Assessing country risk for foreign investment decisions

Foreign investment decisions are typically taken using mainly economic evaluation criteria. Nowadays many companies are becoming aware that there are additional risks associated with foreign investment that arise as a direct consequence of choosing to operate in a different environment. Country risk assessment as an emerging function in international business reflects a growing recognition of the need to include an evaluation of these additional risks in any comprehensive foreign investment proposal. So far the emphasis has been on assessing the risk associated with factors such as political and economic stability. Little attention has been given to the risks that could arise from the effects of basic socio-cultural differences between the domestic and the proposed foreign environments. How can socio-cultural differences be structured into country risk assessment procedures? This paper develops a framework to answer this need and demonstrates its application to a typical foreign investment scenario.