11/12 Business Management, Term 4

1. INTERNATIONAL BUSINESS RISK

2.  Too often business owners jump when they see
opportunities abroad without conducting research
and training their employees for the challenges they
may face.
 When a business engages in international activities,
they take on risks as well as opportunities.
 Although the environment for international trade
has changed substantially over the years, the risks
that exporters face when selling their products and
services in other countries remain essentially the
same.

3. POTENTIAL RISKS
 Political
 Legal
 Bribery, graft and corruption
 Quarantine compliance
 Exchange rate
 Other financial
 Strategic
 Operational
 Terrorism
 We will look at these to some degree in the following
slides

4. POLITICAL RISK
 This is what you will be talking about in your political stability section
 The political actions and instability may make it difficult for companies to
operate efficiently in these countries due to negative publicity and impact
created by individuals in the top government.
 A firm cannot effectively operate to its full capacity in order to maximise
profit in such an unstable country’s political turbulence.
 A new and hostile government may replace a friendly one, and therefore
remove foreign assets.
 Trade embargos affect the flow of goods and services and could affect
your delivery of goods and getting paid.
 Civil disorder could affect your personal safety
 The country may not comply with international laws such as human
rights, trade sanctions, recognition of personal property rights.
 Some countries will request additional funds or tariffs in exchange for the
right to export items into their country.

5. LEGAL RISK
 Each country has its own set of laws and
regulations when it comes to importing goods,
taxes, and selling online.
 Differences between legal systems – Australia has
common law, other places may have civil law.
 Exporters or services need to take OH&S laws into
consideration.

6. BRIBERY, GRAFT & CORRUPTION RISK
 Graft: an unscrupulous use of a politician's authority
for personal gain. Most governmental systems have
laws in place to prevent graft although this does not
always halt political corruption
 It is a criminal offence to offer a benefit which is not
legitimately due with the intention of influencing a
foreign public official
 Australia’s Criminal Code Act applies
extraterritorially

7. QUARANTINE COMPLIANCE RISK
 Most countries have strict quarantine requirements
 Before exporting, you need to be aware of what is
and what is not allowed under the relevant
quarantine laws of your destination
 Also ensure any exports are permitted to enter your
destination
 Failure to do so can result in forfeiture or
destruction of goods, fines and restrictions your
business

8. EXCHANGE RATE RISK
 Exchange rate risks occur due to fluctuations in the value of a
currency
 Many exporters have lost money due to exchange rate
changes
 When a domestic currency appreciates against a foreign
currency, profit or returns earned in the foreign country will
decrease after being exchanged back into the domestic
currency
 For example, if an Australian receives a lot of its business in
Japan, when the Japanese yen depreciates against the
Australian dollar, and yen profits become less in Australian.
 Lets say Y1 = $5
 In 1999 your company makes Y1,000,000 (= $5,000,000)
 In 2000 the yen changes to Y2 = $5
 So, making Y1,000,000 now = $2,500,000
 This is why prices of foreign products sometimes change

9. OTHER FINANCIAL RISK
 Tariffs and quotas:
 Countries add taxes or restrictions to particular products
coming into their country in order to give their own
businesses a higher advantage
 Lower GDP countries cannot afford the same prices
as higher GDP countries
 Governments (in)flexibility in allowing firms to
repatriate funds/profits
 Many governments make it difficult to repatriate money,
forcing them to invest elsewhere

10. STRATEGIC RISK
 The ability of a firm to make a strategic decision in
order to respond to forces that are a source of risk
 These can also indicate the competitiveness of a
firm
 They can include:
 Threat of new entrants
 Threat of substitute goods/services
 Intensity of competition in the industry
 Bargaining power of suppliers
 Bargaining power of consumers

11. TECHNOLOGICAL RISK
 Lack of security in electronic transactions
 Cost of developing new technology
 The fact that new technologies may fail
 Out-dated technology

12. TERRORISM RISK
 Terrorism risk can make it difficult to do business in
a country
 The higher the risk of terrorism, the harder it may
be

13. OTHER RISKS TO CONSIDER
 Inexperienced management team
 No local marketing contacts or partners
 Inadequate infrastructure within the foreign country
 Cultural and language barriers
 Company is not flexible
 Pricing is not optimised for the country
 Does not provide after sales services
 Information on these can be found at :
http://voices.yahoo.com/10-international-business-risks-
challenges-for-7526598.html?cat=3

14. REFERENCES/USEFUL SITES
 Austrade. "Risk Management: Managing International
Risk." Austrade. Australian Government, n.d. Web. 16
Oct. 2012. <http://www.austrade.gov.au/Risk-
management/default.aspx>.
 Larmore, Carrieanne. "10 International Business Risks and
Challenges for Small Businesses." Yahoo! Voices. N.p.,
16 Jan. 2011. Web. 16 Oct. 2012.
<http://voices.yahoo.com/10-international-business-
risks-challenges-for-7526598.html?cat=3>.
 Okolo, Sidney, Dr. "Risks in International Business." Ezine
Articles. N.p., 16 July 2008. Web. 16 Oct. 2012.
<http://ezinearticles.com/?Risks-in-International-
Business&id=1331702>.
 Sargeant, Nicola. "What Risks Do Organizations Face When
Engaging in International Finance Activities?" Investopedia.
Investopedia US, 10 Nov. 2006. Web. 16 Oct. 2012.
<http://www.investopedia.com/ask/answers/06/international
financerisks.asp>.