Risks in international business

Just as there are reasons to enter global markets and the benefits of global markets, there are also risks in locating companies in certain countries. Each country can have its potential; it also has its problems associated with doing business with major companies. Some of the rogue countries may have all the natural minerals, but the risks involved in doing business in those countries outweigh the benefits. Some 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 company to make a strategic decision in order to respond to the forces that are a source of risk. These forces also affect the competitiveness of a company. Porter defines them as: threat of new entrants to the industry, threat of substitute goods and services, intensity of competition within the industry, bargaining power of suppliers and bargaining power of consumers.

Operational Risk: It is caused by assets and financial capital that help in day-to-day business operations. The breakdown of machinery, supply and demand for resources and products, shortage of goods and services, lack of perfect logistics and inventory will lead to inefficiency of production. By controlling costs, unnecessary waste will be reduced, and process improvement can improve lead time, reduce variance, and contribute to efficiency in globalization.

Political risk: Political actions and instability can make it difficult for businesses to operate efficiently in these countries due to negative publicity and the impact created by individuals in higher government. A company cannot effectively operate at its maximum capacity to maximize profits in the political turmoil of such an unstable country. A new and hostile government can replace the friend and thus expropriate foreign assets.

Country risk: The culture or instability of a country can generate risks that can make it difficult for multinational companies to operate safely, effectively and efficiently. Some of the country’s risks stem from government policies, economic conditions, safety factors, and political conditions. Solving one of these problems without all the (aggregated) problems together will not be enough to mitigate country risk.

Technological risk: Lack of security in electronic transactions, the cost of developing new technology, and the fact that these new technologies can fail, and when all of this is combined with existing outdated technology, the result can create a dangerous effect on business. . in the international arena.

Environmental risk: air, water and environmental pollution can affect the health of citizens and provoke public outcry from citizens. These problems can also damage the reputation of companies doing business in that area.

Economic risk: comes from the inability of a country to meet its financial obligations. The change in foreign investment and / and internal fiscal or monetary policies. The effect of the exchange rate and the interest rate makes it difficult to carry out international business.

Financial risk: this area is affected by the currency exchange rate, the flexibility of the government to allow companies to repatriate profits or funds outside the country. Devaluation and inflation will also affect the company’s ability to operate at an efficient capacity and still remain stable. Most countries make it difficult for foreign companies to repatriate funds, forcing them to invest their funds at a less optimal level. Sometimes company assets are confiscated and that contributes to financial losses.

Terrorism risk: these are attacks that may be due to lack of hope; confidence; differences in culture and religious philosophy, and / or simply hatred of business by citizens of host countries. It leads to possible hostile attitudes, sabotage of foreign companies and / or kidnapping of employers and employees. Such frustrating situations make it difficult to operate in these countries.

While the benefits in international business outweigh the risks, companies should conduct a risk assessment for each country and also include intellectual property, bureaucracy and corruption, human resource restrictions, and property restrictions in the analysis, So consider all the risks involved before. venture into any of the countries.