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Country Risk and Strategic Planning

Country Risk and Strategic Planning

I have to do a country risk analysis for my global business venture. The country is Mexico. The service being ventured is a resort. I have to analyze the country risks involved in this venture. I have to analyze:
1) Political/legal/regulatory risks
2) Exchange and repatriation of funds risk
3) Competitive risk assessment
4) Taxation and double taxation risks
5) Market (4 P's) risk
6) Distribution/supply chain risks
7) Social/cultural risks
8) Cyber/technology
9) Physical environment

I also need to describe how to manage these risks

"I also need to do the following information separated from the above"

I need to summarize my strategic planning process:

1) Define/clarify mission and objectives
2) Assess internal/external environment (SWOTT)
3) Consider alternative strategies using competitive analysis
4) Make strategy selection
5) Select and justify and appropriate mode of entry for my global service
6) Implement strategy
7) Control and evaluation
8) Devise contingency plan

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Country Risk and Strategic Planning

I have to do a country risk analysis for my global business venture. The country is Mexico. The service being ventured is a resort. I have to analyze the country risks involved in this venture. I have to analyze:
1) Political/legal/regulatory risks
2) Exchange and repatriation of funds risk
3) Competitive risk assessment
4) Taxation and double taxation risks
5) Market (4 P's) risk
6) Distribution/supply chain risks
7) Social/cultural risks
8) Cyber/technology
9) Physical environment

I also need to describe how to manage these risks

"I also need to do the following information seperated from the above"

I need to summarize my strategic planning process:

1) Define/clarify mission and objectives
2) Assess interna,/external environment (SWOTT)
3) Consider alternative strategies using competitive analysis
4) Make strategy selection
5) Select and justify and appropriate mode of entry for my global service
6) Implement strategy
7) Control and evaluation
8) Devise contigency plan

Country analysis-Mexico

1) Political/legal/regulatory risks
One should also be aware of foreign trade regulations, attitude towards foreign companies as the organization wants to aspire to be a apparel multinational company . It has to consider following factors:
* Political climate - amount of government activity
* Political stability and risk
* Government debt
* Budget deficit or surplus
* Corporate and personal tax laws
* Other economic laws
(Wikipedia)
The last presidential election ended the 70 year one party rule (Wikipedia) which was due to the desire to regain national confidence avoiding another bloody revolution that over threw the government in 1917. The 70 year rule was marked by corruption, nepotism and lack of economic growth.

"On July 2, 2000, Vicente Fox Quesada of the opposition "Alliance for Change" coalition, headed by the National Action Party (PAN), was elected president, in what are considered to have been the freest and fairest elections in Mexico's history. Fox began his six-year term on December 1, 2000. His victory ended the Institutional Revolutionary Party's (PRI) 71-year hold on the presidency. "

Now " Felipe de Jesús Calderón Hinojosa (b. August 18, 1962 in Morelia, Michoacán) , Head of PAN is the President of Mexico" will serve a single six-year-term that began on December 1, 2006 and expires on November 30, 2012.

http://en.wikipedia.org/wiki/Felipe_Calder
Thus now we can say that the Mexican governance is more fair and impartial which will have positive impact on our venture.

2) Economic
Mexico is a surprisingly strong economy. In terms of total GDP, the combination of a population of 100 million and a per capita GDP exceeding US$5,000, makes Mexico the ninth largest economy in the world. With US$232 Bn in trade for 2002, it is the US´s second trading partner (behind Canada), and far ahead from the third trading partner (Japan with US$184 Bn). The efforts by the Mexican government to liberalize trade have resulted in a dramatic transformation of both the quantity and structure of trade. In terms of quantity, exports have increased eight-fold, from 20 to 160 US$Bn, and imports have increased over 10 times, from 14.5 to 170 US$Bn. Currently, exports represent over 30% of GDP. There has been s the elimination of most tariffs on goods and services relative to cross border trade due to NAFTA pact. The opportunities under NAFTA and FDI expansion mirror low cost in capital expenditure planning, close proximity borders offer shipping ports like Veracruz in the Atlantic and Manzanillo in the Pacific.
Source: www.inegi.gob.mx

The Mexican economy is having stable GDP growth of 4% which is average performance, its unemployment has declined marginally and inflation is stable and low.
But Mexico is also facing challenges in terms of Mexico as a third world developing country, external debt, political one party rule that is tied with massive political corruption, and drug trafficking. Mexico's external debt at $142 million in 2005 is a prime example
as depicted in this excerpt (Business Week, 2000).
"Showing Mexico's vulnerability to the U.S. economic cycle, we're now exporting 30% of gross domestic product, and 90% of that goes to the U.S. If the U.S. decelerates to 1% or 2% annual growth, Mexico would probably also suffer a slowdown, but not a crisis. But a U.S. "hard landing," something such as a crack in the Dow Jones [industrial average] and a quick recession, would most likely produce a recession in Mexico and make it much more difficult to meet external debt obligations"

Overall this augurs well for our venture due to low inflation and growth in GDP.

