Topic: 7-Eleven in Brazil

About the Research Paper

Students will conduct an in-depth country analysis of an emerging market economy to determine its suitability for foreign direct investment (FDI) as a multinational corporation’s (MNC) global financial strategy. Opportunities for arbitrage and portfolio investments should also be researched and discussed.

An emerging market is a country with a Gross National Income (GNI) of $10,00.00 per capita (or with the potential for the 10K milestone) such as China, India, the Czech Republic, United Arab Emirates, Egypt, Turkey, Mexico, Thailand, Indonesia, Chile, Republic of Ireland, Israel, Romania, Brazil, South Africa, Vietnam, Russia, Malaysia, Israel, Bulgaria, Ghana, Poland, The Philippines, Qatar, Saudi Arabia, Botswana, etc.

Additionally, there should be projected costs of the FDI in the host country’s currency translated into its U.S. dollar equivalent, with estimated price and demand schedule for the next 3 years. The weighted average cost of capital (WACC) should be part of the discussion to facilitate understanding of the project costs and future cash flows (discounted to its present value) from the investment. The appropriate hedging instruments to mitigate potential exposure to FX, economic and translation risks should also be discussed.

The purpose of the research assignment is to demonstrate understanding of the student learning outcomes as stated, and the relationship between the dynamics of profitability and global financial strategy in a multinational setting.

Economic Risk:

Size of External Debt: What is the size of the external debt and the related interest payments (debt service)? If a country has a large stock of external debt, its monthly debt service may be burdensome to the point where the government might not be able to provide basic social services, and education to its citizens, because most of its revenue would be spent on servicing external debt. How would high debt service affect FDIs?

Structure of the Current Account: What is the trade balance of your adopted country? Does it have a trade surplus, or trade deficit, and if so, why? What are the implications of a trade surplus or deficit on FDIs?

Capital Controls and Repatriation of Profits: Research and discuss if the host country has policy on blocked funds (capital controls) past and present that could affect repatriation of profits by the MNC to its home country.

Resource Endowment, Level of Development and Economic Diversification: What natural resources does the country have, that it can export to earn hard currencies? And what is its level of development as classified by the World Bank (low-income, middle income, or an upper income economy), and how diversified is its economy? What are the implications of these factors on FDI?

Size and Composition of Savings and Investment: This section is referring to household savings rate in the country. Why is savings rate of interest to an MNC considering FDI in the host country?

Rate and Pattern of Economic Growth: What is the current GDP growth rate for the country? Has the GDP growth rate been consistent over the years, or it changes from time to time? If so, why? Why is GDP growth rate of interest to an MNC considering FDI in the host country?

Effectiveness of Fiscal and Monetary Policies: How effective is the tax and expenditure policies (fiscal policy) of the country? And how about its monetary policy that may focus on money supply levels and inflation targeting as the key instruments for monetary policy management? Inflation targeting is the exclusive use of interest rates to control inflation. Why are fiscal and monetary policies of interest to an MNC considering FDI in the host country?

Structural Economic Reforms: Privatization (selling government owned companies to private investors) and liberalization of the economy are examples of structural reforms. Why are structural economic reforms of interest to an MNC considering FDI in the host country?

Long-Term Economic Projections: What is the country’s central bank and the International Monetary Fund saying (forecast) about the future GDP growth of the country? Why are long-term economic projections of interest to an MNC considering FDI in the host country?

Economic Risk Hedging Strategies: Research and discuss “applicable” hedging strategies for mitigating economic risks.