The Fisher Graduate School of International Business
Monterey Institute of International Studies
Fall Semester 2002
Course: IM 620 Country and Political Risk Analysis
Instructor: Dr. Harvey Arbeláez
Credits: 3
Class Schedule: Tuesday and Thursday 8:30 – 9:50 AM
Classroom location: MG101
Office location: MG320-B
Office hours: Tuesday and Thursday 10:00 – 11:30 AM
Wednesday 8:30 – 11:30 AM
Contact: Phone: (831) 647-4176
Fax: (831) 647-6506
Email: Harvey.Arbelaez@MIIS.EDU
Prerequisites: IM 536 (Managerial Finance), IM 520 (International Economics).
Non-MBA students must obtain MBA Advisor’s approval.
1. Course Description
1.1 Motivation
Question: How does international education play a role in developing future enterprise,
especially in the face of terrorism and hair-trigger uncertainty?
- Martha I. Finney’s (2002) In the Face of Uncertainty: 25 Top Leaders Speak Out on Challenge, Change, and the Future of American Business.
New York, NY: American Management Association (AMACOM).
Answer: The role that education has in this is paramount on a variety of levels. If you’re
interested in building societies in other countries so that people don’t resort to
terrorism, then education is the key. If you’re interested in building friends for
the United States, education is the key. Virtually all of the foreign students who
study here return to their countries, and they usually go back to their countries
thinking the United States is a pretty terrific place.
- Chester D. Haskell, President of the Monterey Institute of International Studies
From the upset, it is easy to state that a reflection on “Perspectives on Crisis,” particularly after September 11, provides all the necessary reasons in support of a course of this nature. This is equivalent to say that there is a need to be educated on the consideration of any potential factor conducive to a contemporary age of uncertainty that, in turn, may become risk and specially if it degenerates in plentiful severe international ramifications and implications. In other words, risk identification and assessment are only one side of the same coin.
However, a look at the sufficient arguments would indicate also that anyone should be involved in identifying the means for mitigating, managing, and transferring the risks. Solid foundations of integrity, transparency, governance, and ethical considerations in addition to structural arrangements, institutional development and instruments to positively interact in the financial markets may elevate a new architecture to deal with risk.
1.2 Purpose
This course considers how modern organizations select countries for their investments, operations, and / or target of influence. Therefore, it provides the foundations for the analysis and management of the country and political risks represented in an international setting. This course is intended, mainly, to assessing the risk that is specific to international transactions such as country risk and political risk. Nonetheless, it goes beyond in showing how financial models can be applied at the international level to mitigate and manage such risks. While the views on the subject may vary in kind and degree, in this course we assume that the process of analyzing country and political risks is a strategic one that consists fundamentally of three steps:
· Sources: identification
· Tools and Methods: assessment
· Insurance: management
This course seeks to discuss the theme from the perspective that quantitative modeling well formulated in terms of a thorough analytical approach to articulate objective and judgmental measures must be integrated into an organizational decision-making process for effectively mitigating country risk and political risk. To sum up, this course provides the insights for addressing the issues on the nature, estimation, and management of country risk and political risk that matter when deciding on the investments and operations to carry out internationally.
1.3 Topics
A non-exhaustive list of major topics covered in this course includes the following:
· Taxonomies, Concept and Definitional Matters
· Historical Perspective
· Methods and Techniques
· Modeling, Forecasting and Estimation
· Ratings and Measurement
· Guarantee Process
· Insurance and Form of Protection
2. Course Objectives
Upon completion of this course, you will be able to
· Characterize the nature of country risk and political risk
· Assess country risk and political risk in an interdependent world economy
· Interpret estimates, forecasts, measures and ratings of country risk and political risk provided by independent agencies, organizations and think tanks
· Extend the level of analysis to take account of managerial options for mitigating and transferring country risk and political risk
· Appraise insights and relate inputs leading to the identification of new sources of country risk and political risk
· Survey the literature of country risk and political risk
3. Pedagogical Resources
3.1 Required Materials:
1. Textbook: Howell, Llewellyn D. (editor). 2001. Political Risk Assessment: Concept, Method, and Management. East Syracuse, NY: The PRS
Group, Inc. (H1).
