Risks in International Business

Global business today is subject to various kinds of risks. One risk that global business needs to handle is the foreign exchange risk. Foreign exchange risk is the risk when companies face a potential gain or loss due to the fluctuation of an exchange rate change. Companies can be subject to a significant financial loss, even with a small change in the exchange rate. Thus, the primary purpose of managing foreign exchange risk is to mitigate potential currency losses. There are at least three strategies companies use to manage their foreign exchange risk. They are forward contracts, currency swaps and “natural” hedges. Companies like Airbus, Tohoku Electric Power Company and Toyota utilized these strategies to reduce potential currency losses.

Strategic planning is essential prior to any individual or company deciding to engage in international business whether as direct/indirect investment or through trade. An evaluation of risks should be considered and strategies developed accordingly prior to any potential investment in a foreign country. One such risk which requires consideration is political risk i.e. "governmental or societal actions and policies, originating either within or outside the host country, and negatively affecting either a select group of, or the majority of, foreign business operations and investments."

Risk management is the process where individual and overall risks are understood and managed, thus optimizing success by minimizing the threats and to maximize opportunities [APM Body of Knowledge, p. 179]. All projects are inherently risky, because it performed by people and subject to the external influences or environment. Risk is something that it cannot be predicted. That is why into the company’s organization, risk management has an essential and vital part in any project whether that is in the planning procedure or to project implementation. Risks are always exists and can be translated as an opportunity to gain benefits. In addition a risk may incur serious monetary losses. The first step of risk management begins when identifies risk. These are identified through several techniques that risk management can select and use. One of the most effective techniques is brainstorming where members are attending meetings in order to gain ideas of either to identify a risk or how to overcome the arising risk. However a document review technique is also applied which is also very helpful, in this technique, documents are reviewed from prior projects which leads to a better understanding of the risks that may do occur. If a company seeks risk management capabilities, is to gaining competitive advantage, riskier businesses seek potential and higher profits.

Although some risks can be predicted and prepared for pre-emptively, there are always random variables and unknown factors which make it hard to predict the outcomes with certain precision. While the preferable course of action is to prevent these risks from arising in the first place, it should be accepted that certain risks will always exist and will need to be corrected accordingly instead of ignoring the issue completely.

6. In the context of international business, what is meant by the term "political risk"? In general, how do MNCs analyze this risk?

However, the investment was not without risks. There are four types of risks in international business called cross-culture risk, country risk, currency risk and commercial risk. Cross-cultural risk refers to a situation or event where a cultural miscommunication puts some human value at stake. Country risk describes the potentially adverse effects on company operations and profitability holes by developments in the political, legal, and economic environment in a foreign country. Currency risk is the risk of adverse unexpected fluctuations in exchange rates. Commercial risk refers to potential loss or failure from poorly developed or executed business strategies, tactics, or procedures (Boter & Wincent, 2010). Investment in Rulmenti Grei, Timken might face the salient risks of political and economic instability. Romania’s economic growth was slower, inflation was higher, and the labor force was more volatile. Furthermore, there might be a risk of re-nationalization. It is said that economic risk analysis tells corporate leaders the ability of a particular country to pay its debt while political risk analysis tells them whether that country will pay its debt. Political risk measures the stability of individual countries through the

Political risk is any governmental actions that diminish value of the firm operating with the boundary or influence of that government

Financial risk is the possibility that the company's cash flow proves inadequate to meet its financial obligations. It is also the term for many different types of risks related to the finance industry. There are many types of financial risks. The most common ones include credit risk, liquidity risk, asset backed risk, foreign investment risk, equity risk and currency risk.

5. What means can managers use to assess political risk? What do you think is there lative effectiveness of these different methods? At the time you are reading this,what countries or areas do you feel have political risk sufficient to discourage you from doing business there?

The impact of the risks on global business it is dramatic in our days, changing the entire look of the industries and financial services. Some risks could be anticipated and identified but some could not. Companies now are using more and more key steps and principles to better manage the risks by;

The presence of certain types of risk can cause concern amongst the public especially if they are uncertain about the outcome.

International management is defined as the practice of business operations in multiple countries. To be involved in international management professionals must be familiar with many different types of language, culture, economies, and environments. One of the main goals of international management is to link businesses globally and make a profit, while being able to connect various cultures.

Furthermore, business risk is the possibility a company will have lower than anticipated profits or experience a loss rather than taking a profit (Business Risk, 2015). Business risk is affected by several factors including competition, input costs, sales volume, economic changes and government regulations. In addition to operating leverage, financial leverage and business risk, financial risk must also be considered. Financial risk is the possibility that shareholders will lose money when they invest in a company that has debt, if the company's cash flow proves inadequate to meet its financial obligations (Financial Risk, 2004). A firm that operates

The outcomes are thrown open to uncertainty. In general, when we talk about risk, we focus on financial risk. In financial terms, it is the risk that a company or individual could lose some or all of the original investment, possibly resulting in inadequate cash flow to meet financial obligations. All wise investments follow risk consideration. To be successful, every investor must be able to identify and understand the types of risk they face across their entire portfolio.

1. Political risk and country risk are challenges that must be strategically considered by multinational firms. What is one real-world firm that deals with political and country risk?