The Intel Corporation experiences pressure in supply of equipment and the complex market demand. Due to the complexities in determining the specific market demand, the Intel Corporation is experiencing a major managerial challenge that touches on the optimized decisions about capital investment. The company is expanding its market towards various countries for profit generation. In the process, Intel Corporation will be faced by stiff hurdles that may affect its operation in foreign countries. The Intel Corporation is attracted to the foreign investment in Brazil but the slow economic growth of the country places it under numerous risks. There is also the high level of international competition from companies that deal with mobile phones accessories. These demands for increased financial resources to help the company effectively compete in the international market.
The economic risks are a risk that is economically unstable. The risk is affected by the economic trend which later ruins the outcome of the project. Economic risks are the probability that the real or actual return on the investment is lower than the outcome or expected return. The company might establish its base in low economic country where there could be having less market hence less production of their products. Thus the survey must be taken keenly and appropriately.
The financial risks are classified as follow; Country risk depends on the charges for the business to locate in a given environment which may negatively affect business operating profits. Capital risk that the company come across which may result in reduction and loss of value of its capital. This capital consists of liquid security or industry equipment. Intel corp. must take adequate research on the field research or from any written or secondary data. This help to evaluate relation between exposure to risk and the negative effects.
Foreign exchange risk also known as currency risk. It is a financial risk caused by an exposure to unexpected currency exchange between two entities. Intel corp. is based in United States and has on advantage over the foreign exchange risk since US currency is relatively higher than that of Brazil. The company must estimate on the effectiveness to the solution found during the research. Finally estimate the uncertainty associated with the analysis and find the best way forward. The analysis then defines an option these are the potential cost, benefits and the consequences.
Interest rate risk is the risk that the Intel corp. value will change due to change in the absolute level of Brazilian interest rates the sensitivity of the risk is determined by the coupon rate of the bond and the bond’s time to maturity. Liquidity risk is the risk that arises from the difficulty of selling an asset. The Intel corp. must base its argument on the market of its product in Brazil. This will provide an environment where there will be a fixed and significant movement in the price.
The Intel Corporation will be subjected to various political risks that are so obvious in Brazil. The Brazilian government may seem unfriendly to international investors because they spend more time promoting the local investors. The Intel Corporation is also placed to be undermined by trade restrictions that are placed by the policy makers in Brazil. The trade restrictions may limit the extent through which the business will penetrate into the market and reach a high population of consumers. The Brazilian government controls the limitation in monetary exchange that must be complied with as outlined in the government blue prints.
The Brazilian government has adopted the policy of “sovereign immunity “to international companies and businesses. Unlike the previous moment where governments were responsible for any losses that occurs to international investors, they will not be ready to compensate for any losses of the Intel Corporation. Sovereign immunity means that the government will not be liable to any losses of the company even in the court of law.
The political instability and lack of security is another politic risk that may face the Intel Corporation. Lack of political stability is a dangerous political risk that will not allow for a smooth running of the business. The business will be conducted with a lot of challenges because individuals will be pushed to poverty lines because of poor government policies. The poor security may also affect the way the Intel Corporation will supply their equipment and services. The security instability may not meet the eligible requirements that are needed for the operation of the Intel Corporation. The sense of insecurity also scare investors as it is unwise for them to invest.
The government agencies may not fully corporate with the Intel companies and they frustrate the effort of the company to dominate their domestic market. This is a result of corruption and it may interfere with the operations of the Intel Company. The ministry of foreign affairs may also frustrate the efforts of the Intel Company to move in towards maximization of profits.
The economic growth of these two countries is differed with Brazil being less developed relative to USA. Due to low economic growth the level of technology, quality education and other social amenities including the skilled labor are also very low. This implies that after the company has been located, skilled manpower should transport from US to Brazil. The skilled manpower is associated with some social class and the facilities they require or their they have been used to might not be available. These pose a social risk to the firm and it may make skilled employees fear the hardship associated the environment, therefore failing to work from there. Moreover if the workers decide to work their effectiveness would be lowered therefore reducing the efficiency of the company. The company ought to take into consideration this aspect and respond to it by either increasing the laborers salary as or creating an environment that actually favors them in Brazil.
Setting a company in a foreign currency would require the company to have good socializing effect with the citizens. This is supposed to boost the relationship between the citizens and the company. Most of the casual workers in the company will be Brazilians and these poses social risk of acceptance. The community might have a negative attitude towards the company and thus deliberately refuse to cooperate.
Brazil is a community that undertakes its transactions using the Brazil real which is different from the United States dollar. This implies that once the Intel Corp company starts its operations it will be subjected to the foreign exchange market as it would be required to convert the US dollar to enable the day to day transaction. The company will also need to convert the profits earned in Brazil real to dollars. Transactions in the foreign exchange markets are very risky mostly due to the fluctuations of the exchange rate. Considering that brazil operates on a flexible exchange rate regimes the company the conversion of the currencies might lead the company into making losses and thus if it has to set up its plant there good measures on either to hedge or speculate. The transactions in foreign exchange markets might also result into some delays as clearing in commercial banks always takes some time. This time lag if not well incorporated might result into inefficiencies and thus cause market dissatisfaction leading to reduced sales
The security of Brazil is a bit good as the Brazilian government has ensured strict measure. However since this is a foreign investor and he might not have save clear knowledge of the Brazilian laws the citizens might take this weakness as an advantage of these and steal. Moreover as this company manufactures electronics whose large market lies in US, and this calls for transportation of finished goods, this majorly will be done by road or water. These two methods of transportation are prone to theft. Therefore the company should first study the actions of the Brazilians as well as familiarizing itself with the Brazilian laws.
In conclusion we advise the company to set its plants in Brazil as this is an emerging company that is associated with less production cost and thus high returns on capital. However the investor should take into consideration the substantial risks listed above and develops a well maintained risk management system. Moreover the investor cannot ignore the risks at assuming that they will be offset by profits since their value cannot be calculated.
Odore H. Moran ed., International Political Risk Management: Exploring New Frontiers (IBRD: Washington, 2001, pg. 213-214)
Jeffrey D. Simon, “A Theoretical Perspective on Political Risk”, Journal of International Business Studies, Vol. 15, No. 3. (Winter, 1984), pp. 123–143.
Ian Bremmer, “How to Calculate Political Risk,” Inc. Magazine, April 2007, p.