International BusinessIntl business risksProfessor: Marc Arza email@example.com
1. Intl business risksThere are specific difficulties aroundinternational business that differentiateglobal operations from regular nationalmarket activities.This difficulties can be summed up in sixdifferent risks: - Cultural risk - Political risk - Information risk - Transport risk - Foreign exchange risk - Payment risk
2. Cultural riskCultural risk: Cultural differences aroundthe world create difficulties in many differentareas of business practice.Different languages, values, religions andattitudes make it difficult to manage areasas different as marketing, human resourcesand finances.There are many approaches towards theanalisys of global cultural differences butHoftedes cultural dimensions is one of themost accepted and applied to businesspractice.
3. Political riskPolitical risk: The risk of loss wheninvesting or doing business in a countrycaused by changes in a country politicalstructures or policies.Political STABILITY (the lack of abruptchanges in policies and politicalstructures) is a very interesting qualitywhen analysing international markets.Many international insurance companiescover up political risks for companiesoperating in unstable and risky markets.
3. Political riskEmerging markets yearn to be boring, atleast politically. The Global Political RiskIndex, which is produced by Eurasia Group,a global political risk advisory and consultingfirm, rates Hungary just in front of SouthKorea as the most stable country in a 24-strong field. The index uses a range ofqualitative and quantitative indicators tomeasure both the capacity of countries towithstand shocks and their susceptibility tointernal crises. Pakistan comes bottom ofthe list, because of mounting political andsecurity tensions, and Eurasia Group is notexpecting things to improve. Nigeria andIran also jostle at the foot of the table. Butstability should not be confused withpluralism: China outranks South Africa, Indiaand some other democracies.Source: Economist, Sep 13th 2007
3. Political risk (protectionism)Protectionism is also a strong political risk forinternational business. Protectionism is the economicpolicy directed to restrain international trade andinvestment.Protectionist tools include:- Tariffs: Taxes charged on imported goods.- Quotas: Limits to the amount of imported goods allowed to cross the border.- Non-tariff barriers: Any meausure other than tariffs directed to restrain the entrance of foreign goods into the market.
3. Political risk (protectionism)Most common non-tariff barriers:a) Sanitary barriers: Sanitation and health requirementsb) Domestic content specifications: Requirements to use/buy national goods.c) Import licenses: Specific license requirementsd) Import state trading enterprises: Controling and auhorizing any importe) Exchange rate controls: Undervalued/overvalued exchange ratef) Subsidies: Subsidizing national products (unfair competition)
4. Information riskSourcing reliable quality information about internationalmarkets may be more complicated and difficult thanacquiring information at a national level. Companiesknow about their home market naturally, out of theirexperience and contacts but sources of internationalinformation are not as obvious.Failing to get reliable information is a risk as it forcesbusinesses to take blind decisions.
5. Transport riskTransport plays a key role in internationalbusiness. International trade is always definedby longer and more complicated transport thattrade at a national level. Lost goods, damagedgoods, delayed shipments and other specificrisks are high when talking about internationaltransport and international trade involves a setof practices and documents directed toreducing these risks.
6. Foreign exchange riskThose international exchanges in betweencompanies from a different currency area aresubject to foreign exchange risk. The risk that currency exchange rates of theinvolved currencies may change in between pricenegotiation and payment execution,
7.7. Payment riskPayment risk, the risk of not being paid, may notbe specific of international business bi but it iscertainly higher.Information about costumers may be less reliableand legal tools to recover unpaid invoices are moreexpensive and les reliable than at a national level.