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Country Risk Analysis – Czech Republic

1054 words - 4 pages

Texas Instruments is well known for their high grade products in the electronic industry and computer technology. In order to get an advantage against their rivals the foreign direct investment is a necessary part of their business strategy. They can certainly improve profitability, innovation, cut costs and provide a more effective research and development base for their products through FDI. If they would have decided to invest $1 billion I would suggest that one of the best choices for them would be to invest money into the Czech Republic. It offers the Western European quality standard for Eastern European prices. The high skilled labor, low production cost and proximity to the western market are just few advantages that the Czech Republic has.According to CIA World Fact Book the Czech Republic (previously Czechoslovakia) was influenced by the Soviet Union. After 1989 the Soviet supremacy collapsed, and the Velvet Revolution ended up the Communist era in the Czechoslovakia. In 1993, Czechoslovakia was split into the Czech and Slovak Republic and since early 1990's it has become a fully integrated country with exceptional degree of currency stability and strong banking system. The FDI has significantly increased after the promotion of the International Monetary Fund (IMF) and in the first half of 2006 the Czech Republic has attracted almost $3 billion of FDI. According to Ernst & Young, it was "the seventh most attractive location for foreign investors in the world"(CzechInvest Oct.17,2006). One of the reasons why the CR tends to attract a larger number of foreign investments is because they are using a flat corporate income tax of 24%.However, there is a certain level of political risk that the foreign investor should be aware of. The reason is that the current government might not turn out to be as stable as the governments that precede it. This is due to fact that after the last elections it took about a half year before the prime minister and the council of minister got elected. Besides that, when the prime minister was finally elected it was by a narrow margin. The government was elected in such way is inherently unstable because it only takes a handful of senators changing their votes to make the government resign. On the other hand, potential political changes would probably not affect Texas Instruments and their investments a whole lot because all major political parties are committed to support the FDI into the country. Therefore, regardless of who is in power the favorable economics situation is likely to sustain.Another reason why to prefer investing into the CR over any other country is low investment risk. The international credit rating agencies are giving to the Czech Republic high grades, thus indicating that the country has positive economic fundamentals. The strategic location in Central Europe also has a positive influence over the foreign investments because it connects both Eastern and Western Europe. Even though, it...

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