Risks and Uncertainties in International Business

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Risks and Uncertainties in International Business
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Risk

• Definition
• 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)

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Quantifying Risk

• 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.

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Risk Factors

• 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

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Political risks

• The likelihood that political forces will cause
  drastic changes in a countrys business
  environment that adversely affect the profit and
  other goals of a particular business enterprise

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Political risks

• 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

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Economic Risks

• The likelihood that economic mismanagement will
  cause drastic changes in a countrys business
  environment that adversely effect the profit and
  other goals of a particular business enterprise

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Economic risks

• 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 countrys inflation rate, and/or level of
  business and government debt.

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Legal Risks

• The likelihood that a trading partner will
  opportunistically break a contract or expropriate
  property rights.

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Natural (Disaster) Risks

• The likelihood that natural disaster will cause
  severe damage to the companys assets/ cause
  major business interruptions

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Natural Risks

• 2 types
• Nature
• Man-made
• Nature
• Avalanche, blizzards, droughts/extreme heat,
  earthquake/tsunami, floods, fires (forest fires),
  hurricanes, tornadoes etc.
• Man-made
• Dams or locks, severe environmental pollution,
  severe building collapse, explosions,
  transportation incidents etc.

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SOURCES OF RISKS

• Physical environment
• Social environment
• Political environment
• Operational environment
• Economic environment
• Legal environment
• Cognitive environment

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RESOURCES EXPOSED TO RISKS

• Physical resource exposures
• Human resource exposures
• Financial resource exposures

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Risk Management

• 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.

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Risk management major components

• 4 major components
• Risk identification
• Risk analysis
• Risk reducing measures
• Risk monitoring

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• End.
• Thank you.