King, Inc., a U.S. firm, is considering the establishment of a small subsidiary in Bulgaria that would produce food products. All ingredients can be obtained or produced in Bulgaria.

The final products to be produced by the subsidiary would be sold in Bulgaria and other Eastern European countries. King, Inc., is very interested in this project, as there is little competition in that area. Three high-level managers of King, Inc., have been assigned the task of assessing the country risk of Bulgaria. Specifically, the managers were asked to list all characteristics of Bulgaria that could adversely affect the performance of this project. The decision as to whether to undertake this project will be made only after this country risk analysis is completed and accounted for in the capital budgeting analysis.

Since King, Inc., has focused exclusively on domestic business in the past, it is not accustomed to country risk analysis.

a. What factors related to Bulgaria’s government deserve to be considered?

b. What country-related factors can affect the demand for the food products to be produced by King, Inc.?

c. What country-related factors can affect the cost of production?