Just as there are reasons to enter global markets, and benefits from global markets, there are also risks involved in locating businesses in some countries. Each country may have its potential; also he has his troubles that are associated with doing business with big companies. Some of the rogue countries can have all the natural minerals, but the risks involved in doing business in these countries outweigh the benefits. Some of the risks in international trade 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) the risk of terrorism
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 have an impact on the competitiveness of a company. Porter defines them as: threat of new entrants in the industry, threat of substitute goods and services, the intensity of competition within the industry, bargaining power of suppliers, and bargaining power of consumers.
Operational Risk: This is caused by activities and financial capital that aid in the day-to-day business operations. The breakdown of machinery, supply and demand of resources and products, shortage of goods and services, lack of perfect logistics and inventory will lead to inefficiency in production. By controlling costs, unnecessary waste will be reduced, and process improvement can improve the lead-time, reduce the variance and contribute to the efficiency in globalization.
Political risk: The policy actions and instability may make it difficult for companies to operate efficiently in these countries because of the negative publicity and the impact created by individuals in the higher government. A company can not effectively operate to its full capacity in order to maximize profit in the political turbulence of an unstable country. A new and hostile government could replace the friendly, and, therefore, to expropriate foreign assets.
Country risk: the culture or the instability of a country can create risks that can make it difficult for multinational companies to operate safely, effectively and efficiently. Some of the country risks come from government policies, economic conditions, the safety factors, and political conditions. Solve any of these problems without all the problems (aggregate) together will not be enough to mitigate country risk.
technological risk: lack of security in electronic transactions, the new technology development costs, and the fact that these new technologies may fail, and when all these are coupled with the outdated existing technology, the result can create a dangerous effect in doing business internationally.
Environmental Risk: air, water, and environmental pollution can affect people's health, and lead to public protest of citizens. These problems can also lead to damage the reputation of the companies that do business in that area.
economic risk: This arises from the inability of a country to meet its financial obligations. The change of foreign-investment and / or tax policy or domestic monetary. The effect of exchange rate and interest rates make it difficult to conduct international business.
Financial risk: This area is influenced by the exchange rate, the flexibility of the government in allowing companies to repatriate profits or outside the country funds. The devaluation and inflation will also affect the company's ability to operate at an efficient and still be stable power. Most countries make it difficult for foreign companies to repatriate funds thus forcing these companies to invest their funds in a less than optimal level. Sometimes, the activities of companies are confiscated and that contributes to financial losses.
Terrorism Risk: These are attacks that can result from the lack of hope; confidence; the differences in culture and religious philosophy, and / or simply hate the companies by the citizens of the host countries. It leads to potential hostile attitudes, sabotage of foreign companies and / or kidnapping of employers and employees. Such frustrating situations make it difficult to operate in these countries.
Although the benefits in international trade outweigh the risks, companies need to take on a risk assessment of each country and also include intellectual property, bureaucracy and corruption, restrictions of human resources, and ownership restrictions for analysis, in order to consider all risks before venturing into any of the countries.
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