Select one (1) MNC that does not currently do business in China. Next, consider the steps that the company should consider in determining the feasibility of entering the Chinese market and establishing a market for its products or services there.
In addition to your own research, use the following links to conduct a country risk assessment (CRA) on China:
- Bureau of Economic Analysis: www.bea.gov
- Transparency International Corruptions Perceptions Index: http://www.transparency.org/cpi2013/results
- Ranking of Economies-World Bank: http://www.doingbusiness.org/rankings
- IMF Home Page: http://www.imf.org/external/index.htm
- Country Risk Classification-OECD: http://www.oecd.org/tad/xcred/crc.htm
- World Trade Organization Home Page: http://www.wto.org/
- “Industry Analysis: Recreation” article: http://www.valueline.com/Stocks/Industries/Industry_Analysis__Recreation.aspx
Focus on the following areas: corruption, political stability, exchange rate stability, regulatory oversight, freedom of the press, and rule of law. Research other factors that you believe you should evaluate. Additionally, consider the importance of culture in evaluating risk.
Then, go to the Hofstede Center’s Country Comparison cultural tool, located at http://geert-hofstede.com/china.html. Compare China to the U.S. on Hofstede’s six (6) key cultural dimensions scale by selecting “United States” from the “Comparison Country” drop-down menu.
Write an eight to ten (8-10) page paper in which you:
- Summarize the business that you have chosen, and provide a two to three (2-3) paragraph justification as to why China would be a viable market for the selected business.
- Examine the exchange rate of the U.S. dollar and the Chinese Yuan for the last 24 months. Explain the major overall changes that have occurred and speculate on the key economic variables that most likely have influenced the exchange rate movements. Provide a rationale for your response.
- Analyze the major exchange rate risks associated with transaction and translation exposure within the Chinese market. Based on what you have gleaned from your analysis, predict the major changes that you believe will occur in the next 24 months. Justify your response.
- Recommend key steps that the chosen MNC could take in order to mitigate or eliminate exchange rate risk. Suggest one (1) method that the MNC in question could use with derivatives in order to mitigate, or eliminate such risks. Provide a rationale for your response.
- Recommend one (1) hedging technique geared toward managing the economic, transaction, and translation exposure in the Chinese market. Justify your response.
- Conduct a country risk assessment to ascertain whether or not management should support the proposal for your chosen MNC to enter into the Chinese market. Based on Geert Hofstede’s six (6) dimensions of culture, predict three (3) likely problems posed by the cultural differences between the chosen MNC’s culture and the Chinese culture. Provide a rationale for your response.
- Use at least six (6) quality references, with at least two (2) from peer reviewed journal articles.
Your assignment must follow these formatting requirements:
- Be typed, double spaced, using Times New Roman font (size 12), with one-inch margins on all sides; citations and references must follow APA or school-specific format. Check with your professor for any additional instructions.
- Include a cover page containing the title of the assignment, the student’s name, the professor’s name, the course title, and the date. The cover page and the reference page are not included in the required assignment page length.
The specific course learning outcomes associated with this assignment are:
- Evaluate the major international financial markets to determine effective methods for financing global business operations.
- Analyze the economic variables that influence exchange rate movements and equilibrium price to anticipate fluctuations, and minimize the negative impact on international business operations.
- Formulate strategies to use currency derivatives for foreign exchange risk management and for speculation by multinational corporations.
- Analyze the exchange rate risks associated with transaction, economic, and translation exposure in global markets, and develop risk management strategies to minimize the impact on international business operations.
- Apply a hedging technique to manage the risks of transaction, economic, and translation exposures.
- Use technology and information resources to research issues in international finance.
- Write clearly and concisely about international finance using proper writing mechanics.