Running head Assignment Economics and Ethical Issues Political Risk by MikeJenny


Running head Assignment Economics and Ethical Issues Political Risk

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Running head: Comprehensive Analysis Outline

                            Comprehensive Analysis Outline

                                Merger with APGENCO

                                   Learning Team D

                  Michael Azarow, Michael Magliotti and Tonya Johnson

                                 University of Phoenix


                                     Albert Salinas

                                     April 5, 2010
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        The merging with a local power company in India brings stability and strategic assets.

Our company will work cohesively with APGENCO to build and maintain wind turbines across

India. Our goal is to bring clean energy throughout India by making good use of a powerful and

plentiful resource to its full potential.

        The company has decided to partner with Andhra Pradesh Power Generation

Corporation, Limited (APGENCO), to ease market entry into India. India, with the world's

second largest population (CIA, 2009), provides ample opportunity for the corporation. For the

past ten years, India has been growing rapidly, from both a population and an economic

perspective, and enjoys an increase in Gross Domestic Product (GDP) throughout the period,

ranking as the world's fifth in purchasing power parity (CIA, 2009). Because of this increasing

GDP, investors are taking note and India has become of one of the United States' major import

and export partners (CIA, 2009).

        APGENCO has a bit of a head start, and has established Wind Farms in Rangiri

Ananthapur GTP and in East Godavari (APGENCO, 2003). Although these Wind Power

stations have not been tapped for energy production as of yet, it is expected that APGENCO will

be the best partner for the company. India is attractive for U.S. investors, as it has expanded its

global reach as an emerging power. In addition to its strong GDP, India welcomes foreign

investment, particularly for alternative energy technology. Initiating a new firm, however,

would likely be a difficult hurdle for the company to overcome. Merging with an existing firm

such as APGENCO will help the firm avoid the high taxes and regulatory issues associated with

foreign investment, and entrée into an already established market. APGENCO already has

established its Wind Farms in two locations, and can expand using the wind turbines produced
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by this company. India represents an opportunity in terms of political stability and a strong and

increasing GDP. Although the nation and its proximity to Pakistan suffer from ter rorist threats,

advances are being made to secure their power generating facilities from these threats

(APGENCO, 2003).

       APGENCO represents an opportunity for the company in terms of potential growth for

the Wind Turbine industry in India. Barriers present in other nations in the world, such as

language barriers and labor pool, are not present in India, with English as a primary language and

the world's second largest labor pool. In addition, APGENCO's standing as the third largest

utility in India in Hydroelectric and Thermal Plants can help position the company for success by

serving as a springboard for expanding its two existing wind plants and establishing additional

Wind Farms throughout the nation.

Country Analysis: India

   o Political Stability

        Government type: Federal republic/Democracy

              President, Prime Minister, and cabinet

        Constitution: January 26, 1950

        Legal system: English Common Law

              Separate law codes for Muslims, Hindus, and Christians

        Judicial system: Supreme Court (Judges appointed by President)

        Legislative Branch: Bicameral parliament (245 members)

        One half century of political stability

        Two political parties
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             Bharatiya Janata party

             Congress

       Issues

             Growing left-wing Communist Party of India: Anti-reform and Anti-privatization

             Dispute with Pakistan over Kashmir Region

             Wide scale corruption

             Large coalition government: complicated decision making process

             Ethnic and left-wing insurgencies

             Politically charged communal violence

       Political risk

             DB3d (D&B Country Risk Line Report, 2008): Slight risk but deteriorating.

o Economic conditions

    Labor force: 506.9 million

    Unemployment: 7.8%

    Population below poverty line: 25%

    Foreign trade: Year 2005 through 2006 in millions USD

         Imports of goods: $134,702, 166,695

         Exports of goods: $102,176, 123,617

         Imports of services: $47,989, 63,537

         Exports of services: $55,831, 75,354

    Gross Domestic Product (GDP) and employment rate by sector

         Agriculture: 25% GDP, 60% employment
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          Industry: 30% GDP, 18% employment

          Services: 50% GDP, 25% employment

    Budget (running in deficit)

          Revenue: 97.16 billion

          Expenditures: 128.7 billion

    Issues and trends

          High but sustainable growth rate: 8%

          Young population contributing to growing workforce

          Improving macro-economic stability

          Lowering interest rates

          Improved tax administration

          Rise in gross domestic savings and investment dollars

          Information Technology: largest growing sector

o Financial services available

    Banking system: public sector

    Investment rate: 31%

    Limited discretionary lending

    Exchange Rate (April 3, 2010)

