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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. |
