Summary of the doctoral thesis
The country risk management and the investment decision
Scientific Coordinator Prof. Dr. Simona Gaftoniuc
Oana – Antonia Colibășanu, Phd. Cand.
The doctoral thesis titled „The country risk management and the
investment decision” analyses the correlation existing between the decision
process within the transnational companies and the way the country risk is
currently analyzed.
Considering the country risk a key element in the investment decision
process, the research aims at identifying the methods companies use to analyze
this variable at the beginning of XXI century, taking into account the sustained
technological progress and the fact that information has become the determinant of
economic processes. The research is focused on two main areas: analyzing the
new methods of country risk estimation and management and investigating the
contemporary decision-making process of transnational companies.
The thesis is structured in five chapters following the philosophy and idea
that has been the basis of the current research. The introduction chapter is
presenting the importance of the subject and the motivation for the research in the
specific area, emphasizing the relevance of the current study for the world
economics. The five chapters comprise the summary of the existing theory as well
as my contributions to the research field, while the conclusions are underlining the
results obtained through investigation and their feasibility, considering the current
global evolutions.
“The consulted literature and the current level of research in the field”
is outlining the major developments in the study area, at the national and
international level, indicating the publications’ importance and relevance for the
academic and business worlds. I have also considered the relation between the
methods applied and the results obtained by prior studies on the thesis subject.
Acknowledging the missing aspects of earlier analysis of the topic, I have
established the main objectives and the motivation for my scientific research work.
Taking into account the alertness of change in the socio-economic
environment worldwide, the analysis of the decision-making process is necessary
both for the academic and business world today. In the same time, considering that
the foreign direct investments’ growing trend is one of the main “features” of the
globalization, while the risks affecting businesses’ operations are continuously
diversifying, the empirical research on the investment decision-taking is becoming
a strategic aim both for the countries that want to attract foreign investors and for
the transnational companies that are expanding their activities. Even if there are
many research papers and books focusing on the importance of the country risk
management for companies’ foreign investments, as well as studies concentrating
on the way the investment decision is taken on the international capital markets,
there is less focus on the way the decision making process has evolved for the
strategic management of transnational companies that are expanding through
foreign direct investments.
The research methodology is focusing on scientific documentation
through bibliographical analysis, empirical evidence collection to complete the
theoretical aspects, presented through case studies and applications, qualitative
analysis and econometrical analysis of information, interview and example
methodologies. Emphasizing the innovative character of the research, this part
refers to the qualitative analysis of the empirical correlations and to the
coordination of the research results, considering the realities of the business
environment at the beginning of the XXI-st century.
The transnational companies need to adopt new strategies concerning
foreign direct investments, considering the current globalization challenges. The
first chapter, titled “The country risk – classical components in
transformation”, is focusing on presenting the traditional elements in the country
risk analysis: the economic risk and the political risk. The two components are
analyzed conceptually through the existent literature on the topic and through the
practical evidence developed by companies.
The economic risk is referring to the state’s stability and economic
potential. Forecasting the aggregated growth indicators is difficult and it also
contains some political subjectivity. For example, the forecasts published by the
national banks and governmental agencies are usually more optimistic than those
made by independent international agencies. The transnational companies are
using their own systems to analyze the economic risk, usually using the primary
data published by the national statistical institutes. The economic risk analysis is
done on 2 levels: macro and micro levels. For the macro-analysis, the macroeconomic indicators of the respective country are used, the global trends of those
are being set and the financial policies of the government are being considered.
For the micro-level analysis, the economic risk is observed through the specific
industries that the transnational company interacts with.
To observe the way the economic risk analysis has evolved in time, I have
investigated the current economic crisis through a study of the way it was
perceived, at its beginnings, by the banking sector in the south-eastern Europe.
The study is also mentioning the medium and long-term implications on the
banking industry and on the economic stability of the countries in the region.
Globally, the crisis started as a liquidity crisis on the credit markets, evolved from
a sector crisis into a system crisis, accelerating the recession for most of the
European countries. The dominant presence of the foreign banks in the banking
sector, the financial deepening acceleration, as well as the reality of an economic
environment characterized by weak macroeconomic performance have all
contributed to the negative evolution for the south-eastern European countries.
The political risk was presented as a sum of company and country related
political risks. The investigation was based on empirical examples from the
international business practice. The most important company related political risks
are the governance risk and foreign exchange risk. The country specific political
risk is affecting both international and national companies and is as transfer risk
and cultural and institutional risk.
To underline the connection between the political and economic risk, I have
analyzed the situation in Zimbabwe, where corruption has directly affected the
economy, negatively influencing all the macroeconomic growth indicators,
exemplifying the vicious circle of the negative effects perceived both politically
and economically. The unstable situation in Tunisia has been reviewed,
considering the transnational companies reactions to the current crisis. I have also
analysed the possibility that the socio-political unrest in the country may influence
its neighbours in Northern Africa. To study the influence of state nationalization
policies on international companies strategies, I have looked into Venezuela’s
experience. The case studies and the examples presented in the chapter were built
and studied using the qualitative and quantitative analysis of available
information.
