International Financial Risk and Globalization

International Financial Risk and Globalization

International Financial Risk and Globalization

There are risks involved in every business decision or venture, and the same is true when a company decides to move into the international market. Specifically, many financial risks must be analyzed and considered when operating as a global organization. The drivers for a company to pursue an international presence include customer base, investment needs, restructuring, and risk sharing. Many of these risks fall into three categories: political, economical, and currency risks.

Drivers of Globalization

A company’s desire to expand into the international market can stem from many things. A company who finds themselves with multinational customers may find that operating globally is the only manner in which to keep those customers satisfied. A company who is searching for new or additional financial backing might find a willing investor outside of their home country. An organization might find the need to restructure across multinational borders as a result of fundamental economical shifts. One or many of these drivers could be the motivating factor or factors for an organization to expand its’ boundaries.

Risk Factors

Risks are involved in most every aspect of business related decision making. The risk levels associated with international finance generally fall into three categories: Political, Economical, and Currency.

Political Risk Factors

Political risk factors are often the easiest to predict, but can also be the hardest to overcome. Political risks involve things like legal regulations, governmental barriers to doing business in certain countries, stability of the government in the country the business is operating in, or the overall environment, i.e., is it peace time or war time? An organization faced with political risks might mitigate those risks via the advice of legal counsel, political alliances, or even lobbying for more lenient legislature to be passed. These types of actions could incur large expenses rather quickly, with no guaranteed results. The financial impact of those actions might be more significant than the organization is willing to bear, and international expansion might be inhibited.

Economical Risk Factors

Economical risk factors are usually easy to identify, and somewhat simple to monitor. These risks include things like per capita levels of consumption, demand, or industrial activity. An organization migrating into previously un-chartered territory might find great success in a developing country, but might face great loss if the development is halted, or proceeds