Country Risk Assessment

You are working for McDonalds Corporation. You want to do a Country Risk Assessment for Iran for the current year to decide whether you should operate a Franchise there.

Explain how you would proceed?
What data would you need; How would you use them?

A country risk assessment is a tool used to measure a country’s ability to transfer currency for foreign payments. Several factors are studied and taken into consideration in order to ascertain a country’s risk such as its political climate as well as economic and financial factors. On the political front factors such as internal and external conflicts as well as terrorist attacks could make conducting business with that country risky.  Financial issues could arise from political disarray leading to potential asset freezes and additional taxes being incurred by sovereign governments.  Sudden deterioration in a country could unleash economic corrosion with increasing production costs and energy prices as well as risky lending by foreign banks. Nations are rated on a scale from low risk all the way to high risk, with medium risk and sensitive risk in between.  

In order to ascertain whether opening up a franchise such as McDonald’s would be wise, we need to closely examine Iran and how it scores with regards to the above mentioned criteria.  Every nation has its strengths and weaknesses and Iran is no exception. Iran, located in the Middle East, nestled between Afghanistan, Iraq and Pakistan, has been riddled with civil war, terrorist activity and most recently an imminent threat to the rest of the world due to its nuclear weapons possession.  Aside from having some risky and questionable attributes, it does possess some strengths such as having one of the world’s largest gas and oil reserves, with reserves expected to last more than 100 years. It also has a very large domestic market and low external debt obligations.  A large percent of its GDP comes from oil  exports but the trajectory of its GDP has become somewhat volatile due to sanctions  placed on Iran.  

According to a study conducted by the group Euler Hermes, Iran is given a score of  D4 . The score is calculated from AA to D with AA being the lowest risk and D the highest.  The short-term rating identifies more immediate threats by examining economic yield within the next 6-12 months.  A numeric scale of 1-4 is used to calculate this with 1 being the lowest risk and 4 the highest.  Iran, as the score would indicate, pointed to this nation suffering a potential financial crisis and was found to be a “high risk” for conducting business with.

After researching Iran I would not decide to go forward with opening up a franchise such as McDonald’s.  Aside from the political and economic risks associated with this, there is a cultural component that cannot be ignored.   In keeping up with the culture that a family-friendly franchise such as McDonald’s represents, it would hard to imagine being able to impose these same values on a country in such vast contrast to ours.  Furthermore, Iran has very tightly held traditional beliefs that perhaps would not align with the westernized culture of an American franchise.