Red Bull Inc And The Country Risk/Strategic Planning For Argentina

3652 words - 15 pages

Expanding a product into a new market entitles a great deal of preparation, extensive planning, and a large amount of risk assessment. In a perfect world, the product would be introduced, sold, and become very profitable with little or no effort involved. Unfortunately, the real world functions much differently, and several different factors present themselves with a task of this nature. The following will discuss how Red Bull analyses the risks of expanding Red Bull to the Argentina nation.Political, Legal, and Regulatory RisksAlthough not nearly back to the glory days of the 1990's, Argentina's political outlook is improving. While the 2001 collapse of the government led to widespread default and the devaluation of the peso, a stronger and more robust government has emerged since the 2003 election of now president, Nestor Kirchner. However, a result of the dominant Peronist party in all elements of government is causing weak congressional oversight of the president and has led to political interference in judicial matters. There is moderate risk of political upheaval; however, with social and political concerns a higher priority for Mr. Kirchner, business concerns will face more government interference (Viewswire: Argentina, 2006).Confidence in Argentina's legal system was shattered after 2001 and there has been slow progress in restoring confidence and regaining control from corruption. Early reforms of the Supreme Court and police have lost momentum and have caused the government to move more cautiously going forward. Probably the most immediate regulatory risk to businesses is due to mandated price agreements used by government to combat inflation (Viewswire: Argentina, 2006).Red Bull sees Argentina as a country poised for a great economic turn-around. Indicators and forecast models show that the country is on a steady uphill swing. The best way to manage these political and regulatory risks is to obtain political risk insurance. This will help mitigate any risks that may arise and provide peace of mind for Red Bull (FDI Magazine, 2005).Exchange and Repatriation of Funds RiskIn general, Argentina is very open to foreign investors as a way to grow the local economy. However, in October 2005, controls began to tighten around foreign capital investments. For example, a decree was ratified that directed any funds entering Argentina's exchange market to remain in the country for a period of one year. Banks are required to report any transactions exceeding $500K to the Central Bank of the Republic. In addition, any repatriation over $5M is subject to authorization from the Central Bank (Economist Intelligent Unit, 2006).Red Bull is well aware of Argentina's repatriation policy and is committed to growing their international business in the country. Furthermore, the percentage of profits anticipated to flow from Argentina is only expected to be approximately 1-2% of their total international profits and therefore Red Bull can afford to manage this...

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