in 2008 and Japan in 2009. India has also emerged as a large producer, and production reached 3.53 million (4.6% of the total world production) in 2010. India has come a long way since 1981 when the central government formed a joint venture with Suzuki Motors (Maruti Udyog). After the introduction of the economic liberalization policy in 1991, the central government reduced the intervention of the government and promoted deregulation in the automobile industry. Following this, GM, Ford, and Daewoo were early entrants establishing local operations in India. The Auto Policy in 2002 provided higher fiscal incentives for R&D and was targeted to develop small cars and to promote environmentally friendly cars. In 2006, the central government announced the Automotive Mission Plan (AMP) 2006-2016. This declared 10 years of strong support for the automobile industry, encouraged production and aimed to...
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