Considering Risks in International Business

CONSIDERING RISKS IN INTERNATIONAL BUSINESS

Business by itself requires high awereness of risks, taking these risks, managing them and gain profits from them. The literature names this task as “entrepreneurship”. Entrepreneurship is the practice of starting new organizations, particularly new businesses generally in response to identified opportunities. Entrepreneurship is often a difficult undertaking, as a majority of new businesses fail. Entrepreneurial activities are substantially different depending on the type of organization that is being started.

Turning to international business, the situation seems hazier. In the international area the risks are less identified, more difficult to take and manage. The environment, cultural development and social structure are not stable, often changing, hence there are not certain single solutions over risks, it needs following changes in political, economical and natural aspects, high flexibility and quick response. On the other hand the business form is also one of the most important task to consider. However the business shall be a simple international trader (exporter-importer) or highly integrated with other societies such as multinational companies.

To measure the extent of these risks we can divide the environment commonly into three catogories. First of all the business form has to take the economical risks into account, than it must consider the risks may arise from politcal environment and finally the natural risks should be investigated.

From the wiev of economical risks, the business which is investing in international scope searches informations such as: the type of the economic system, economic size and stability, growth rate, GDP, GNI, PPP (Purchasing Power Parite), inflation, existence and influence of capital markets, availability of economic infrastructure and ability or intention to meet its financial obligations of the revelant country or countries. It isn’t hard to imagine these indicators are not stable and not easy to forecast. However, there will always be some organizations enjoying benefits by managing this fluctuation risk. Economic risks arise from economic mismanagement by the government of a country. Economic risk can be defined as the likelihood that economic mismanagement will cause drastic changes in a country’s business environment that adversely affect the profit and other goals of a particular business enterprise.What will make it more risky; the economy size of the country would be small or large? Developed or developing? The answer no-doubt would be large size and developed country. Because, the business can operate more free and with more opportunities in large size and developed economies. High inflation and imbalanced interest rates, low GDP, GNI and PPP rates, unability to fulfill the financial obligations are the potential risks could arise from economical situation in a country.

When we consider the political risks, we see it is often integrated with the economy. The impact of the political system on management decisions in international business arises from political risks. Political risk is when international companies fear that the political climate in a foreign country will change in such a way that their operating position will deteriorate. If the political actions are aimed only at specific foreign investments they are called micro political risks where the political actions affect a broad spectrum of foreign investors they are called macro political risk. The causes of political risk are: -Changing opinions of political leadership which occurs in unstable governments or governments that suffers from lack of policymaking -Civil disorder which can occur when there are human rights