Risk in International Business

In: Business and Management

Submitted By Mike1234
Words 1642
Pages 7
Commercial Risk
Commercial risk involves the ability of firms to strategize successfully and implement its strategy through effective tactics. The challenge is that any mistakes made abroad can be more costly due to local government regulations. Sudden changes in the trade laws and legal systems in other countries exposes international firms to regulatory risks. For instance changes in a country’s banking system may limit a firm’s access to funding or their ability to repatriate money to their home countries.
A major commercial risk is usually lack of knowledge of the international market. If exporters, for example do not have in-depth knowledge on the area where its sales are being made, it is more likely to fail in international business. Commercial risk occurs as the result of inadequate formulation and implementation of strategies, tactics and procedures. These also include timing of the company into a particular market, the competitive intensity existing prevailing in the market, poor strategy execution and the weakness of the partner and also the various kinds of operational problems. It should however be considered that commercial risks are usually unpredictable and it is therefore essential for firms to lay down effective strategies in place to ensure that this risk is reduced.

Currency Risk
Currency or Financial risk occurs as a result of the daily fluctuations of different currencies against each other. It also includes the valuation of assets and the foreign taxation policies available in different countries. This risk is mainly to do with the adverse fluctuation of exchange rates, inflation and other harmful economic conditions that may affect a firm’s return on investment. When there is a significant fluctuation of exchange rate, the value of a firm’s assets, liabilities and operating income is likely to be diminished.
It is therefore essential…...

Similar Documents

International Risks

...International Risks International Risks The investment of a firm into any project carries certain risks and undertaking an investment in a foreign market compounds these risks. Even after all projections and ratios provide positive feedback some serious concerns remain. There is always the uncertainty of knowing how competitors will respond; if the project can remain within budgeted projections; or if sales growth will meet projected estimates (University of Phoenix, 2007). In addition to these standard risks, investors in foreign markets are concerned with the differences in changing exchange rates, political and ethical influences and tax expenses. The Currency Exchange The currency exchange market fluctuates similar to that of stocks and bonds. When a company wants to purchase or invest into a foreign market it is first determined what one unit of the investors currency is equal to in one unit of the foreign currency. A market’s currency value is influenced by high or low activity, supply and demand and other economic influences (University of Phoenix, 2007). Seeing a gain in the foreign market does not necessarily mean that the gain will be realized in the home currency if the foreign currency has depreciated against the home currency(University of Phoenix, 2007). The currency exchange rate is of concern to investors, but, with strategic planning can be managed. An investing firm should limit the amount......

Words: 589 - Pages: 3

Business Risk

...Introduction and Overview Business complexity and increase in uncertainty amplifies the conflict between documented means of managing risk and current practices. While companies had been conventionally addressing issues of foreign exchange, taxation, interest rate and prices, the widespread adaptation of internet in sourcing customers and online facilities are creating a new wave of corporate risks. Do current corporate risk practices prove wrong the established academic theories? Large Corporation such as Lehman Brothers, Northern Rock, Royal Bank of Scotland and many organisations had fallen to receivership all across the world showing the evident of the necessity of risk management strategy and a business continuity strategy. Some multi national organisations had also been exposed to risks such as Sony with unidentified battery issue before release of product in 2006, Dell supply chain problem in 2007, fiasco caused by software failure in 2008 to British Airways etc. This is because they had failed to take into account risks that could be created by people, resources and occurrence that is outside the normal business practises. Risk management is now an essential element of organisation’s strategy by putting in place a process to handle risk in priority of the likelihood of occurrence. The managerial decisions necessary for smooth running of organisation cannot be taken without element of risk. As a cornerstone of business practice the question management need to......

