Transcript Risks and Uncertainties in International Business

Risks and
Uncertainties in
International
Business
Risk
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Definition:
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The level of exposure to uncertainties that the
enterprise must understand and effectively
manage as it executes its strategies to achieve
its business objectives and create value
(Deloach, 2000)
Quantifying Risk
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Risk = Probability (of the event) X Business
impact (severity of the event)
Difference between risks and uncertainties:
risks can be calculated, uncertainties are
genuinely unknown.
Risk Factors
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The risks of doing business in a (different)
country are determined by a number of
political, economic, and legal factors.
Therefore, generally, there are 3 types of
risks in international business: political
risks, economic risks, and legal risks
Political risks
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The likelihood that political forces will cause
drastic changes in a country’s business
environment that adversely affect the profit
and other goals of a particular business
enterprise
Political risks
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Therefore, political risks tend to be greater
in countries experiencing social unrest and
disorder, or
In countries where the underlying nature of
society increases the likelihood of social
unrest
Economic Risks
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The likelihood that economic
mismanagement will cause drastic changes
in a country’s business environment that
adversely effect the profit and other goals
of a particular business enterprise
Economic risks
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Economic risks arise from economic
mismanagement by the government of a
country
Usually interrelated to political risks
A visible indicator economic
mismanagement tends to be a country’s
inflation rate, and/or level of business and
government debt.
Legal Risks
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The likelihood that a trading partner will
opportunistically break a contract or
expropriate property rights.
Natural (Disaster) Risks
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The likelihood that natural disaster will
cause severe damage to the company’s
assets/ cause major business interruptions
Natural Risks
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2 types:
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Nature:
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Nature
Man-made
Avalanche, blizzards, droughts/extreme heat,
earthquake/tsunami, floods, fires (forest fires), hurricanes,
tornadoes etc.
Man-made:
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Dams or locks, severe environmental pollution, severe
building collapse, explosions, transportation incidents etc.
SOURCES OF RISKS
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Physical environment
Social environment
Political environment
Operational environment
Economic environment
Legal environment
Cognitive environment
RESOURCES EXPOSED TO
RISKS
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Physical resource exposures
Human resource exposures
Financial resource exposures
Risk Management
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The process whereby decisions are made
to accept a known or assessed risk and/or
the implementation of actions to reduce the
consequences or probability of occurrence.
Risk management major
components
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4 major components:
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Risk identification
Risk analysis
Risk reducing measures
Risk monitoring
End.
Thank you.
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