Topic 4 Managing Risks
Uploaded by
Azzahara HarunTopic 4 Managing Risks
Uploaded by
Azzahara HarunRisks and Uncertainties in
International Business
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)
https://www.consultancy.uk/news/14541/the-top-10-business-risks-for-executives-and-multinati
companies
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.
likelyhood
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
Political risks
• 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 risk can include, but is not limited to:
• Currency inconvertibility and non-transfer
• Political violence (including terrorism and war)
• Contract frustration due to political events
• Sovereign payment default
• Wrongful calling of on-demand guarantees and bonds
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
How to manage political risks:
• Avoiding investment
• Adaptation
• Local equity and debt
• Development assistant
• Threat
• Lobbying
• Terrorism consultant
• Detail plse click the link
https://www.yourarticlelibrary.com/politics/10-different-ways-in-which-
political-risk-can-be-managed-investment/5772
Economic Risks
• 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
• Economic risks arise from economic
mismanagement by the government of a country
• Usually interrelated to political risks
• Economic risk centers on macroeconomic
circumstances that may result in significant loss for
a business.
• These conditions include inflation, exchange rates,
new government regulations and other decisions
that may adversely affect profits.
Financial Risk
• Discussion from GROUP ASSIGNMENT
Legal Risks
• Is a potential loss due to the regulatory or legal action
• Legal risk is the risk of financial or reputational loss that can
result from lack of awareness or misunderstanding of,
ambiguity in, or reckless
• The likelihood that a trading partner will opportunistically
break a contract or expropriate property rights.
Types of legal risks
• Regulatory risk
• Compliance risk
• Contract risk
• Dispute risk
• Reputational risk
Natural (Disaster) Risks
• The likelihood that natural disaster will cause
severe damage to the company’s assets/ cause
major business interruptions
Natural Risks
• 2 types:
• Nature
• Man-made
• Nature:
• earthquake/tsunami, floods, fires (forest fires), hurricanes,
tornadoes etc.
• Man-made:
• Dams or locks, severe environmental pollution, severe
building collapse, explosions, transportation incidents etc.
SOURCES OF RISKS
• Physical environment
• Social environment
• Political environment
• Operational environment
• Economic environment
• Legal environment
• Cognitive environment
RESOURCES EXPOSED TO RISKS
• Physical resource exposures
• Human resource exposures
• Financial resource exposures
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.
Risk management major components
• The risk management process is a framework for the actions that need
to be taken. It begins with identifying risks, goes on to analyze risks,
then the risk is prioritized and reduction, a solution is implemented, and
finally, the risk is monitored.
• 5 major components:
• Risk identification
• Risk analysis
• Risk evaluating
• Risk reducing measures
• Risk monitoring
What Are the Risks of an MNC That Expands
Internationally?
• https://smallbusiness.chron.com/managing-risks-
associated-multinational-corporation-78224.html