Words: 2842 - Pages: 12

International Business Risks

...International Business Risks Tatiana Irala MGM336-1301A-05 Instructor: Anna Goodloe Even though there are many opportunities available when conducting business internationally, the amount of risks that arise can also be limitless. However, this should not be discouraging when the managers that work abroad are well-trained and informed about the host country’s political, cultural, environmental, and economic risks and differences. These different environmental factors are constantly changing, often drastically; making it challenging to manage. For instance, the political environment in another country may be quite unstable due to a recent election. Furthermore, violence and revolutions complicate when traveling through the host country. Another risk that presents itself is in the form of culture shock. Even if the managers are familiar with the host country’s cultural differences, cultures also evolve throughout time. Environmentally, managers must respond to the future forecasts to determine the probable impact, and to ensure the survival and growth of the organization as it interacts with its dynamic environment (Phatak, Bhagat, and Kashlak, 2009). The host country in question here is Brazil with its booming economy and market for growth. Although, Brazil is known for its many negative connotations regarding bribery, corruption, and organized crime; the conditions in the labor market however remain favorable. Unemployment is at the lowest it has been in years and......

Words: 711 - Pages: 3

International Risks

...International business risks Frequently business owners’ jump when they see prospects overseas without first taking the time to conduct market research and train their workforces for the risks they may face. Risk is the likelihood of a result happening. Risk is often associated with undesirable consequences. When doing business in international market there are many risks and challenges that a firm might face. The foremost risks that are linked with businesses fetching in international finance include foreign exchange risk and political risk. These risks may occasionally make it tough to uphold persistent and unfailing revenue. Overseas exchange risk happens when the rate of investment swings due to changes in a currency's exchange rate. When a home currency appreciates against a foreign currency, revenue or earnings earned in the foreign country will fall after being exchanged back to the domestic currency. Due to the somewhat impulsive nature of the exchange rate, it can be quite problematic to guard against this kind of risk, which can hurt sales and revenues. For example, assume a U.S. company receives a majority of its business in China. If the Chinese Yuan depreciates against the U.S. dollar, any yuan-denominated profits the company receives from its Chinese operations will yield fewer U.S. dollars compared to before the yuan’s depreciation. Political risk occurs when a country's government suddenly changes its......

Words: 348 - Pages: 2

Risk Management in International Business with Special Reference to Bnagladesh

...Assignment On Risk Management in International Business with Special Reference to Bangladesh Submitted to Dr. Shah Md. Ahsan Habib Crouse Instructor: International Business Submitted by Milton Kanti Das Id: 12364015 Program: MBA BRAC Business School 1::Introduction: Due to globalization, it’s hardly to find any business activities that are only associated within only in local market. Basically, today’s business means international business. On the other hand international business consists of lots of opportunities as well as lots of risks. Being success in the international business depends on handling of the risks properly. If these types of risks cannot handle properly doing business will be very difficult to sustain in international market. There are risks in international business among them some can be handled and some cannot be handled. Here in this page I will try to discuss those risks regarding international trade that can be handled by using different mechanism. There are different types of mechanisms have developed all over the world to reduce these risks. Throughout the paper I have tried to discuss these mechanisms also. 2::Objectives  To discuss the theoretical aspect of risks and techniques of risk management in international business.  To discuss the risk management tools of Bangladesh. 2.1:: Theoretical Aspect of Risks and Techniques of Risk Management in International Business: In international business firms have to face many risks due to......

