Businesses that operate overseas face quite a range of economic risks. They
risk exchange controls, which restrict the movement of capital into and out of the country, which
makes it hard to remove profits from or make investments in the host country. Sometimes these exchange
controls are even put on selected products to intentionally reduce the importation of the goods.
Exchange controls may not only affect the importation of products, but if pushed too far, could
result in severe unemployment, or even the shutdown of the plant.
There is risk in tax policies,
which countries use to invite foreign investment and gain some control over multinational corporations.
This can raise much-needed revenue for the country with the tax policy; it can also severely damage
the operations of foreign investors. The chain reaction eventually has a negative effect on income
in the long run. Political pressures sometimes force governments to control the prices of products
or services that are imported. In countries that suffer from inflations, devaluations, or sharply
rising costs, companies may be forced to either shut down the company or continuing to produce goods
at a loss of profits.
Since politics and law are quite intertwined with each other, if change
were to take place, it would have to comply with the law. Political risk involves ethical dilemmas
such as simply ignoring prevailing rules and hoping to get away with whatever you're doing, or to
provide input to trade negotiators and expect problem areas to be resolved as multilateral negotiations.
The down side of this is that it is a time consuming process, and the issues at hand would still
remain outside the control of the company.
There is ownership risk, as a branch of political
risk. In this situation, companies with foreign subsidiaries could be exposed to the risk of losing
properties. In some cases, death is also a possibility. Then there is operating risk, which deals
with companies that have partners in politically unstable environments. They risk interference or
setbacks to ongoing operations, including loss of contracts or disruption of local manufacturing
facilities. Transfer risk is the final risk; the difficulty of shifting funds from troubled countries
leads to potential losses in the host company.
Companies also risk such things as boycotts,
bribery, and corruption. All these things could tear a company apart and prevent it from ever surviving
in the corporate world. Anything that 'greases the wheel' of international trade, in turn forcing
international companies to make payments to officials to conduct business, is considered bribery
and corruption. Anti-trust laws also affect international business. They prohibit monopolies, restraint
of trade, and conspiracies that inhibit competition.
There are a lot of different risks in
going global. Businesses that eventually want to export must be willing to take on the risks of
possible violence and conflict, heated competition, confiscation, war, strikes, extortion, and any
number of other potential problems that could crop up. Any company that is willing to export products
or services to foreign countries despite these overwhelming odds is a company to admire.