There are a multitude of risks and issues for corporations and industries operating in the international environment. No doubt, issues such as inferior quality of products manufactured by companies that engage in outsourced production, or the use of chemicals in the manufacturing process of edible products imported back to the U.S., which our regulatory system considers toxic and which are regulated against within our own borders. These types of issues can result in a tremendous impact to a corporation's bottom line, from the financial impact to sales to brand damage that diminishes their reputation in the marketplace. Why does a company need to grow? Suppose you started a company using an innovative product idea you designed and your corporation was the first one to market and sell this exciting new product in your home country. Sales immediately took off and your company found itself growing and branching out in cities all across your nation. Soon, competitors followed your leadership position, chasing your market and successfully absorbing some of your sales. In order for your firm to remain the leader, or to even continue to survive, you would need to develop strategies that allowed your firm to continue to grow its market share. If you failed to maintain your market position, over time you could lose enough of your customer base so as to become unable to financially continue to stay in business. Not only would you close your doors, but your employees would lose their jobs. Corporations spend a large amount of time developing strategies that allow them to remain competitive in the marketplace, earning profits and re- investing them into the business in order to grow. When a firm reaches a saturation point in its home market, one strategy it can deploy to remain profitable is to move into the global marketplace. The key to remaining competitive is to constantly, and continually, innovate. For global firms, innovation is exponentially more challenging. Profit and Loss - What are they and how do they impact global strategies? In order to develop sound global strategies, it is critical to understand profitability. Simply put, profitability means the degree to which a corporation has been successful at earning revenues and managing expenses. The difference between its revenue and its expenses is called the net profit and the ratio of net profit to revenue is called a net profit margin. Net profits and net margins are tracked and monitored carefully by a firm's finance department, along with all other financial data Net margins reflect how much of each dollar earned by the company has been translated into profits and is determined by dividing the net profit by revenue. While some industries operate on very low, or thin, margins, others operate on much higher margins. Understanding a firm's finances and industry profitability norms, assists financial experts in assessing the health of the firm, a ...

1. There are a multitude of risks and issues for corporations and
industries
operating in the international environment. No doubt, issues
such as
inferior quality of products manufactured by companies that
engage in
outsourced production, or the use of chemicals in the
manufacturing
process of edible products imported back to the U.S., which our
regulatory
system considers toxic and which are regulated against within
our own
borders. These types of issues can result in a tremendous impact
to a
corporation's bottom line, from the financial impact to sales to
brand
damage that diminishes their reputation in the marketplace.
Why does a company need to grow?
Suppose you started a company using an innovative product
idea you
designed and your corporation was the first one to market and
sell this
exciting new product in your home country. Sales immediately
took off and
your company found itself growing and branching out in cities
all across
your nation. Soon, competitors followed your leadership
position, chasing
your market and successfully absorbing some of your sales. In
order for
your firm to remain the leader, or to even continue to survive,

2. you would
need to develop strategies that allowed your firm to continue to
grow its
market share. If you failed to maintain your market position,
over time you
could lose enough of your customer base so as to become unable
to
financially continue to stay in business. Not only would you
close your
doors, but your employees would lose their jobs.
Corporations spend a large amount of time developing strategies
that allow
them to remain competitive in the marketplace, earning profits
and re-
investing them into the business in order to grow. When a firm
reaches a
saturation point in its home market, one strategy it can deploy
to remain
profitable is to move into the global marketplace. The key to
remaining
competitive is to constantly, and continually, innovate. For
global firms,
innovation is exponentially more challenging.
Profit and Loss - What are they and how do
they impact global strategies?
In order to develop sound global strategies, it is critical to
understand
profitability. Simply put, profitability means the degree to
which a
corporation has been successful at earning revenues and
managing
expenses. The difference between its revenue and its expenses
is called
the net profit and the ratio of net profit to revenue is called a

3. net profit
margin. Net profits and net margins are tracked and monitored
carefully by
a firm's finance department, along with all other financial data
Net margins
reflect how much of each dollar earned by the company has
been
translated into profits and is determined by dividing the net
profit by
revenue.
While some industries operate on very low, or thin, margins,
others operate
on much higher margins. Understanding a firm's finances and
industry
profitability norms, assists financial experts in assessing the
health of the
firm, as well as predicting and identifying industry and firm
trends. These
factors are incorporated in a company's growth strategies, both
domestically and abroad.
The firm's financial statements, which are produced quarterly
and annually,
contain three basic statements:
• Consolidated Balance Sheet
• Income Statement
• Cash flow statement
The Balance Sheet contains data regarding a firm's assets (items
of
tangible and intangible value) and liabilities (items owed by the
company