Words: 3729 - Pages: 15

Business Risk

...| | | Table of Contents | | Page no. | Project Brief | 1 | SECTION 1: IDENTIFICATION AND CLASSIFICATION OF RISKS | 3 | 1.11.1.11.1.21.1.31.1.41.1.51.1.61.21.2.11.2.21.2.31.2.41.2.51.2.61.31.3.11.3.21.3.31.3.41.3.51.41.4.11.4.21.4.31.4.41.4.51.51.5.11.5.21.5.31.5.41.5.51.61.6.11.6.21.71.7.11.7.21.81.8.11.8.21.8.31.8.41.91.9.11.9.21.9.31.9.4 | Political, Legal and Regulatory RiskExclusive rights granted by the government of PrussiaImport bansChange in legal requirementsChange in political situation between Azerland and PrussiaChange in CapitalChange in RegulationsBusiness risk and Operational RiskReduced demand for ticket salesIncreased ticket pricesDelays or cancellations due to technical faultsTotal disregard to airline safetyFlight crew stress and fatigueNegligence of airline to check policy proceduresEnvironmental RiskAccessibility increases tourismGenerous CargoBusiness and infrastructure development in AzerlandNoise and Air PollutionAirport ExpansionReputation Risks * Lack of Public Confidence in Airline Operator – Through Technology Risks * Lack of Public Confidence in Airline Operator – Through Human RisksNegligence of Airline Technical Staff * Unreliable Journey Times * Airport Security and Terrorism * International Risks * Rights Granted by Government of Prussia Revoked * Termination of Lease Agreement of International Airline * Contract with Mosco, Prussia Based Catering Company * Outbreak of War – Force Majeure * Change of......

Words: 10067 - Pages: 41

International Risks

...especially large international business, requires high investment. More consumers sought after more goods, more service and besides last pay back time. The political systems have two types namely; democracy and totalitarianism. Economic environment, which is required in home country, host country and world economics, are supporting or objection for international business and relation to suppliers. Economic growth affects on politics social and lows, the found political system and situation politics in country, and the world has direct affects on economic and business. Social and culture are foundation of living and work for humans, they has an impact on characteristic to work and every day life. For lows, it is convention for country activities including economic activities and business. Therefore economics, political, social and lows are closely bound in terms of relationship. Technology environment refers to new knowledge factor in the world such as sciences or engineering and including strategic management because marketing competition enforce each country to invent new knowledge or know-how benefit for its own business development. Each country that has new knowledge must create new products; have low capital and high efficiency in order to keep pace with the international competitors and to respond the customers’ needs in the international market. When the country enters into international business, they must encounter risks in international business,......

Words: 2079 - Pages: 9

International Commerce Risk

...International Commercial Risks Maria Mendoza Suarez LAW 421 June 16, 2014 Michael Green International Commercial Risks International law is not a simple process to adhere to, especially when trying to conduct business abroad. According to Melvin (2011), international law is best defined as a “body of rules and principles of action binding on countries, international organizations, and individuals in their relations with one another” (p. 631). Contracts and legal agreements are a crucial instrument or tool used when building relationships with other nations. There are many issues than can arise within a period of time that be minimized, if not avoided completely. There are factors that will need to be considered when deciding to take any legal action against the other nations, meanwhile respecting their customs and laws. There are plenty of risks associated in international law that organizations must take into consideration when conducting business with businesses abroad. There are possibilities of disputes and disagreements between the businesses that could either damage their relationship or help improve the growth of their business. There are major issues involved that would need to be considered when a local business decides to take legal action against the nation whom the local organization is conducting business with. The first and second major issue is the understanding of choice-of-law and forum clauses. The choice-of-law is a clause are terms written within...

Words: 655 - Pages: 3

Political Risk in International Business

...In my perspective before any country decides to do business internationally, they must access the political risk in that country. Political stability is the biggest reason to attract foreign investment. Here are some common questions they should be asking themselves: 1. Is the government stable? 2. Is the government a democracy or a dictatorship? 3. Is power concentrated in the hands of a few? 4. What is the extent of government’s involvement in the private sector? Etc. Before foreign investment it is important to assess if a country believes in free markets or government control in industry. The country’s view on capitalism is also a factor for business consideration. I think that stable political system builds a strong economic environment. With proper legal policies in place, a country’s economy is bound to benefit. Bribery is an important issue in international business and unfortunately a living reality. Even though the FCPA was structured to help the U.S. companies understand what is and what is not considered bribery in a foreign land, it is not always clear what is considered a bribe. I guess perception also plays a big role. What is considered bribery by the U.S. may be considered as a gift by other countries. Countries with severe bribery conditions are known to be the ones where poverty and weak economic conditions exist. Today many companies have written and provided formal set of procedures to their employees to help them stay away from bribing anyone......

