When a business organization decides to participate in global financing activities, there are extra opportunities and risks

Subject:SociologyPrice: Bought3

Share With

When a business organization decides to participate in global financing activities, there are extra opportunities and risks. The primary risks that relate to business participating in international activities include political risk and foreign exchange risk. Mostly, the risk is the primary determinant of the probability of experiencing damage or a loss. The possibility and the chance that the actual outcome from a particular business operation will vary from the anticipated outcome typically cause a risk. This implies that the increase in variability also leverages the chances of risks which make it challenging for business organizations to maintain reliable and constant revenue. As a result, different companies resort to varying strategies to curb the risks they experience from engaging in international business operations. Risks happen based on uncertainty about an event occurrence, such as damage, loss, variations in interest rate variations, and global exchange markets. Therefore, every business manager is primarily a risk averts, considering that they mostly do not like to incur or take risks. For this reason, most of them prefer working on an extensive probability that will guarantee them profit or wealth. It implies that the greater the outcome variability, the higher the chances of a business experiencing a loss. For this reason, there are various risks associated with the business operations when the company decides to pursue another consumer base internationally since they may incur different local laws, regulations, and business policies.

 

Relevant literature

Businesses engaging in global trade havers experience local risks and other business expansion risks such as intellectual property, transportation, ethics, currency, credit, and transport. Some of these risks may hamper the busies operations. Hence, there is a need to place or establish appropriate measures to curb the implications of such risks. SOURCE argue that foreign markets offer an attractive option to many business organization since they represent untapped potential. In most countries, many emerging regions provide an unreachable consumer market that is starting to provide or afford goods and services that developed markets have enjoyed for a reasonable period. Moreover, the development of international communication instruments such as the internet has leveraged the chances of companies to access an extensive number of individuals. In doing so, this has become especially pronounced with a comprehensive internet proponent to rely on unmanned drones to increase wireless internet chances in regions that were unreachable initially. According to SOURCE, the allure of the international market mostly blurs the vision of executives who believes that penetrating foreign markets is likely to increase their net revenues. However, SOURCE argues that five or four others struggle to meet their goals and expectations for every successful company internationally. In some instances, even if there is a can apparent change in a particular market, it can mostly take long to make the opportunity practical which in the long run makes the idea financially unviable. For instance, SOURCE has pointed to Walmart as an exemplary example as it attempted to penetrate the Japanese market in the early 1990s. However, it failed to penetrate the market successfully not until recently.

Many scholars believe that as business organizations enter international markets, it is vital for them to think about the risks involved in such operations. SOURCE has identified three potential risks that the business may experience. The chances the author identified included operational inefficiency, legal risks, and political risks. If a particular business organization has been conducting its operations effectively in one region, it implies that they are aware of handling their issues in that region effectively. However, SOURCE argues that such issues may always be the case whenever a business organization opts to expand their operations into a foreign market due to varying social acceptance, work culture, compliance factors, and laws, making the transition more challenging relative to the expected. Although obstacles may be minor, various small barriers may collaborate in establishing a risky working environment that may not permit the company to benefit from the opportunities fully. There are multiple delays in licensing agreements and approval. Most of these issues focus on central agencies that control how the business operates.

SOURCE has also identified political risks as a significant hurdle for international business. In most developing countries, the legal framework is less appropriate to what many companies are accustomed to. In essence, such issues may cause a business to incur unforeseen negative revenues because of a lack of the capacity to offer protection to their assets and rights in the same way they could have done in their home markets. In other words, if things do not work as anticipated, there is a chance that the company may be limited in its capacity to make things better again.

 

Many developing markets are likely to experience an extensive level of political risks. While they may currently possess an optimal audience and favorable business environment for a business to pursue their operations, unexpected political risks or changes may cause enormous ramifications. For instance, SOURCE mentions that various auto manufacturers prefer doing business in Brazil because it is less costly than local provisions. Nonetheless, the Brazilian government-stipulated protectionist measures to help in promoting the domestic market reduced the foreign auto brands sales.

Critical viewpoints and analytical viewpoints

 

 

Conducting business overseas entails a lot of risks that local business organizations may not experience. The global trade and busies encompass exposure to local bribery, economic conditions, and fraud. Mostly, business operations may be interrupted by political issues and challenges such as problematic diplomatic interactions, insurrections, volatile governments, and hostility from locals. Exchange restrictions and unstable currency exchange rates can also complicate some international dealings. Foreign investments and earnings may be subjected to various restrictions and tariffs, tax issues, and foreign withholding issues may also further affect company returns. With most of these challenges in place, it is possible for companies conducting their operations internationally to be careful about the domestic environment and internal logistics. In essence, there is a need for the internal audit team of a business organization to conduct regular visits to ensure that risks are controlled appropriately to secure the final interests and objectives of the firm. Ultimately, constant attention and preparation are ways that a company can protect itself from the risks and threats associated with international business. Every state presents various investment chances. Before an individual expands their business organizations internationally, they will need to be aware of the extra risks of the international trade market. Generally, the risks associated with carrying business abroad can be classified into various categories such as currency risk, regulatory, and political risks.

Based on the reviewed literature, multinational corporations are less impacted by localized recessions than business organizations that only operate in one region or state. Besides, business organizations that operate in various countries possess an extensive potential for their consumers, which implies more chances to produce more positive net revenues. Nonetheless, multinational corporations need to remain satisfied with the various risks that can endanger profitability and even the continued business existence. Every country has its laws and government regulations associated with business operations. Multinational corporations need to ensure that company policies comply with the domestic laws, which implies that establishing a different collection of operation practices for each country that the company operates in. changes in the political and law system can put a business in danger of the controlling government decides to nationalize particular industries or ban the manufacturing or production of certain goods and services. Political disputes between states may also result in increased taxes on exports and imports. In doing so, such issues may possess adverse implications on multinational company operations.

There are various ways in which a business can mitigate international business. When purchasing materials and goods required for the business operations internationally, there may be uncertainty regarding the supplier's ability to deliver within the budget and on time. A company may reduce this risk is to diversify its supply chain by spreading orders among different suppliers. Besides, a company may also take this step further if the consider using various suppliers from other regions or nations to curb the risks associated with logistics, such as unforeseen problems in the form of weather. The techniques may also function effectively for a large business organization with the personnel and resources to handle the detailed work. The method may also be helpful for small businesses. However, they may need to have a fail-safe measures system that relies on a backup supplier for every current supplier.

 

Conclusion

When a busies organization decides to pursue business opportunities overseas, there are various risks that the company is likely to face due to changing environment, laws, policies, and other factors. Risk management is an instrumental aspect of international business operations as different regions present different economic, political, and social risks. Political risks focus on government stability and security while economic risks focus more on the company's competitive profile and level of inflation in the country. Companies experience different types of risks depending on the nature of their operations.