4. such as loans, notes, and accounts payable). The Cash Flow
statement is
a corporation's record of all cash inflows and outflows, much
like your own
checkbook register.
Finally, the Income Statement is a corporation's record of
revenue and
expenses for a given period. This statement provides a firm with
all of the
data necessary to monitor and track profit and loss. Click on the
link below
to access a brief tutorial on the Income Statement.
Competitive Market Strategies - Leader,
Follower, Challenger, Nicher
In order to remain in business, corporations must continue to
excel at
innovation in their markets. For corporations doing business
abroad, the
type of market strategy they choose to deploy may be different
from their
domestic strategy. In their home market, they may be a
challenger to a
market leader, and they may choose to move into new overseas
markets
ahead of their competition, and deploy a market leader strategy
in the
foreign nation. But, any competitive market strategy they
deploy must align
with their strengths and weaknesses as well as with the broader
macro-
environment.
The basic types of competitive market strategies are:

5. • Market Leaders - corporations who hold the largest market
share in their product or service
area, or who command the most revenue earned in their markets
• Challengers - corporations who have a strong presence in their
markets and have the market
strength to challenge the market leaders. Their objective is to
eventually become the
market leader.
• Followers - corporations who imitate the products or services
of market leaders, but who stand
to earn substantial profits from their market activities. Whether
they are imitating, adapting
or cloning products and services, they can capitalize on the
opportunities opened up by
their more aggressive competitors, and
• Nichers - corporations who operate within smaller markets, or
niches, that are little interest to
the larger market leaders.
Within these competitive strategies are multiple tactics, and
global
managers must design their offensive and defensive strategies
within their
markets in a manner that will exploit their strengths, minimize
their
weaknesses and reduce or mitigate their risk. Finally,
competitive
strategies need to have a strong degree of sustainability. It is
only through
sustainable competitive strategies that firms can continue to

6. grow.
Building a sustainable competitive strategy
Corporations leverage multiple tactics for creating and
sustaining their
competitive strategies. In addition to mounting tactical offenses
and
defenses in the marketplace to expand their market share or
defend
against challengers, corporations also leverage their competitive
advantages in areas such lower production costs, or
differentiation of their
products, in order to grow their sales and their market share.
Additional Resources
• Global Gamesmanship
MacMillan, Ian C. (2004). Global Gamesmanship. Retrieved
from Harvard
Business Publishing.
• Chabros International Group: A World of Wood
Ivey, Richard. (2010). Chabros International Group: A World of
Wood.
Retrieved from Harvard Business Publishing.
What is competitive and comparative
advantage, and why does it matter?
The answer is that competitive advantage allows a company to
generate
more sales and revenue, or to retain or expand its customer

7. base. The
more sustainable the competitive advantage a firm can achieve,
the less
vulnerable that firm may be to loss of sales or customers to its
rivals.
Competitive advantages are the attributes or strengths that a
specific
corporation has that give it an advantage over its competitors.
Competitive
advantages are comprised of two sub-types: comparative
advantage, or
the ability to produce goods and services at a lesser cost than a
competitor
(whether that is a corporation or a nation), and differential
advantage,
which is the ability to create a product that is differentiated
from your rivals
to such an extent that it creates a superior competitive
advantage (think
iPhone).
Global corporations can leverage comparative advantages in two
ways:
they can exercise a comparative advantage over their rivals with
lower
production of similar goods, or they can produce goods or
services at a
lower cost than their host nation can produce them, and export
them into
that nation.
The key to competitive advantage is to create sustainability. In
a dynamic
global business environment, corporations that have developed
sustainable competitive advantages continue to grow their