Words: 406 - Pages: 2

International Business

...was due to increased international demand for its innovative products and brands. Whirlpool acquired Maytag Corporation in the same year in a bid to increase the sale levels. The company employs not less than 80,000 employees in more than 60 technology and manufacturing centers in the whole world. The firm generates nearly 60% of its total sales from the North America niche, 25% from Europe, 15% from Latin America and 2% from Asian markets. Whirlpool suffers some risks which include low profit margins due to increase in the number of demanding buyers counteracted with high domestic competition. The domestic markets are at risk due to the competition from Haier, the largest appliances brand in China. This fifth largest appliance maker in the world has established a distribution centre and some production base in U.S specifically, South Carolina. Haier has recently established a subsidiary in New York, thus threatening Whirlpool's domestic market on various appliances targeting the locals. For example, Haier has taken 20% of market for window air conditioners and 50% of the markets for small refrigerators, and it's currently expanding to feature full size refrigerators niche. This is a huge risk for the Whirlpool Corporation because a risk involving another company investing in the local market threatens whirlpool's capacity for retaining local niche as well as sourcing for human capital (Hill, 1999). Read more:......

Words: 1271 - Pages: 6

International Business

...1. What are the key exposures to international risk that MNCs have to consider? P. 13-17 - international economic conditions … if conditions weaken, income of consumers becomes relatively low, consumer purchases of products decline and an MNC’s sales in that country may be lower than expected … results in reduction in cash flows and valuation - international political risk … foreign government may increase taxes or impose barriers, consumers may boycott if friction between countries - exchange rate risk … foreign currencies to be received suddenly weaken against dollar, MNC will receive lower cash flows, cash outflows in foreign currencies are exposed to movements but in opposite direction Using the valuation (model) of an MNC, illustrate in detail the impact of these key exposures on an MNC’s value. Make sure to explain all your notation and assumptions. - cost of capital is influenced by the return required by its investors … if there is suddenly more uncertainty surrounding the cash flows, investors may only be willing to invest in the MNC if they can expect to receive a higher rate of return - consequently, higher level of uncertainty increases the return on investment required by investors and the MNC valuation decreases 2. What are the theories that explain why firms become motivated to expand their business internationally? Discuss each. p. 6-8 - comparative advantage … specialization by countries can increase production efficiency -......

Words: 1611 - Pages: 7

International Business

...Dr. Giscombe March 26 2016 The international trade is closely linked and dependent on the exchange rate, when a company or a trader operates internationally, it is confronted with the notion of the exchange rate, which is very critical to its operations. Like the market interest rates, the foreign exchange market, is a market that is not immune to risk. Indeed, companies as they operate internationally, they are exposed to the exchange rate, which is the main determinant of international trade. Moreover, the exchange rate highlights a real market, one currency, which is also facing a long-term volatility of currency rates, which is due to the parity of purchasing power and status relationships economic (economic, financial, and monetary), between one country and another foreign country. In other words, the trade and current account deficits that assess the purchasing power parity between the states are partly responsible for the instability rates and secondly, the establishment of a floating currencies since the 1970s, and induced inflation. In the short term, financial factors such as economic policies, and actions of monetary authorities. However, this rate instability is affecting all market players, traders, tourists, businesses and institutions. At company level, these fluctuations are two types of risk: transaction risk, and the risk of loss of competitiveness (“The Guardian," 2016). The risk of business: international import / export operations, generally......

