politicalrisk's Blog

Risks in International Business

Categories: Blog November 22, 2014 @ 3:49 AM 0 Comments      

political risk
Just as there are top reasons to enter into global markets, and benefits from global markets, there's also risks associated with locating companies in certain countries. Each country may have its potentials; in addition, it have their woes which can be connected with engaging with major companies. A few of the rogue countries might have all the natural minerals but the risks associated with doing business in those countries exceed the huge benefits. A few of the risks in international business are:

(1) Strategic Risk
(2) Operational Risk
(3) Political Risk
(4) Country Risk
(5) Technological Risk
(6) Environmental Risk
(7) Economic Risk
(8) Financial Risk
(9) Terrorism Risk

Strategic Risk: The ability of a firm to produce a strategic decision in order to react to the forces which can be a source of risk. These forces also change up the competitiveness of your firm. Porter defines them as: threat of latest entrants in the industry, threat of substitute services and goods, intensity of competition within the industry, bargaining power of suppliers, and bargaining power of consumers.

Operational Risk: This is brought on by the assets and financial capital that help the day-to-day business operations. The breakdown of machineries, supply and demand from the resources and merchandise, shortfall with the services and goods, not enough perfect logistic and inventory can result in inefficiency of production. By controlling costs, unnecessary waste will disappear, and also the process improvement may enhance the lead-time, reduce variance and contribute to efficiency in globalization.

Political Risk: The political actions and instability will make it tough for companies to use efficiently during these countries as a result of negative publicity and impact created by individuals in the top government. A company cannot effectively operate to its full capacity to be able to maximize profit in these a volatile country's political turbulence. A brand new and hostile government may replace the friendly one, thus expropriate foreign assets.

Country Risk: The culture or the instability of the country may create risks that may ensure it is difficult for multinational companies to function safely, effectively, and efficiently. A number of the country risks range from governments' policies, economic conditions, security factors, and political conditions. Solving one of these brilliant problems without every one of the problems (aggregate) together will never be enough in mitigating the country risk.

Technological Risk: Insufficient the reassurance of electronic transactions, the price of developing new technology, and the fact that these new technology may fail, so when many of these are along with the outdated existing technology, the effect may develop a dangerous effect in doing business within the international arena.

Environmental Risk: Air, water, and environmental pollution may affect the health from the citizens, and cause public outcry of the citizens. These complaints might also result in damaging the trustworthiness of the firms that business on the bottom.

Economic Risk: This comes from the inability of the country to meet its financial obligations. The changing of foreign-investment or/and domestic fiscal or monetary policies. The effect of exchange-rate and interest make it challenging to conduct international business.

Financial Risk: The bradenton area is affected by the foreign exchange rate, government flexibility in allowing the lenders to repatriate profits or funds away from country. The devaluation and inflation will also impact the firm's capability to operate with an efficient capacity and still be stable. Most countries make it difficult for foreign firms to repatriate funds thus forcing these companies to speculate its funds with a less optimal level. Sometimes, firms' assets are confiscated understanding that plays a role in financial losses.

Terrorism Risk: They are attacks that may stem from insufficient hope; confidence; variations in culture and religious philosophy, and/or merely hate of companies by citizens of host countries. It results in potential hostile attitudes, sabotage of foreign companies and/or kidnapping from the employers and employees. Such frustrating situations allow it to be challenging to operate in these countries.

Although the benefits in international business exceed the potential risks, firms must take a risk assessment of each and every country also to also include ip, paperwork and corruption, hr restrictions, and ownership restrictions within the analysis, in order to consider all risks involved before venturing into any of the countries.

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