Setting up Multinational Corporation(MNC) in an emerging country is a great opportunity for business expansion, but MNCs must consider several key financial factors wisely. These factors include:

Exchange rate risk

It is the risk that fluctuations in currency will adversely affect the demand, supply, price, and costs associated with a firm. These changes affect everything from pricing strategy to operational costs. MNCs with higher foreign exchange risk exposure are expected to hold less debt. However, MNCs with higher economic exchange rate exposure may hold more debt in their capital structure as a hedge against exchange rate fluctuations.

Political risk

It is the chance that political events, decisions, policies, or conditions will have a significant adverse effect on a firm’s business operations. Political risks include confiscation of assets, trade wars, sudden tax rate changes, wars, social unrest, political coups, political violence, international disputes, government regime changes, and regulatory restrictions. MNCs with greater political risk exposure may need to consider alternative financing options, such as political risk insurance, to mitigate the risks associated with political instability.

Capital structure

Refers to the mix of debt and equity used by a firm to finance its operations. The capital structure of an MNC in an emerging country may differ from that of a domestic firm due to differences in the cost of capital, tax laws, and regulatory environments. The pecking order theory suggests that a higher level of internationalisation leads to lower debt levels, while the trade-off theory suggests that MNCs may hold more debt in their capital structure as a result of the advantages of international geographic diversification.

Setting up shop in an emerging market is not just about embracing an opportunity but also about efficient financial planning and risk management. By understanding and strategically managing exchange rate risks, political uncertainties, and capital structure, your corporation can not only protect its assets but also thrive in new, dynamic environments.

For better expansion in emerging markets, FocusCore Laos can be your trusted partner. Our advisory services can provide invaluable insights and guidance, helping you navigate the complexities of setting up and operating in new territories. Additionally, our corporate secretary services ensure smooth business operations and compliance with local regulations, allowing you to focus on growing your business with confidence.