8. business, which
in turn creates larger revenue streams, and if they are managed
correctly,
helps them to achieve their ultimate objective of maximizing
shareholder
wealth.
There are a multitude of risks and issues for corporations and
industries
operating in the international environment. No doubt, issues
such as
inferior quality of products manufactured by companies that
engage in
outsourced production, or the use of chemicals in the
manufacturing
process of edible products imported back to the U.S., which our
regulatory
system considers toxic and which are regulated against within
our own
borders. These types of issues can result in a tremendous impact
to a
corporation's bottom line, from the financial impact to sales to
brand
damage that diminishes their reputation in the marketplace.
Why does a company need to grow?
Suppose you started a company using an innovative product
idea you
designed and your corporation was the first one to market and
sell this
exciting new product in your home country. Sales immediately
took off and

9. your company found itself growing and branching out in cities
all across
your nation. Soon, competitors followed your leadership
position, chasing
your market and successfully absorbing some of your sales. In
order for
your firm to remain the leader, or to even continue to survive,
you would
need to develop strategies that allowed your firm to continue to
grow its
market share. If you failed to maintain your market position,
over time you
could lose enough of your customer base so as to become unable
to
financially continue to stay in business. Not only would you
close your
doors, but your employees would lose their jobs.
Corporations spend a large amount of time developing strategies
that allow
them to remain competitive in the marketplace, earning profits
and re-
investing them into the business in order to grow. When a firm
reaches a
saturation point in its home market, one strategy it can deploy
to remain
profitable is to move into the global marketplace. The key to
remaining
competitive is to constantly, and continually, innovate. For
global firms,
innovation is exponentially more challenging.
Profit and Loss - What are they and how do
they impact global strategies?
In order to develop sound global strategies, it is critical to
understand

10. profitability. Simply put, profitability means the degree to
which a
corporation has been successful at earning revenues and
managing
expenses. The difference between its revenue and its expenses
is called
the net profit and the ratio of net profit to revenue is called a
net profit
margin. Net profits and net margins are tracked and monitored
carefully by
a firm's finance department, along with all other financial data
Net margins
reflect how much of each dollar earned by the company has
been
translated into profits and is determined by dividing the net
profit by
revenue.
While some industries operate on very low, or thin, margins,
others operate
on much higher margins. Understanding a firm's finances and
industry
profitability norms, assists financial experts in assessing the
health of the
firm, as well as predicting and identifying industry and firm
trends. These
factors are incorporated in a company's growth strategies, both
domestically and abroad.
The firm's financial statements, which are produced quarterly
and annually,
contain three basic statements:

11. • Consolidated Balance Sheet
• Income Statement
• Cash flow statement
The Balance Sheet contains data regarding a firm's assets (items
of
tangible and intangible value) and liabilities (items owed by the
company
such as loans, notes, and accounts payable). The Cash Flow
statement is
a corporation's record of all cash inflows and outflows, much
like your own
checkbook register.
Finally, the Income Statement is a corporation's record of
revenue and
expenses for a given period. This statement provides a firm with
all of the
data necessary to monitor and track profit and loss. Click on the
link below
to access a brief tutorial on the Income Statement.
Competitive Market Strategies - Leader,
Follower, Challenger, Nicher
In order to remain in business, corporations must continue to
excel at
innovation in their markets. For corporations doing business
abroad, the
type of market strategy they choose to deploy may be different
from their
domestic strategy. In their home market, they may be a
challenger to a
market leader, and they may choose to move into new overseas
markets
ahead of their competition, and deploy a market leader strategy
in the

12. foreign nation. But, any competitive market strategy they
deploy must align
with their strengths and weaknesses as well as with the broader
macro-
environment.
The basic types of competitive market strategies are:
• Market Leaders - corporations who hold the largest market
share in their product or service
area, or who command the most revenue earned in their markets
• Challengers - corporations who have a strong presence in their
markets and have the market
strength to challenge the market leaders. Their objective is to
eventually become the
market leader.
• Followers - corporations who imitate the products or services
of market leaders, but who stand
to earn substantial profits from their market activities. Whether
they are imitating, adapting
or cloning products and services, they can capitalize on the
opportunities opened up by
their more aggressive competitors, and
• Nichers - corporations who operate within smaller markets, or
niches, that are little interest to
the larger market leaders.
Within these competitive strategies are multiple tactics, and
global
managers must design their offensive and defensive strategies
within their

