Looking in the editor and wikipedia, Andorra CF are a Spanish team, from Andorra in Spain, not Andorra the country (although they aren't far away from each other).
The challenge would work better either by putting an Andorran league club in Spain, or using Andorra CF, but by changing their stadiums city to Andorra la Vella (capital of Andorra), or making Andorra into an Andorran city.
The club side San Marino are down as Italian in the database, but their stadium is in the city of San Marino, in San Marino.
The club Extremenya who are in the Andorran second division could be used as their stadium is the national teams stadium, athough there's also an FC Andorra in the Andorran lower division who have the highest reputation in Andorra. Problem is these clubs start off with little or no players, although I haven't checked them all.
According to wikipedia FC Andorra play in the Spanish leagues, but in FM they play in Andorra.
http://en.wikipedia.org/wiki/FC_Andorra
They have one player in the database, wikipedia says he was involved in a spat with Rooney in an international match.
http://en.wikipedia.org/wiki/%C3%93scar_Sonejee
Had a look at other clubs that play in other leagues, rather than their nations league, they're all set as the nationality of their league (Cardiff as English, Berwick Scottish etc), its just that their stadium is in a city that is in their own country, so they should get youth players from both nations.