3) Finance
The financial sector has undergone massive changes since the crisis. The banking sector has stabilized and has been consolidated with strong foreign presence. A new bankruptcy law and several amendments to existing laws concerning secured lending were approved by Congress in 1999. The banks have not yet resumed their intermediation function. Banks are more risk averse, partially due to the adoption of stricter risk management and credit review practices. Banco de México estimates that if the proportion of bank credit to the private sector increases from its current 11.5 percent of GDP to 21.5 percent, the annual long-run growth of the economy would increase by 0.5 percent per year. Other factors have affected the performance of the banking sector?among others, weak bank regulation, little incentive for debt repayment, no transparency. As a result, bank lending to the private sector has fallen since 1994 by about 40 percent in real terms.

Foreign Exchange market
The foreign exchange market is a dynamic market and is not uniform through out through out the world. It may be regulated or semi regulated or totally free. Hence the currency management has gained importance. This is more visible now due to rapid globalization and increasing volatility in the external environment. Foreign exchange refers to money denominated in the currency of another country. The exchange rate is a price-the number of units of one nation's currency that must be surrendered in order to acquire one unit of another nation's currency. In the spot market, there is an exchange rate for every other national currency The forex market is essentially governed by the law of supply and demand and is generally not regulated by any government or coalition of governments.

120 days latest (Jun 19,2007)
10.7404 lowest (Jun 1)
10.7116 highest (Mar 1)
11.1846

http://www.x-rates.com/d/MXN/USD/graph120.html
The Mexican Peso has been appreciating showing good signs of stability in the foreign exchange environment and its encouraging for the foreign investors.

Taxation risk
This risk can arise if there is incidence of higher taxes due to double taxation in host country and also the domestic country. This risk can be avoided by
1. Transfer pricing:
It can be used to show less profit in Mexico by showing higher imports prices from USA
2. Representations to the government to sign double taxation avoidance treaty.
3. Operating from the country where there is favourable tax treatment with Mexico
.
4) Physical environment
Mexico City is the largest populated city in the world with approximately 20 million

Inhabitant. (wikipedia.com) There is so much human capital unleashed potential that exists in the largest Latin American country in the world currently that stands at 106.5 million. It has a Federal District, 36 States, and is bordered by the United States to the North and Guatemala to the South. Mexico's oil rich sector in the Tabasco State has much unexplored oil off shore reserves.

INADEQUATE INFRASTRUCTURE
The upshot of these developments is that Mexico now faces an important challenge in addressing both a large backlog and an explosive new demand. The estimated requirements in energy alone are on the order of US$10 billion per year for the next 10 years, representing 2.5 percent of current GDP, or the total health or education budget. The challenge is equally pressing for both "national" infrastructure? telecommunications, roads, and energy?and "urban" infrastructure?housing and water.

Technology developments
The technology has ushered and enhanced new doors of opportunity having grown 74% in laptop usage in 2004 alone. E-commerce thrives in Mexico.
Exhibit 1 - E-Commerce and E-Mexico Program 2002
1. Promote investment of original equipment manufacturing companies and suppliers;
2. Develop domestic IT industry;
3. Develop human capital according to the needs of the IT industry;
4. Create a favorable business environment for software development to attract investment;
5. Support the domestic software industry;
6. Increase domestic demand for software and other IT products and services;
7. Provide financing to SMEs to encourage implementation of IT into their business processes;
8. Promote the use of IT in the administrative systems of SMEs;
9. Develop training programs for business on the benefits of IT;
10. Integrate public companies into digital supply chains;
11. Finance projects focused on the development of digital supply chains;
12. Develop skills in both managers and staff to administer digital supply chains;
13. Reform legislation to support the use of electronic, optical or any other IT media;
14. Use the Mexican government as a model in the use of IT.

Exhibit II - Mexico's Telecom 5-year Technology Forecast
2004 2005 2006 2007 2008 2009
Telephone main lines ('000) 17,856 18,957 19,907 20,800 21,585 22,127
Telephone main lines (per 100 population) 17.0 17.8 18.5 19.1 19.6 19.9
Mobile subscribers ('000) 38,396 42,900 46,443 48,863 50,171 51,178
Mobile subscribers (per 100 population) 36.6 40.4 43.2 45.0 45.6 46.0
Internet users ('000) 9,020 12,203 15,522 18,739 21,685 24,080
Internet users (per 100 population) 8.6 11.5 14.4 17.2 19.7 21.7
Broadband subscriber lines ('000) 822 1,392 2,001 2,565 3,047 -
Broadband subscriber lines (per 100 people) 1 1 2 2 3 -
Personal computers (stock per 1,000 population) 100 112 121 129 135 141
Packaged software sales (US$ m) 869 931 962 1,005 1,051 -
IT hardware spending (US$ m) 4,066 4,377 4,594 4,825 5,006 5,183
IT services spending (US$ m) 2,190 2,382 2,566 2,740 2,933 3,141
Total IT spending (US$ m) 7,125 7,690 8,122 8,569 8,991 -
Sources: Pyramid Research; IDC; Economist Intelligence Unit.

Thus there is and will be marked improvement in technological infrastructure in the Mexican economy. We can also use ecommerce tools to promote our venture.

. Monterrey in the State of Nuevo Leon encompasses Mexico's industrial center that is known for its steel, glass, auto parts, and beer. Guadalajara is Mexico's "Silicon

Valley" which mirrors the technology bastion in the country. The famous beaches of

Acapulco, Cancun, Cozumel, and Baja California are worldwide tourist attractions.

The port cities of Manzanillo in the pacific Coast and ...

Solution Summary

The country is Mexico. The service being ventured is a resort. Response is 6,613 words and 19 references.

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