Risks That Firms Face When They Conduct International Business

Risks That Firms Face When They Conduct International Business

  • Submitted By: grandprix
  • Date Submitted: 12/06/2011 7:16 PM
  • Category: Business
  • Words: 1888
  • Page: 8
  • Views: 408

Political Risk: The political actions and instability may make it difficult for companies to operate efficiently in these countries due to negative publicity and impact created by individuals in the top government. A firm cannot effectively operate to its full capacity in order to maximize profit in such an unstable country's political turbulence. A new and hostile government may replace the friendly one, and hence expropriate foreign assets.
Country Risk: The culture or the instability of a country may create risks that may make it difficult for multinational companies to operate safely, effectively, and efficiently. Some of the country risks come from the governments' policies, economic conditions, security factors, and political conditions. Solving one of these problems without all of the problems (aggregate) together will not be enough in mitigating the country risk.
Financial Risk: This area is affected by the currency exchange rate, government flexibility in allowing the firms to repatriate profits or funds outside the country. The devaluation and inflation will also impact the firm's ability to operate at an efficient capacity and still be stable. Most countries make it difficult for foreign firms to repatriate funds thus forcing these firms to invest its funds at a less optimal level. Sometimes, firms' assets are confiscated and that contributes to financial losses.

International product life cycle
In 1966, Raymond Vernon published a model that described internationalisation patterns of organisations. He looked at how U.S. companies developed into multinational corporations (MNCs) at a time when these firms dominated global trade, and per capita income in the U.S. was, by far, the highest of all the developed countries.

Raymond Vernon was part of the team that overlooked the Marshall plan, the US investment plan to rejuvenate Western European economies after the Second World War. He...

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