Country Risk Analysis: India - Research Paper Example

Country Risk Analysis: India Introduction Formerly known as the Republic of India, India is the occupying the largest part of the Indian subcontinent in the Southern part of Asia. Population wise, India has a huge population level as it comes second after China with 1,173,108,018 (July 2010 estimate). This nation has long continuous history and analysts consider it as the largest democratic state in the world and particularly the most successful within the Asian continent (Saleem 42). It is a developing country and it recently opened its boundaries and its economy to international trade and influences. Therefore, the country’s economy is growing and when united with its population increase, India is indeed a very significant nation for investment in the world (Machiraju 36). This paper will seek to discuss a country risk analysis with reference to India by taking the perspective of a multinational corporation considering expanding its operations into that country, and is intended to assess the business environment in that country. Geographical Location Bounded in the south eastern part by the Arabian sea, in south by the Indian Ocean, and on the south eastern side by the Bengal Bay, the country of India shares her border land with Bhutan in the north-eastern side, Pakistan on the western angle, and Nepal, China, Burma, and Bangladesh on the eastern side (Machiraju 49). India covers an area of 1,269,219 square miles (3,287,263 sq km); the capital city is New Delhi, while the major cities include Chennai, Bangalore, Mumbai, and Kolkata. With regard to the Indian Ocean, India lies within the vicinity of Maldives and Sri Lanka while the islands of Nicobar and Andaman share the maritime border with the states of Indonesia and Thailand (Saleem 66). This indicates that India lays within a very vibrant economic location – a factor that gives this country too much international openness. Thus, any multinational corporation considering expanding its operations into this country should do so without hesitation. Accordingly, the Indian naval hydrographic charts maintains that the coastline of India measures up to 4,700 mi (7,517 kilometers) lengthwise; within that distance, 3,400 mi (5,423 kilometers) belong to India’s peninsular and 1,300 mi (2,094 kilometers) to the Nicobar, Andaman, and Lakshadweep chains of the island (Devonshire-Ellis 48). This country has several rivers which major origin is Himalaya that flows through the country to the Bengal Bay. Brahmaputra and Ganges are the major rivers supplying India with larger amounts of water. The Ganges River has important tributaries such as the Kosi and Yamuna (Carbaugh 54). Cases of flooding are common with the Yamuna tributary but the major peninsular rivers such as the Tapti and Narmada have steeper gradients, which deter them from causing floods. The country is geographically divisive and the costal characteristics comprise the marshy Kutch Ran situated in the western part of India (Bouchet, Ephraim, and Bertrand 50). The country has alluvial Sundarbans delta found in eastern India. Climate The Himalayas Mountains and the Thar Desert have a great influence on India’s climate. Fact findings show that they both act as the driving force of the country’s major sources of income. They are the pivotal determiners of the winter and summer monsoons winds, hence influencing the culture and economy of the state strongly (Machiraju 55). The Himalayas also shield India from the excruciating wrath of the cold katabatic winds of Central Asia by keeping the Indian subcontinent bulk warmer as opposed to similar states under same latitudes (Carbaugh 84). The Desert of Thar has a pragmatic role to play as it attracts the moisture-laden summer monsoon winds, which blow from the south-west. These winds are very important to the people of this country as they provide most of the country’s rainfall when they blow between the months of June and October (Saleem 81). India has four predominant climatic groupings, namely montane, subtropical humid, tropical dry, and tropical wet. They are very important for Indians as they influence performance of the country’s economy. For any multinational company wishing to invest in India, it should analyze and understand the occurrence of these climatic changes. Population and Cultural Values In terms of population, India is very dense with 1,173,108,018 (July 2010 estimate). As the global population crossed the sixth billion mark in 2000, India registered its one billion thresholds (Carbaugh 105). Prospects highlight that by 2030, India’s population will be around 1.53 billion making it the most populous nation worldwide. India has both skilled and semi skilled labor force and according to the CIA World Fact book, it totals to 487.6 million (2011 EST.). India’s cultural diversification is complex as its history spans for more than 4,500 years (Bouchet, Ephraim, and Bertrand 69). During 1700-500 BC, otherwise known as the Vedic period, Indians laid down the foundations of Hindu mythology, literature, and philosophy. Some of the practices and beliefs helped up by the Indians today, such as yoga, karma, and dharma, came into being during this time. Notably, India’s religious diversity is special with a composition of Hinduism, Islam, Sikhism, Jainism, and Christianity (Machiraju 64). Therefore, this country is potential for international investments, and any multinational company seeking to expand towards India can venture into the market bearing the aspects of religion in mind. Power Distance Index The tool of cultural dimensions adopted by Geert Hofstede is a very essential instrument suitable for helping people to understand the cultural dimensions of other people in another nation. It assists in determining business practices and proper cultural identities, which include rules, employed, methods applied, and processes considered by firms while pursuing their business objectives (Bouchet, Ephraim, and Bertrand 77). With reference to the Hofstede’s Power Distance Index, people with less power tend to accept and expect inequalities with regard to power distribution. India scores an 81 while the worldwide power distance index measures at 55 (Saleem 95). Power distance index scores show that the level of distance between those in the professional environment and the poor is very high wherein, classes of people called caste divides them along power and wealth lines. Individualism Index Regarding this dimension, India values the spirit of collectivism as opposed to individualism. People emphasize much relationships, hence the country scores a 40 in individualism index while that of the world is 43 (Carbaugh 120). The country is, therefore, substantial for business activities since what drives people is power of personal goals but maintains the value of relationships and corporation. India’s Masculinity Index is high. Hofstede considers a country more masculine if it fosters achievements, competitiveness, and assertiveness (Saleem 107). On the other end, Indians have a strong support for feminine dimensions as they value comfort, family ties, and nurturing too much. India’s masculine index measures at 33 while that of the world is 50, which indicates that Indians are more feminine in terms of assertiveness and competitiveness since they indicate the presence of very limited chances to move up the corporate ladder or succeed (Machiraju 72). Natural Resources and Environment India has several main natural resources in which it receives notable revenues from their sale. They consist of copper ore, bauxite, and iron ore whereby India forms part of the major producers of iron globally. One can find iron ore almost everywhere in India with major contributing centers being Orissa and Bihar. A quarter of the total mining activities take place in southern Orissa (Bouchet, Ephraim, and Bertrand 83). Even though silver, diamonds, and gold are also available in India, they are very small in percentage based on the country’s total natural resources. Rajasthan is rich in gemstones and the country’s major source of energy is coal. Estimations indicate that India has 120 billion tons of reserves for coal, which are enough to last for 120 years (Saleem 119). As of today, the country is enjoying the presence of petroleum reserves found along the offshore of Gujarat and Maharashtra. Further, India has plenty of electrical energy generated from coal, nuclear energy, and hydroelectric power. Snowfield reservoirs located in the highest point of Himalayas generate fifty percent of the hydroelectric energy. There are huge dams built to provide water irrigation, generation of power and use for industrial purposes (Bouchet, Ephraim, and Bertrand 100). In many villages around India, residents use either dried cow-dung cakes or wood as fuel for heating water and cooking purposes (Carbaugh 133). Mindfully, the increasing demand for firewood due to its purposes is posing a serious challenge on the existing forest coverage. Estimations show that people cut 3.7 million acres of forest every year in order to provide firewood, paper pulp, and timber (Machiraju 86). This data proves that India is a ripe market for investment and for any multinational company eyeing India, as the next destination for expansion should do so without hesitating as the market is growing at a very vast speed. Infrastructure Although it is an aspiring economy, India’s infrastructural development still lags behind particularly due to poor leadership. Recently, India faced one of the largest country’s electricity blackouts, which stormed a series of debates questioning the implications of such a downfall economic prospects of the country. Web. October 29, 2012. http://www.washingtonpost.com/blogs/ezra-klein/wp/2012/08/06/indias-infrastructure-woes-in-two-graphs/ According to the World Bank, India’s power distribution in relation to its losses per annum notes that the country faces advent cases of power shortages. Indeed, such cases of power loss may affect a business negatively and are not good for business operations (Saleem 128). Nevertheless, the latest survey based on the country’s infrastructural development shows that electricity supply is today at a gripping state as power shortages are minimal. Road and railway development is taking a different with more roads undergoing construction and renovation of the worn out ones is ongoing (Devonshire-Ellis 78). Economy and Conclusion In 2011, the World Bank’s report indicated that India’s economy is worth US$1.848 trillion. It is number ten in terms of market exchange rates at US$4.457 trillion and comes third in the purchasing power parity grid. The annual average growth of GDP is 5.8 percent and is about to reach 6.1 by the end of 2012, pointing out that India’s economy is growing at a vast pace (Machiraju 98). Nonetheless, India ranks 140th worldwide in nominal GDP per capita and slightly higher at 129 in GDP per capita at purchasing power parity (Bouchet, Ephraim, and Bertrand 112). Significantly, this economy is growing fast and can, therefore, act as a good base for a multinational company growth. In conclusion, it is agreeable that any multinational country seeking to advance to India can do so, knowing that it would benefit with regard to speed in which the economy is growing. This paper has given a deep analysis of a country risk analysis using India as the lens. Works Cited Bouchet, Michel, Ephraim Clark, and Bertrand Groslambert. Country Risk Assessment: A Guide to Global Investment Strategy. Chichester: John Wiley & Sons, 2003. Web. Carbaugh, Robert . International Economics. Mason, Ohio: South-Western Cengage Learning, 2009. Print. Devonshire-Ellis, Chris. Doing Business in India. Berlin: Springer, 2012. Print. Machiraju, H. R. International Financial Markets and India. New Delhi: New Age Internat, 2002. Print. Saleem, Shaikh. Business Environment. New Delhi: Pearson, 2010. Print. Read More