Howell, Llewellyn D. (editor). 2001. The Handbook of Country and Political Risk Analysis 3rd ed. East Syracuse, NY: The PRS Group, Inc.
(H2).
2. Package of Select Cases (MIIS Bookstore): TBA
3. “Library”: A selection of classic readings in “Country Risk and Political Risk”
(Set of select readings will be on reserve in the Library): TBA
3.2 Reference Texts and Other Materials:
Clark, Ephraim and Bernard Marois. 1996. Managing Risk in InternationalBusiness: Techniques and Applications. Boston, MA: International
Thomson Business Press.
Friedman, Irving S. 1983. The World Debt Dilemma: Managing Country Risk.Washington, D.C.: Council for International Banking Studies, and
Philadelphia, PA: Robert Morris Associates.
Kobrin, Stephen J. 1982. Managing Political Risk Assessment: Strategic Response to Environmental Change. Berkeley, CA: University of California
Press.
Monti-Belkaoui and Ahmed Riahi-Belkaoui. 1998. The Nature, Estimation, and Management of Political Risk. Westport, CT: Quorum Books.
Moran, Theodore H. (editor) 1998. Managing International Political Risk.Malden, MA: Blackwell Publishers Inc.
Stern, Jessica. 1999. The Ultimate Terrorists. Cambridge, MA: Harvard University Press.
3.3 Selected Web Sites
Research should rely extensively on Internet resources, not only for access to some of the more specialized topics and themes and more importantly, to successfully complete research projects and assignments. Clearly, the list below is not an exhaustive list; it is an initial guide to some selected Web Sites. For a more comprehensive list please see “Political Risk Analyst’s Toolkit: A Guide to Library Research” (pp. 195-245), and “Political Risk Analyst’s Toolkit: A Guide to Internet Research” (pp.246-254) in Rogers’ Issues, Concepts and Applications. See also Appendix A: “Internet Resources for Country & Political Risk Analysis” in Howell’s The Handbook of Country and Political Risk Analysis.
1. www.smithbreeden.com/glossary/glossary.htm Campbell R. Harvey’s Finance Glossary. This site has over 3,000 entries and more
than 10,000 hyperlinks (cross-references).
2. www.emergency.com/cntrterr.html Counter-Terrorism Web Page. Operated by the Emergency Response & Research Institute in Chicago, IL, this page contains a summary of worldwide terrorism events, groups, and terrorist strategies and tactics.
3. www.grai.com/links.htm Global Risk Assessments Research Hotlinks. A resourceful web site for a course like this in its organization and the variety of sources directly associated with various aspects of political risk. It provides an excellent tour of the horizon for people unfamiliar with the field, and a well-focused set of research tools for political risk analysts and practitioners.
4. www.prsgroup.com The PRS Group, Inc. offers a complete overview of its publications and services, including details about its two forecasting services, Political Risk Services and ICRG, and sample publications.
5. www.icrgonline.com International Country Risk Guide (ICRG) is a journal of financial, political and economic risk in 140 countries.
6. www.beri.com Business Environment Risk Intelligence (BERI) is a private source for risk ratings, analyses, and forecasts for over 140 countries.
7. www.eiu.com The Economist Intelligence Unit (EIU) offers fee-based analyses with forecasts on the political, economic and business environment for over 180 countries.
8. www.transparency.org This is Transparency International’s home page. TI is an NGO monitoring levels of perceived corruption worldwide.
9. www.countrydata.com Current and historical data for 140 countries. Includes historical economic data and risk ratings for most countries.
10. www.worldbank.org/html/extdr/eca.htm Country profiles, analysis, and economic sector surveys provided by the World Bank
4. Instructional Methodology
Every school, class, and instructor is unique. Instructors may have different teaching styles. Therefore, an approach that works well for one instructor may not work for another. In this course, a combination of lecture, end-of-chapter question/case discussions, debate of integrative issues in transparency acetates, videos and other ancillary materials is the chosen regular class procedure. However, the value-added chain of partnership is the most significant pedagogical feature for teaching this course. As a result, by design this course is characterized as one in which lecturing, the discussion of cases, and the solution to problems should yield a synergistic outcome from the interaction of the instructor and his students.
