International Business Risks Or Risks of Doing Business Overseas
Anytime businesses decide to operate or expand internationally, they face certain and specific risks. These international business risks can be determined by a number of different factors including country history, cultural values, mores, geographical traits and of course legal precedents of chosen international location. The company or firm must consider all of these factors before making a solid and final decision to move abroad. The firm must always keep in mind their competitive advantage at home and compare that standing prior to entering the international business realm. They must keep in mind that risks are always relative to the size and stability of the firm’s competitive advantage.
Basically, there are six primary international business risks which are most often faced by firms considering entering the international business realm. Again, they are always tied closely to the firm’s competitive advantage. A firm’s competitive advantage is broken by “type”, “scope”, “transferability”, and finally “translate-ability”. All of these factors break into degrees of low risk to high risk and must always be considered in the plan.
When doing this risk analysis, S.L.E.P.T. comes in very handy. SLEPT stands for Social, Legal, Economic, Political, and Technological. In this case, the firm would have to look at the inherent risks in the firm being a wholly owned operation, a joint venture, a franchise, licensing issues, and export ability. On the other side of the coin, they would also need to look at marker risks, ownership risks, intellectual property risks, currency risks, and finally political risks.
I’ve decided to break this international business risks post into separate posts in a series to make it easier to follow and to make it more concise and to the point. You can click on my author link and find the rest of the posts in the series which will include all factors discussed in greater detail. They will include everything from political risks of corruption, unstable institutions, and red-tape. I will also be looking at currency risks, intellectual property risks, ownership risks, and finally market risks and all that they involve.
In the end it should be understood that these risks are not the only risks that a firm may face when considering, expanding, and beginning to do business internationally. There are certainly other risks that absolutely must be analyzed by the firm. The firm must be extremely thorough in doing their due diligence analysis before entering any country with the intent of establishing themselves there. Before making any major and “life-altering” decisions, the company must understand the amount of risk that is currently and already present there, and most importantly, how much of that inherent risk is the firm willing to take upon it and assume.
In closing I would like to simply state possibly the obvious but some that needs to be stated and restated many times so that it’s importance really sinks in. And that simply that deciding to enter a country is always a very, very serious decision that can and will make or break a firm and so it’s imperative that the decision makers do not skimp on the analysis involved