Words: 904 - Pages: 4

International Business

...COLLEGE OF ECONOMIC AND MANAGEMENT SCIENCES DEPARTMENT OF BUSINESS MANAGEMENT An assignment submitted in partial fulfilment of the course: INT4801 (International Business) Assignment 03 Due Date: 09 October 2015 Table of Contents TABLE OF CONTENTS ..................................................................................................................................................... 1 QUESTION 1: CRITICALLY EVALUATE THE IMPORTANCE OF WORLD TRADE ORGANISATION (WTO) AS A REGULATORY BODY IN INTERNATIONAL TRADE ARRANGEMENTS. .................................................. 2 INTRODUCTION ......................................................................................................................................................................... 2 AGREED LIBERALIZATION ............................................................................................................... ERROR! BOOKMARK NOT DEFINED. RULE OF LAW.............................................................................................................................. ERROR! BOOKMARK NOT DEFINED. QUESTION 2: EXTENSIVELY ANALYSE THE RELEVANCE OF SUBSIDY AS AN INSTRUMENTS OF TRADE RESTRICTION, ESPECIALLY IN AGRICULTURE SECTOR. ................................................................... 9 INTRODUCTION ...........................................................................................................................................................

Words: 5530 - Pages: 23

International Risk

...International Risk Paper Celeste Moniz FIN 320 Philip Celestin October 10, 2011 There are a lot of risks that is involved with any capital project where a firm is thinking of investing. International capital projects have additional risk and issues that needs to address. Two of the biggest international investment concerns are the exchange rate risk and political risks. Another risk that may be an issue with international investments would be economical risks. Descriptions of these three risk factors will be explained. The exchange risk has mostly to do with the exchange rates in that certain country where a project is thinking of opening. Exchange rates are very unpredictable. It is possible that the exchange rate will be different tomorrow than it is today. The currency from different countries is traded in a large scale on a currency market that is similar to stocks, bonds, and other commodities. The market is very active with trillions of dollars that is traded daily. The fluctuation in value is an additional risk when making investments in other countries. The second of the biggest risk is called the political risk. Political risk deals with political conditions in that country of interest. This could negatively affect the profits from foreign investments. When making investments in foreign countries, close attention to the political climate, local laws, local perceptions of the company’s home country, and the social unrest in the targeted country. ...

Words: 448 - Pages: 2

International Business

...LL.M INTERNATIONAL BUSINESS TRANSACTIONS LAW 5901 Kazakhstan Institute of Management, Economics, and Strategic Research School of Law REQUIRED TEXT: International Business and Trade [4th ed.] Ricky W. Griffen, Michael W. Pustay COURSE MATERIALS: http://www.eilfe.com/online-courses/kimep.html International Business Transactions REQUIRED TEXT: International Business and Trade [4th ed.] Ricky W. Griffen, Michael W. Pustay COURSE MATERIALS: http://www.eilfe.com/online-courses/kimep.html International Business Transactions KIMEP SUMMER I 2010 COURSE NUMBER: LAW5901 COURSE NAME: INTERNATIONAL BUSINESS TRANSACTIONS CLASS TIME: MTWTHF 20:15 – 21:45, HALL, NEW BUILDING FINAL EXAM: WEEK SIX; Time and date TBA KIMEP SUMMER I 2010 COURSE NUMBER: LAW5901 COURSE NAME: INTERNATIONAL BUSINESS TRANSACTIONS CLASS TIME: MTWTHF 20:15 – 21:45, HALL, NEW BUILDING FINAL EXAM: WEEK SIX; Time and date TBA Instructor: Prof. Dr. John JA Burke BA, JD, Ph.D. E-Mail: jburke@kimep.kz Office: 119, New Building Hours: Appointment Only Instructor: Prof. Dr. John JA Burke BA, JD, Ph.D. E-Mail: jburke@kimep.kz Office: 119, New Building Hours: Appointment Only INTRODUCTION AND OVERVIEW Joseph E. Stiglizt, the winner of the 2001 Nobel Prize in Economics, states, “We have a process of “globalisation” analogous to the earlier processes in which......

Words: 2119 - Pages: 9

PL2153 Minor Essay | Gangsta (3) | google chrome