13. markets in a manner that will exploit their strengths, minimize
their
weaknesses and reduce or mitigate their risk. Finally,
competitive
strategies need to have a strong degree of sustainability. It is
only through
sustainable competitive strategies that firms can continue to
grow.
Building a sustainable competitive strategy
Corporations leverage multiple tactics for creating and
sustaining their
competitive strategies. In addition to mounting tactical offenses
and
defenses in the marketplace to expand their market share or
defend
against challengers, corporations also leverage their competitive
advantages in areas such lower production costs, or
differentiation of their
products, in order to grow their sales and their market share.
Additional Resources
• Global Gamesmanship
MacMillan, Ian C. (2004). Global Gamesmanship. Retrieved
from Harvard
Business Publishing.
• Chabros International Group: A World of Wood
Ivey, Richard. (2010). Chabros International Group: A World of
Wood.
Retrieved from Harvard Business Publishing.
What is competitive and comparative

14. advantage, and why does it matter?
The answer is that competitive advantage allows a company to
generate
more sales and revenue, or to retain or expand its customer
base. The
more sustainable the competitive advantage a firm can achieve,
the less
vulnerable that firm may be to loss of sales or customers to its
rivals.
Competitive advantages are the attributes or strengths that a
specific
corporation has that give it an advantage over its competitors.
Competitive
advantages are comprised of two sub-types: comparative
advantage, or
the ability to produce goods and services at a lesser cost than a
competitor
(whether that is a corporation or a nation), and differential
advantage,
which is the ability to create a product that is differentiated
from your rivals
to such an extent that it creates a superior competitive
advantage (think
iPhone).
Global corporations can leverage comparative advantages in two
ways:
they can exercise a comparative advantage over their rivals with
lower
production of similar goods, or they can produce goods or
services at a
lower cost than their host nation can produce them, and export

15. them into
that nation.
The key to competitive advantage is to create sustainability. In
a dynamic
global business environment, corporations that have developed
sustainable competitive advantages continue to grow their
business, which
in turn creates larger revenue streams, and if they are managed
correctly,
helps them to achieve their ultimate objective of maximizing
shareholder
wealth.
Risk and Issues in Operating Overseas
There are a multitude of risks and issues for corporations and
industries
operating in the international environment. No doubt, issues
such as inferior
quality of products manufactured by companies that engage in
outsourced
production, or the use of chemicals in the manufacturing
process of edible
products imported back to the U.S., which our regulatory system
considers
toxic and which are regulated against within our own borders.
These types of
issues can result in a tremendous impact to a corporation's
bottom line, from

16. the financial impact to sales to brand damage that diminishes
their
reputation in the marketplace.
Intro
There are a multitude of risks and issues for corporations and
industries
operating in the international environment. No doubt, issues
such as inferior
quality of products manufactured by companies that engage in
outsourced
production, or the use of chemicals in the manufacturing
process of edible
products imported back to the U.S., which our regulatory system
considers
toxic and which are regulated against within our own borders.
These types of
issues can result in a tremendous impact to a corporation's
bottom line, from
the financial impact to sales to brand damage that diminishes
their reputation
in the marketplace.
What are the various risks and issues facing companies and
industries that operate in the global environment?
We can simplify the process for mitigating international risk in
the following
manner:
International Risk Management Process Steps
• Identify the individual risks
• Assess risk magnitudes and exposure levels
• Incorporate the risk assessment in the decision making process

17. Risk areas for all corporations can be categorized as follows:
Strategic - Strategic risk is broad and is a function of
forecasting future
goals. Strategic risk addresses what a firm will do when new
competitors
enter its market, or strategic risk can be associated with
operations. Let's say
that your firm is deciding where to build its disaster recovery
facility. If the
facility is too close to your existing operations and a disaster
occurs, this
could create opportunities for your competitors to gain valuable
market
share. Too far away , and you will increase expenses for
communications
and travel. Balancing risk with strategic decisions is valuable in
maintaining
competitive advantage.
Operational - Operational risk is also broad but short-term in
nature. The
OCC (Office of the Comptroller of the Currency) defines
Operational Risk
as "the risk of loss resulting from failed processes, people and
systems, or
from external events." It is the risk that transactions or
processes will fail
due to weaknesses in operational management, such as poorly
trained staff,
inferior processes and policies, or even fraud.
Additional Resource

