You are a CEO of a company that has to choose between making a 100 million investment in Russia or the Czech Republic. Both investments promise the same long-run return so your choice is driven by risk consideration (political, economic and legal system). Asses the various risk of doing business in each of these nations. Which would you favour and why?
Russia is one of the countries in the world known for having political instability; this is because there are government interferences in the economic activities that not only limit domestic but also foreign investment in the country. The Russian government has a standing history of pressuring foreign investors (Hardt, 2003). Corruption is also another major problem in Russia. There is no transparency in their commercial activities especially when dealing with foreigners who do not have a good understanding of their laws and terrain. The Russian currency has been depreciating so much of late that it may lead to increase in overhead costs for project that is started in the country.
Czech Republic has a fast growing emerging market, which offers full potential for better commercial activities (Flanagan, 1995). The one problem with Czech Republic is that compared to Russia it is a small country and has a small population. Russia is a big country with an increasingly wealthier population that offers a ready and wide market for the goods and services produced. Czech Republic has been experiencing some financial instability as well due to the fast rate it was developing; the country was not able to fully handle their finances.
Considering that Czech Republic is close to Czechoslovakia, it offers a chance to expand into that market in case the population of Czech is not a wide and varied enough market. even though Russia is known to have very dedicated employees, especially after the country was able to develop in ten years and more natural resources than Czech, there are too many risks associated with an investment in that country (Hardt, 2003). At the same time Czech offers more stability, cheaper labour and well structured laws that can lead to economic prosper.
A 100 million investment requires a stable and predictable economic environment that offers maximum protection. Czech Republic offers protection using the Multilateral Investment Guarantee Agency (MIGA). This is part of the international bank IMF. Czech also has no limitation as per the distribution of profits by foreign investors from their parent companies to the subsidiaries located in Czech (Flanagan, 1995). This makes Czech Republic to be the best option for the investment.
Work Cited
Flanagan J. Robert, International Monetary Fund, Research Dept, (1995), Wage Structures In the Transition of the Czech Economy, Revised by UN, (2010), A Success Story of Czech, A journal on Czech Republic,Vol5, No17
Hardt Pearce John, United States Congress, Joint Economic Committee, Library of Congress, (2003), Russia’s Uncertain Economic Future: With a Comprehensive Subject Index, Congressional Research Service