The structure of this course makes your individual study and preparation outside class extremely important. The lectures will focus on the major points introduced in the textbooks. If you read and become familiar with the assigned chapters and other ancillary materials before the lecture, this will greatly assist you in achieving the goals proposed above. The lecture will focus on the most important aspects of each chapter, and on problems that deal with the topics under consideration. The payoff of reading the assigned materials, and prepare in advance the cases and problems may exceed your expectations. Consider, for example, a better understanding of the terminology, concepts, approaches, and issues as well as the more complex topics covered in the lecture, upon which the cases, problems, and major topics of discussion will be based. Indeed, you should study the chapters carefully, and in the process work relevant problems and questions from the end-of-chapter section.
From another perspective, you are encouraged to focus your attention to areas of professional interest and that may be subject to improvement. Please feel free to communicate these to the instructor through the interim course evaluations and the official “Course Evaluation Form” to be completed on the last day of class. Since the instructor believes in the benefits of a permanent process of improvement, and professional growth and development, your comments are always most welcome. In addition, any course-related issue that requires the immediate attention of the instructor should be communicated to him as soon as possible.
5. Performance Evaluation and Grading Policy
Upon successful completion of the course, you will receive three (3) semester hours of graduate credit. Your grade will be based on your performance on the following items:
Class Participation 20%
Case Discussion 20%
Project Presentation 20%
Term Project 40%
Letter grades shall be based on the following levels of performance:
A: 90-100 Excellent
B: 80- 89 Good
C: 70- 79 Satisfactory
D: 60- 69 Poor
F: 0- 59 Fail
The final grade will be the result of a weighted average of the components of performance evaluation and the grading scale shown above.
Grades will be awarded with plus and minus designations when the numerical score is in the very top or bottom end of the grade ranges described above. For example, 80-83 will be a B-, 84-87 will be a B, 88-89 will be a B+, 90-94 will be an A-, 95-100 will be an A, and so on and so forth.
6. Course Policies
6.1 Teams
Each student is expected to fully participate in class discussions; however, the class may be divided in teams consisting of 2 to 3 students. A leading team in a class discussion session may be required to prepare a formal full written case report, and make an appropriate presentation in class. However, it is to the discretion of the instructor to adhere to this course policy depending on the number of students registered to this course as well as to other pertinent considerations.
6.2 Electronic Spreadsheets and Presentations
It is assumed that the participants in this course are proficient in the use of electronic spreadsheets (e.g., Excel), and comfortable to make a presentation through an electronic medium (e.g., PowerPoint).
6.3 Cases
Cases may be assigned to teams of students for class discussion. Cases assigned will be formally presented and discussed in depth. Nevertheless, everyone in the class is expected to be familiar with all cases, and be ready to discuss relevant issues found in the cases. Therefore, each student must write up and hand in a report on each case. Again, all students must be prepared to play a meaningful role in the classroom and to participate in the case presentations. Each student must turn in a maximum of a two-page, double-spaced typed case brief at the beginning of every class where a case discussion is scheduled. Appendices may be attached without restrictions; however, they should be neat and appropriately identified. These case briefs will be due no later than the day the subject case is discussed and they must address the most significant case issues. No late case briefs will be accepted. Four case briefs will be selected randomly by the instructor and graded. Failure to turn in a case brief will result in a zero grade for that case. Failure to turn in three (3) case briefs will result in a zero grade for the performance evaluation of case briefs.
6.4 Other Particulars for Case Discussions
A seating chart will be used to facilitate the calling on students. Students are expected to act professionally in presenting their case analysis before the class audience (Board of Directors). For this reason, they must incorporate presentation tools (visuals and/or handouts) during their presentations, and pay attention to their appearance, language, posture and other verbal and non-verbal communication. It is highly recommended that the presenting student (or team) distributes a written report (i.e., an executive summary) of three (3) pages maximum plus appendices summarizing the class presentation. It is to be well organized, concisely written, and it should include recommendations as well as any significant exhibits. One organized copy of all the important backup materials supporting the written report and used by the presenter is to be handed in to the instructor at the time of said presentation. It is of critical importance that the presenter relates the case analysis to the corresponding material from the assigned textbook and readings. Needless to say that any written report must be typed. The time allotted to each presentation will depend on the significance of the issue dealt by the case and the complexity of the case, but it should not exceed thirty minutes. The identification of case issues is of paramount importance.
