Risks in international trade


Just as there are reasons to get into the international market, and benefit from global markets, there are also risks involved in positioning companies in certain countries. Each country may have its potential; it also has its woes that are associated with doing business with major companies. Some of rogue countries may have all the natural minerals than the risks involved in doing business in these countries exceed the benefits. Some of the risks in international trade are:

(1) Strategic Risk

(2) Operational risk

(3) Political Risk

(4) Country Risk

(5) Technological Risk

(6) Environmental Risk

(7) Economic Risk

(8) Financial Risk

(9) Terrorism Risk

Strategic Risk: The ability of companies to make strategic decision in order to respond to the forces that are at risk. These forces also affect the company’s competitiveness. Porter defines them as :. The threat of new entrants in the industry, the threat of substitute products and services, intensity of competition in the industry, bargaining power of suppliers and bargaining power of consumers

Operational risk: This is caused by the assets and resources that help the day-to-day activities. Breakdown machineries, supply and demand of resources and products, the lack of goods and services, lack of complete logistic and inventory will lead to inefficiency in production. By controlling costs, unnecessary waste decreases, and process improvement can increase lead-time, reduce variability and promote efficiency in the internationalization of

Political Risk :. The political action and instability can make it difficult for companies to operate efficiently in these countries due to negative publicity and the impact created by individuals in the top of government. Businesses can not effectively operate in its full capacity in order to maximize profits in such political turmoil unstable country. New and hostile government can change the friendly one, and hence expropriate foreign assets

Country Risk :. The culture or country can create instability risks may make it difficult for multinational companies to operate safely, effectively and efficiently. Some of the country risk comes from the policies of governments’ economic, security aspects, and political conditions. Solving one of these problems without all the problems (combined) together will not be enough to reduce the country risk

Technical Risk :. Lack of security in electronic transactions, the cost of developing new technologies, and the fact that this new technology can fail, and when all these are combined with the outdated current technology, may create dangerous effects of doing business in the international arena

Environmental Risk :. Air, water, and environmental pollution can affect the health of citizens and lead to public outcry citizens. These problems can also lead to damaging the reputation of the companies doing business in the field

Economic Risk :. This comes from the inability of the country to meet its financial obligations. Changes in foreign investment and / or national policy or fiscal policy. Effect of exchange rate and interest rates make it difficult to conduct international trade

Financial Risk :. This area has the effect of exchange rates, the flexibility of the government to allow companies to repatriate profits or funds outside the country. Devaluation and inflation will also affect the company’s ability to operate efficiently ability and still be stable. Most countries make it difficult for foreign companies to repatriate funds thus forcing these companies to invest money in less optimal level. Sometimes there are business assets that were confiscated and contributing to financial losses

Terrorism Risk :. These are attacks that may be caused by a lack of hope; trust; differences in culture and religion, philosophy, and / or just hate the corporate citizens of the countries concerned. It leads to a potential hostile attitudes vandalism foreign companies and / or kidnapping of employers and employees. Such frustrating situations make it difficult to operate in these countries.

Although the benefits of international trade of risks, companies should take the risk in each country and also intellectual, red tape and corruption, human limitations resources and limitations in the analysis of ownership, in order to take into account all the risks that comes before venturing into any of the countries.


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