18. Business Risk Types
Financial - Financial Risk is the risk that a firm will not have
sufficient
liquidity to meet its ongoing financial obligations. These
include payroll
expenses, short-term and long-term notes and loans, taxes,
government fees,
dividend payments and other liabilities. Failure to have
sufficient liquidity
could also restrict a firm's ability to access capital in the
marketplace. And
all of these risks could negatively impact a firm's credit rating,
stock prices
and ability to conduct business. Financial Risk in the global
marketplace
carries greater risks due to the differences in currency
valuations between
nations, and in the daily currency fluctuations that impact the
value of the
profits when they are eventually transferred back into the home
country.
Compliance - Compliance Risk is the risk that a company,
willfully or
unintentionally, will fail to comply with laws and regulations.
In the mildest
of cases, this can be a warning or mild financial penalty,
however, in cases
of gross misconduct, as in fraud cases, or negligent disregard
for laws, a
company can find its door shut for good. (Read about Enron, a
global firm
that willfully doctored their accounting books in order to hide
information
from their shareholders and the public.)

19. What are barriers to entry in the international market and
what is their influence on a corporation's growth strategy?
Barriers to entry are obstacles that exist either naturally or
through
regulatory or other means that make it difficult for a start-up to
establish business, especially where existing businesses already
have a
foothold, or for existing businesses to enter new markets. These
obstacles can exist in the form of regulatory restrictions on new
businesses, tax benefits to existing firms, special tariffs, etc. or
they can
occur naturally, as in brand loyalty or customer bases, patents
or even
transportation issues such as a lack of rail or shipping systems.
The international marketplace has significant barriers to entry
that differ
from nation to nation. Firms that have a desire to enter into one
or more
foreign nations must address all barriers to entry and determine
if they have
the resources required to achieve their objective. For example,
U.S.
businesses that wish to invest capital in China must enter into a
partnership
with a Chinese firm. According to current Chinese regulations,
no foreign
company entering into China can own more than 49% of the
partnership.
The Chinese government through its state-run corporations
would be a 51%
owner. This may be a significant barrier to entry for some U.S.

20. firms, who
might not be profitable under such an agreement.
The Difficulty of Managing Risk Exposure
In order to manage their exposure to various risks - both hidden
and
obvious - corporations engage in global business risk studies
designed to
identify the various risks within the macro-environment as well
as their
own internal environments that have the potential to impact
their
success. Data and information gathered from these studies is
used to
develop strategies and tactics to offset or mitigate the risk.
Although no
corporation can entirely insulate itself from all risks, often there
are too
many unidentifiable risks, or their exposure is the result of a
combination of multiple risks and issues that integrate to create
even
greater risk than anticipated. It is essential that corporations
operating
in overseas environments invest significant resources to
mitigate as
much risk as possible.
The table indicates some of the primary areas of risk assessment
for
companies operating in foreign markets. While it is not a
comprehensive list,
it provides examples of how the complexity and variety of risks
that global

21. corporations must work to mitigate.
Area of Risk Examples of Risk
Economic Currency fluctuations that can erode profits when
exchanged back
into the home currency. Fluctuations in commodity pricing,
such
as oil and fuel costs.
Technology Lack of sufficient or robust technology
infrastructure in host
nation. Insufficient data security systems.
Socio-Cultural Gender differences, child labor issues, human
rights differences, or
other cultural differences that can create labor issues, or offend
host
nations. Customs that vary from nation to nation. Examples
include
methods of gaining trust, retaining honor, accommodating the
differences in aspects of time, comfort levels with personal
distance.
Environmental Use of target nation resources and impact on
their environment.
Political Political turbulence or changes in leadership can create
new and
unforeseen risk.
Geographical Difficult terrains, lack of shipping or
transportation systems, clean
water for manufacturing purposes, commuting issues for labor
forces.