          Indian Rupee: (1) INR=0.0222 USD or (1) USD=45,0212 INR

   o Physical environment and its effects on trade

        Location: Southeast Asia

        Area: 3,287,260 Km²
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    Natural resources

          Coal, Iron ore, manganese, mica, titanium ore, chromate, natural gas, diamonds, and


    Population

          1.2 Billion

          Annual growth rate: 1.3%

          Density: 378 inhabitants per Km²

    Technology use

          Computers: 1.5 per 100 inhabitants

          Telephone lines: 3.2 per 100 inhabitants

          Internet users: 7.0 per 100 inhabitants

          Access to electricity: 56% of population

          Transportation: Modeled after British roadway system: Claimed “best in the world”

          Transportation routes: full access by sea, land, and air

          Transportation types: Air, rail, road, bus, taxi, sea

o Social health and environmental considerations

    Life expectancy: 64 years of age

    National health care policy: 100% of population covered

    332 million inhabitants below poverty line

    Environmental data

          Four seasons: relative dry, cool winter, dry/hot summer, and monsoon

          History of violent monsoon weather
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              High winds blow from Indian Ocean to land

o Cultural considerations

    Ethnic groups

          Indo-Aryan 72%

          Dravidian 25%

          Mongoloid and other 3%

    Religious groups

          Hindu 80.5%

          Muslim 13.4%

          Christian 2.3%

          Sikh 1.9%

          Other 1.8%

    Languages

          English: Associated with higher class distinction (politics and commercial


          Hindu: National language

          Other (17 other languages recognized by constitution)

       APGENCO was established in 1998 and is the third largest power company in India.

APGENCO came about as a result of the Government of Andhra Pradesh noticing an unfortunate

trend. The financial standing of the APSEB was steadily declining and the reliability of the

power supply was in serious question. It was at that point that the Government of Andhra

Pradesh made the decision to set a committee to work with the ASPEB and do an evaluation to
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what could be done to remedy the issues and make improvements. The committee came about in

1995, and after performing a critical analysis a report was submitted to the Government of

Andhra Pradesh with a list of recommendations. Once the Government reviewed the list, it was

determined that it was necessary for some serious changes and enacted the AP Electricity

REFORMS ACT in 1998.

       APSEB was established with the mindset of make much improvements and turning the

declining financial standing around. The vision, mission and value statements of ASPEB are as



              To be the best power utility in the country and one of the best in the world.


              To generate adequate and reliable power most econo mically, efficiently and eco-


              To spearhead accelerated power development by planning and implementing new

               power projects.

              To implement Renovation and Modernisation of existing units and enhance their


                                              Core Values

              To manage proactively change to the liberalized environment and global trends.

              To build leadership through professional excellence and quality.

              To build a team based organization by sharing knowledge and empowering

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              To treat everyone with personal attention, openness, honesty and respect


              To breakdown all departmental barriers for working together.

              To have concern for ecology and environment.

       India is a rapidly growing country and is well established and is known to have one the

best transportation systems in the world. However, only half of the people in India have

electricity. This is a huge opportunity to merge with APGENCO and offer “cost-efficient”

energy out to the people. Wind turbines are an extremely cost-efficient source of energy; wind is

free and there are many regions in India that experience high intensity winds because of the

topographical diversity. It is important to take advantage of this plentiful resource. Partnering

with APGENCO will allow us to build the wind turbines there in the country so that they do not

have to be shipped from around the world. Wind turbines are very large and are costly to

transport, so the ability to manufacture the turbines on site will be extremely beneficial.

       In conclusion, renewable energy is the future and our plan to offer clean energy is an

immense opportunity for the company and the people of India. By merging with APGENCO,

and using the resources along with the technology, we will be able to expand tremendously.
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APGENCO. (2003). APGENCO Web site. Retrieved April 3, 2010, from

CIA. (2009). India. Retrieved April 3, 2010, from CIA World Fact Book : factbook/geos/in.html.

Country Risk: India (2010 Feb 26). FITA: The Federation of International Trade Associations.

       Retrieved April 2, 2010 from

D&B Country Risk Indicator: India (2008). D&B Country Risk. Retrieved April 2,

       2010 from

India-Society Index (2004). ITA: Maps of the World. Retrieved April 2, 2010 from

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