In the second chapter I have analyzed the new kind of risks that are taken
into consideration by the transnational companies when analyzing country risk
nowadays – the global specific risks. The research has focused on the negative
elements in the global world that are affecting the operations of local and
international businesses: terrorism, supply chain related risk, anti-globalization
movements, cyberattacks. A special attention was given to the risks coming from
the cyber environment, the economic espionage being one of the most important
ones. The analysis on the new, global-specific risks presented in this chapter is
underlining the need for the companies to develop a strategic management system
that is built on reliable information flows from inside and outside the company.
The decision making process within the transnational companies is
investigated in the third chapter, titled “The decision making process of the
transnational companies”. Considering the theoretical approach on the
decisional system, I have presented the determining factors for taking strategic
decisions, underlining the both the objective and subjective elements contributing
to the process. The methods and techniques helping managers to decide when
dealing with risky and uncertain environment are deeply analyzed as these are
viewed most important, taking into account the thesis topic. They are emphasizing
the correlation existing between the investment decision and the country risk
analysis in practice. The optimization methods are studied through the mathematic
models built on utility function and multi-criteria matrix. Their evolution and
application is being proved by the transnational companies’ usage of the
ELECTRE and PROMETHEE methods. The decision tree is another method that
the companies use often as basis for their decision-making system. To establish
how useful these methods are in practice, I have used the example method, having
presenting some cases from international business practice – practical studies
referring to strategic decision on investment location, considering two options:
Turkmenistan and Kazakhstan.
The fourth chapter, “Decision optimization and minimizing the country
risk” is concentrating on the human decision factor qualities and is comprising the
techniques that are specific for the foreign direct investment decision. The
importance of human decision factor personal features as well as the subjective
character of the decision making process are underlined through the evidence of
variables included in the decision models.
Finally, the last chapter, titled “The decision system of the transnational
company when dealing with conflict situations in the host country”, is
presenting the research results on the way that the investment decision is being
made when the company is confronted with conflict risk. After carefully analyzing
the main features and components of conflict risk as well as the features of the
main influencing factors for companies operating in conflict prone environments, I
have studied British Petroleum (BP) investment experience in Colombia. The
efficiency of decisions taken under such conditions as well as the way the risk
analysis is influencing the strategic decisions were studied employing qualitative
analytical methodologies. The evolution of the initial BP investment in Columbia
was analyzed, the way the investment decision is influenced and is influencing the
environment risk factors being one of the main issues researched during the
chapter.
The conclusions are highlighting the results of the study and their
significance for business and academic world. I have also outlined few directions
that the research should be continued on, aiming at developing further results that
would be useful and would have a positive impact for the study area.
Besides investigating the competitive advantages that the transnational
company has, it also needs to investigate the way that these advantages would be
maintained or even enhanced as a result of developing a new investment project in
a different country than the countries it already operates in. The country analysis
serves to this particular purpose, being the basis of the investment decision and the
decisions that would follow, when the investment would reach the operating
phase. Studying the way that the companies are developing country analysis today,
we can easily conclude the constant evolution of the components of these
analyses. The global specific risks have been considered only recently as a main
component of the country risk, as they heavily influence the information flows
worldwide. Terrorism, supply chain related risks, anti-globalization movement
and cyberattacks are risks that have been recently discovered by the business
world and their research is based on more empirical data than available theoretical
information. These phenomena are continually evolving, determining new subrisks that the transnational companies need to anticipate and analyze.
Taking into account the fact that both businesses dynamism and
environmental changes obliges the strategic management to be informed of global
developments, the decision processes within a company is continuously evolving.
This is why the companies need to implement structured methodologies, based on
cybernetic and mathematical knowledge, that are compiling and analyzing data
and information, transforming it in intelligence for the strategic management.
These methodologies are allowing the generation of alternative sets of responses
to company’s problems and are diminishing the subjective manner that humans
tend to take decisions.
Studying the BP experience and the other examples provided, we may
conclude that even if the mathematical principle of optimization is one of the best
model implemented in companies’ decision system software, the human factor is
still the most important in the process, having the last word on choosing between
the solutions and alternatives to be implemented, in line with company’s strategy.
The human factor is the one attributing importance to all the variables that are
included in the decision model.
Considering the evolution of the research field as well as the technological
progress, I believe the investigations should be continued, with the purpose of
discovering new methods for analyzing the global specific risks. Researching
ways to make the decision process more effective for the transnational companies
is also necessary. Future studies should focus on the way to include the global
specific risks in the list of stable variables within the decision models.
Diminishing the subjectivity of the decision making process is another aspect
which should be taken into account in further analysis in the area. In doing so, the
studies need to examine both the evolution of global investment flows and the link
between country risk analysis methodologies and decision processes developed
within transnational companies.