Last but not the least. Each student’s contribution to the class’s effort will be assessed both by the student and by the other members of the group. This confidential assessment will be used to weigh each student’s grade on the cooperative aspects of the case (and/or assignment) preparation. A copy of the form to be used for the assessment is printed below.
Case Name:
Region/Country/Industry/Market/Product/Subject/Topic:
List the names of your classmates (include yourself) below. Now you must grade each member (including yourself) with respect to both quantity and quality of the contributions made to the successful completion of the corresponding assignment. You must use the standard Monterey Institute of International Studies letter grades of A, A-, B+, B, B-, C+, C, D+, D, and of course, F. BE CAREFUL, FAIR AND IMPARTIAL IN YOUR ASSESSMENT.
NAME GRADE
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7. Course Outline
The following course outline is tentative and subject to change. Any changes will be announced in class.
7.1 BUILDING BLOCKS
Week 1a: Entry Behavior, Orientation and Course Overview
“Political Risk Analyst’s Toolkit: A Guide to Library Research” (R)
“Political Risk Analyst’s Toolkit: A Guide to Internet Research” (R)
“GRA Literature Review” (R)
“Internet Resources for Country & Political Risk Analysis” (H2)
7.2 IDENTIFICATION
Week 2: Nature and Characteristics
“Defining and Operationalizing Political Risk” (H1)
“Country and Political Risk Analysis: Applications for Management (H2)
“Radical Global Changes in the 1990s – Either Corporate Strategies Change or The Bottom Line Changes” (R)
“Approaches to Political Risk Analysis” (H1)
“Customizing Risk Analysis as a Tool for Strategic Management” (H1)
“Managing Project Political Risk” (H1)
7.3 ASSESSMENT
Week 4 An Initial Induced-Screen of the International Business Environment
“Legal Risk Analysis of Host Country Regulation in Privatization
Transactions” (R)
“Global Mining: Three Priorities in a Politically Challenging World” (R)
“The Brazilian Personal Computer Industry: A Business Environment
Assessment” (R)
“Mexico 1994: Devaluation Should Not Have Been a Surprise” (R)
Week 5: Methods and Techniques
“The Application of Classical Risk Assessment Methodology to Political
Risk Assessment” (H1)
“Political Risk on Shifting Sands: An Export Credit Agency’s View” (R)
Week 5: Estimation and Measurement
“Politically-Based Losses to Foreign Investors: Concept and Measurement” (R)
“Governmental Attributes in Political Risk” (H1)
Oct. 15, 17
“International Country Risk Guide” (H2)
“Business Environment Risk Intelligence” (H2)
“Economist Intelligence Unit” (H2)
“Euromoney” (H2)
“S. J. Rundt & Associates” (H2)
Oct. 22, 24
Moody’s Investor Services (H2)
Standard & Poor’s ratings Group (H2)
Oct. 29, 31
“Determinants and Impact of Sovereign Credit Ratings” (R)
“Sovereign Credit Ratings: A Subjective Assessment” (R)
Nov. 05, 07
Institutional Investor (H2)
Bank of America World Information Services (H2)
Nov. 12, 14
Political Risk Services, The PRS Group, Inc. (H2)
HIS Energy Group (H2)
Control Risks Group (H2)
Nov. 19, 21
7.4 MANAGEMENT
“Managing Country Risk in Large Financial Institutions” (H1)
“Planning to Deal with Risk: A Case Study” (H1)
“The Overseas Private Investment Corporation: A management
Application – MidAmerican Energy in Indonesia” (H2)
Dec. 03, 05
“The Resurgence of Political Risk Insurance” (H1)
“Insurance as Management” (H2)
Dec. 10, 12
Class Presentations