Question

In both cases, assume that

you are running a

foreign company.

(1) What is the disadvantage

of using macro-economic

factors to screen market

for portfolio component

selection?

(2) If ASEAN 10 countries

could be treated as a cluster,

how would you do cluster

analysis for country selection?

(3) how does political risk affect operation of an international company?

Answer 1

(1) Macro-Economic Factor - Meaning

Macro-economic factors are those things which broadly influence the national economic condition of a region or a country. They can be political factors, war, natural factors like diseases, etc.,

Disadvantages of using macro-economic factors to screen the market for portfolio component selection

Inflation is nothing but the rise in the price of goods/services over a period of time. On the other hand, deflation refers to the decrease in the overall price of the goods/services. Usually, a low inflation level will always give a positive economic result. As the factors are not keenly predictable, so it's considered to be one of the disadvantages to screen market for portfolio component selection. Likewise, the gross domestic product prediction rates according to the growing economic trend, interest rates of a big corporate, etc., is certainly not fixed in nature. So these are the things which are considered to be the disadvantage of using macro-economic factors to screen the market for portfolio component selection if we are running a foreign company.

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(2) ASEAN Countries

The 10 ASEAN Countries are Brunei Darussalam, Cambodia, Indonesia, Laos, Malaysia, Myanmar, Philippines, Singapore, Thailand, and Vietnam.

Cluster analysis for country selection

The research is mainly important for analyzing the competitive environment of a country and its economic growth over a period. I will do the cluster analysis on the basis of the program 'Research cluster' which was set up by the ASEAN Countries during the year 2010.
The items relevant to health & medicine departments is synchronized with Singapore and Thailand. Here comes the second important factor, agriculture, and food department which was with Vietnam, Thailand, and Malaysia. And the third important factor of energy, environment & biodiversity is coordinated with the countries Philippines and Indonesia.

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(3) Political risk affects the operation of an international company

This kind of risk arises mainly during the war times as a country prohibits trade relationship with certain countries, etc., will affect corporates international trade and will influence the economic condition of the concern. Other than that major macroeconomic factors like inflation and deflation trends of a country, Government action on banning some kind of goods/services to trade, natural calamities, etc., will affect and risks the operation of an international company.