Properly managed FDI can make high returns. However
requires an extensive exploration and investment therefore puts high of capital at risk. In addition, if company will not perform and expected, it may possess difficulty selling the currency project it created. Given these return and chance characteristics of DFI, Companies have to conducts country risk analysis to discover whether to make investments with a particular country or not really.
Country risk analysis
can be used to see countries where the MNCs is currently doing or planning to undertake business. If the degree of country risk of some country begins to increase, the MNC may think about divesting its subsidiaries located there. Country risk could be divided into country`s political and also financial risk.
A severe sort of political risk is the chance that the host country will administer over a subsidiary. Occasionally, some compensation will be paid from the host government. In one other cases, the assets will be confiscated
without compensation. Expropriation might take place peacefully or by means of force.
Beside political variables, financial aspects need that they are considered in assessing united states risk. One of probably the most clear financial factors could be the current and potential state from the country's economy. An MNC that exports to a foreign country
or operates a subsidiary in that , country is highly influenced by that country's demand to its products. This demand is actually, in turn, strongly influenced by country's economy. A recession for the reason that country can reduce need for MNC `s exports or goods manufactured by its subsidiary.
Economic growth indicators really or negatively can have an impact demand for products. Such as, a low interest rates boost economy ad boost demand for MNCs` goods. Inflation rate influence customers purchasing
power therefore their need for MNC`s goods.