Unit 1 Discussion 2: Foreign Investment Risk

When a company decides to expand its operations to another country, it will face many risks. Depending on the nature of the expansion, the company may face the risk that:

• The foreign market may not accept the product.
• The foreign government may be unstable, impose unforeseen restrictions and regulations, or have an unfavorable tax structure.
• The foreign labor market may not be adequate in terms of availability or training.
• The foreign currency may fluctuate dramatically, or the inflation rate may be high.
• The foreign country may have vastly differing accounting standards.
• The foreign country may have an immature infrastructure, such as poor public transportation and highways systems or antiquated telecommunications that affects the efficiency of its operations.

Instructions:

Imagine that you are an accountant for a large U.S. manufacturing company that produces electronic gadgets. The CEO of the company has come to you for input on a possible foreign expansion. The company is considering investing in a new manufacturing facility in one of the following countries:

• Ireland
• India
• Canada

The CEO would like for you to advise him of the advantages and disadvantages of each proposed location.

Use the Internet or ECPI Online Library to research two advantages and two disadvantages of building a new manufacturing plant in one of the three locations listed above. Be sure to address at least TWO of the risks the company many face. Be sure to discuss the issues related to foreign currency transactions, and financial statement translation. Would you advise the CEO to build in that location based on your research? Why or why not? Support your response with research. Currency exchange rates may be found at http://finance.yahoo.com/currency-investing. Be sure to cite all of your references.