22. Legal/Regulatory Variances in international and local laws and
regulations regarding
labor, finance, technology, taxation, tariffs, confidentiality,
contract
construction, business agreements, etc.
Macro environmental factors influence corporations'
decisions in the international market.
As you have seen, corporations pay close attention to what is
occurring
in the industry and national environments in which they conduct
operations. A certain amount of adaptability, flexibility,
strategy and
analytical expertise is vital to the continual management of
international risk reduction. All of these factors are in addition
to the
need for corporations to remain nimble and competitive within
their
own market segment.
For corporations to effectively manage both their competitive
strategies
while reducing or mitigating their exposure to risk, they must
have
management staff with deep knowledge and experience capable
of
discerning critical information quickly and accurately. Failure
to accurately
assess risk or identify successful competitive strategies and

23. tactics can cause
a corporation to lose profits, market share or both.
Recently, we have all witnessed the failure of several of the
major global
financial and insurance firms, as they were unable to accurately
assess the
risk of their products in the marketplace. The collapse of many
global firms
and currency systems created by their failure, has now resulted
in financial
crises in multiple nations around the globe. Going forward, all
financial
institutions will conduct increasingly conservative risk
assessments and
governments are creating regulatory measures designed to
prevent these
firms from engaging in high-risk activities without appropriate
risk
mitigation policies. For the near-term, and perhaps the long
haul, these firms
will be highly influenced by the macro-environmental fallout in
the nations
and businesses impacted by the crisis.
Risk and Issues in Operating Overseas
There are a multitude of risks and issues for corporations and
industries
operating in the international environment. No doubt, issues
such as inferior
quality of products manufactured by companies that engage in

24. outsourced
production, or the use of chemicals in the manufacturing
process of edible
products imported back to the U.S., which our regulatory system
considers
toxic and which are regulated against within our own borders.
These types of
issues can result in a tremendous impact to a corporation's
bottom line, from
the financial impact to sales to brand damage that diminishes
their
reputation in the marketplace.
Intro
There are a multitude of risks and issues for corporations and
industries
operating in the international environment. No doubt, issues
such as inferior
quality of products manufactured by companies that engage in
outsourced
production, or the use of chemicals in the manufacturing
process of edible
products imported back to the U.S., which our regulatory system
considers
toxic and which are regulated against within our own borders.
These types of
issues can result in a tremendous impact to a corporation's
bottom line, from
the financial impact to sales to brand damage that diminishes
their reputation
in the marketplace.
What are the various risks and issues facing companies and

25. industries that operate in the global environment?
We can simplify the process for mitigating international risk in
the following
manner:
International Risk Management Process Steps
• Identify the individual risks
• Assess risk magnitudes and exposure levels
• Incorporate the risk assessment in the decision making process
Risk areas for all corporations can be categorized as follows:
Strategic - Strategic risk is broad and is a function of
forecasting future
goals. Strategic risk addresses what a firm will do when new
competitors
enter its market, or strategic risk can be associated with
operations. Let's say
that your firm is deciding where to build its disaster recovery
facility. If the
facility is too close to your existing operations and a disaster
occurs, this
could create opportunities for your competitors to gain valuable
market
share. Too far away , and you will increase expenses for
communications
and travel. Balancing risk with strategic decisions is valuable in
maintaining
competitive advantage.
Operational - Operational risk is also broad but short-term in
nature. The
OCC (Office of the Comptroller of the Currency) defines

26. Operational Risk
as "the risk of loss resulting from failed processes, people and
systems, or
from external events." It is the risk that transactions or
processes will fail
due to weaknesses in operational management, such as poorly
trained staff,
inferior processes and policies, or even fraud.
Additional Resource
Business Risk Types
Financial - Financial Risk is the risk that a firm will not have
sufficient
liquidity to meet its ongoing financial obligations. These
include payroll
expenses, short-term and long-term notes and loans, taxes,
government fees,
dividend payments and other liabilities. Failure to have
sufficient liquidity
could also restrict a firm's ability to access capital in the
marketplace. And
all of these risks could negatively impact a firm's credit rating,
stock prices
and ability to conduct business. Financial Risk in the global
marketplace
carries greater risks due to the differences in currency
valuations between
nations, and in the daily currency fluctuations that impact the
value of the
profits when they are eventually transferred back into the home
country.
Compliance - Compliance Risk is the risk that a company,
willfully or

27. unintentionally, will fail to comply with laws and regulations.
In the mildest
of cases, this can be a warning or mild financial penalty,
however, in cases
of gross misconduct, as in fraud cases, or negligent disregard
for laws, a
company can find its door shut for good. (Read about Enron, a
global firm
that willfully doctored their accounting books in order to hide
information
from their shareholders and the public.)
What are barriers to entry in the international market and
what is their influence on a corporation's growth strategy?
Barriers to entry are obstacles that exist either naturally or
through
regulatory or other means that make it difficult for a start-up to
establish business, especially where existing businesses already
have a
foothold, or for existing businesses to enter new markets. These
obstacles can exist in the form of regulatory restrictions on new
businesses, tax benefits to existing firms, special tariffs, etc. or
they can
occur naturally, as in brand loyalty or customer bases, patents
or even
transportation issues such as a lack of rail or shipping systems.
The international marketplace has significant barriers to entry
that differ
from nation to nation. Firms that have a desire to enter into one
or more
foreign nations must address all barriers to entry and determine
if they have

28. the resources required to achieve their objective. For example,
U.S.
businesses that wish to invest capital in China must enter into a
partnership
with a Chinese firm. According to current Chinese regulations,
no foreign
company entering into China can own more than 49% of the
partnership.
The Chinese government through its state-run corporations
would be a 51%
owner. This may be a significant barrier to entry for some U.S.
firms, who
might not be profitable under such an agreement.
The Difficulty of Managing Risk Exposure
In order to manage their exposure to various risks - both hidden
and
obvious - corporations engage in global business risk studies
designed to
identify the various risks within the macro-environment as well
as their
own internal environments that have the potential to impact
their
success. Data and information gathered from these studies is
used to
develop strategies and tactics to offset or mitigate the risk.
Although no
corporation can entirely insulate itself from all risks, often there
are too
many unidentifiable risks, or their exposure is the result of a
combination of multiple risks and issues that integrate to create
even
greater risk than anticipated. It is essential that corporations
operating
in overseas environments invest significant resources to

29. mitigate as
much risk as possible.
The table indicates some of the primary areas of risk assessment
for
companies operating in foreign markets. While it is not a
comprehensive list,
it provides examples of how the complexity and variety of risks
that global
corporations must work to mitigate.
Area of Risk Examples of Risk
Economic Currency fluctuations that can erode profits when
exchanged back
into the home currency. Fluctuations in commodity pricing,
such
as oil and fuel costs.
Technology Lack of sufficient or robust technology
infrastructure in host
nation. Insufficient data security systems.
Socio-Cultural Gender differences, child labor issues, human
rights differences, or
other cultural differences that can create labor issues, or offend
host
nations. Customs that vary from nation to nation. Examples
include
methods of gaining trust, retaining honor, accommodating the
differences in aspects of time, comfort levels with personal
distance.

30. Environmental Use of target nation resources and impact on
their environment.
Political Political turbulence or changes in leadership can create
new and
unforeseen risk.
Geographical Difficult terrains, lack of shipping or
transportation systems, clean
water for manufacturing purposes, commuting issues for labor
forces.
Legal/Regulatory Variances in international and local laws and
regulations regarding
labor, finance, technology, taxation, tariffs, confidentiality,
contract
construction, business agreements, etc.
Macro environmental factors influence corporations'
decisions in the international market.
As you have seen, corporations pay close attention to what is
occurring
in the industry and national environments in which they conduct
operations. A certain amount of adaptability, flexibility,
strategy and
analytical expertise is vital to the continual management of
international risk reduction. All of these factors are in addition
to the
need for corporations to remain nimble and competitive within
their

31. own market segment.
For corporations to effectively manage both their competitive
strategies
while reducing or mitigating their exposure to risk, they must
have
management staff with deep knowledge and experience capable
of
discerning critical information quickly and accurately. Failure
to accurately
assess risk or identify successful competitive strategies and
tactics can cause
a corporation to lose profits, market share or both.
Recently, we have all witnessed the failure of several of the
major global
financial and insurance firms, as they were unable to accurately
assess the
risk of their products in the marketplace. The collapse of many
global firms
and currency systems created by their failure, has now resulted
in financial
crises in multiple nations around the globe. Going forward, all
financial
institutions will conduct increasingly conservative risk
assessments and
governments are creating regulatory measures designed to
prevent these
firms from engaging in high-risk activities without appropriate
risk
mitigation policies. For the near-term, and perhaps the long
haul, these firms
will be highly influenced by the macro-environmental fallout in
the nations
and businesses impacted by the crisis.