International Business Risks Or Risks of Doing Business Overseas

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

How to Identify High Business Risks at the Workplace

How to Identify High Business Risks at the Workplace?

Risk management at the workplace is a daily challenge for managers working in any organization. Risks can be serious like potential fire in your plant/factory and embezzlement by senior management staff of the company or minor like employees using company time to conduct their own personal matters. In this article, we will discuss on how to identify high business risks at the workplace that we as managers, need to be mindful of.

To manage risks, we must first identify the risks that can potentially happen at the workplace. Risks are basically some events that may occur in the future and cause negative business impacts to the organization. To identify risks particularly those with high negative impacts to the company, we utilize the knowledge and experience of our experienced employees who operate the business processes, plant/factory equipments or units. This can be effectively carried out through structured brainstorming or facilitation. The facilitator given the responsibility in carrying out this assignment is someone who should be competent in the facilitation process. In addition, he/she must have the ability to manage the participants in the brainstorming session, especially the participants who are senior management staff.

I remembered an occasion when I was given the assignment to facilitate a group discussion which was attended by a Chief Executive Officer and several Senior General Managers. The Chief Executive Officer did not want to participate at the initial stage of the group discussion. I had a feeling that he was trying to evaluate whether I knew what I was doing. To overcome his resistance, I had to explain patiently to him on the process during the course of obtaining inputs from the other members of the group. As soon as he was convinced that the process was working and he was not wasting his time, I could not keep up with him as he was providing some excellent ideas at a very fast pace.

In a typical brainstorming session, the group can easily identify many risks that can happen in the organization. It will be quite impossible to manage the hundreds of business risks identified. Consequently, we need to prioritize the business risks identified. Prioritization involves managing business risks which have High Seriousness when they happen. What are these risks? We can consider risks with High Seriousness if the risks have negative implications on plant production, Health Safety & Environment, compliance to laws & regulations and the company image.

The other criterion in risk prioritization is to identify the likelihood or probability of the business risks happening. Will the business risks happen? Are existing preventive plans put in place by the organization, sufficient and effective? A good example would be business risk of “Late Delivery of a critical equipment” required for a new plant. If this critical equipment is delivered late, it will have serious consequences in affecting the completion of the new plant, thus impacting the planned production resulting in business loss. One of the preventive actions of minimizing the likelihood of this risk happening which has been adopted by my company, is to have a Liquidated and Ascertained Damages (LAD) clause in the contract with the equipment supplier.

The objective assessment of the risks identified, the seriousness and the likelihood of the risks happening, can then be captured in a Risk Map. The Risk Map is then used as the main reference for managing high business risks in the organization.

Evaluating and Managing Business Risk in Organizations

Evaluating and Managing Business Risk in Organizations

Managing risk is an essential part of any business. Business risks may appear in any facet of the business. Risks and uncertainty are realities every business must face. A risk presents itself where one is forced to make a choice between alternatives whose potential outcomes are unknown or where one is forced to deal with an unanticipated situation that could adversely affect the organization. For instance, these risks could be:

• Financial Risks: such as investment choices, inadequate working capital, poor financial calculations, accounting fraud or excessive spending to mention a few.
• Economic Risks: such as interest rate changes, changing government policies, exchange rate changes or demographic movements.
• Production Risks: such as obsolete/ defective materials and goods, continuous technological evolution, product mix and quality, machine breakdown or cost of production.
• Human Resource Risks: arising due to fraudulent employees, negligent/inefficient employees, social engineering, recruitment risks or labor drain.
• Legal Risks: such as judgments from court cases, legal infringements, new legislations or business laws.
• Political and Social Risks: arising from issues such as civil unrest, elections, and unfavorable ideologies of political leaders or corruption.
• Management Risks: such as poor management decisions, insider trading, corporate governance issues, corporate policies and strategy.
• Market Risks: such as competing against fierce competitors, changing consumer tastes or behavior, piracy, distribution and dealership issues or marketing strategy.

To effectively handle these business risks, the following steps should be taken:

• Assess The Risk: To effectively assess the risk the following question need to be answered. Does a risk indeed exist? If it does exist, is there any alternative to be chosen? How much information is available about these alternatives? What is the potential impact of the risk should it occur?

• Assess the Alternatives: What would it cost the organization to pursue each of these alternatives? Note that the cost being referred to include both financial costs, human costs, cost to the organizations image, material costs, environmental costs, competitors reaction to your course of action etc. Alternatives could also present the option to:

a) Transfer the Risk to another party more competent to handle it. (E.g. through insurance, joint ventures and strategic alliances, outsourcing etc.)
b) Mitigate the Risk. I.e. to manage the impact of the risk by minimizing the odds.
c) Ignore the Risk. I.e. brace yourself and accept the impact.

• Implement the Alternative Chosen: Once an alternative is selected, an implementation plan is quickly arranged. The plan should clearly itemize steps needed to implement the strategy chosen. The implementation plan should also have a backup plan for another alternative strategy should the former fail. There should also be a feedback process to handle issues that may arise in the course of implementation.

Types of Business Risks and the Proper Responses

Types of Business Risks and the Proper Responses

Risk is uncertainty that matters.

It is the life blood of business. No risk implies no return. Business take risk all the time including launching new products, entering new markets, advertising, launching a new web site. Without them your business will stagnate and soon be overtaken by your competitors. There are a number of simple steps to follow to ensure you fully understand your business risks

Steps to Follow

1) First be clear what your objectives are. Without a clear view of you business objectives you cannot know what risks you take. Every business need to leave space for emergent strategies but having poorly defined objective means that you are not controlling your own destiny but just responding to the strategy of others.

2) Identify the risk to your business You can use a wide range of techniques to help you look at other companies what problems have they had, talk to people you meet in business circles to test out your ideas, get a team together to brainstorm your ideas. Typically these can be in the following areas:

a) Staff and capability

b) Operations

c) Customers

d) Product performance

e) Operations

f) Finance

3) Prioritise your risks based on the likely hood of occurrence and the consequences on your business. This way you can identify what is critical to your business. Be especially careful about any systematic causes which apply across your business. The real danger with these systematic causes is a form of organisational blindness or group think. As a result people in your business may dismiss these causes as unrealistic. You can seek external views to help identify these systematic causes in a realistic ways.

4) Plan reduction measures for the most important risks. Actions can include

a) Avoid by reducing the scope of you ambition

b) Transfer to someone who is much more able to manage the risk, either through a contract or insurance

c) Plan mitigation activities to reduce the likely hood or impact of the risks

d) Accept that the risk may happen but prepare a contingency plan to maintain you business revenue stream

What is Business Risk and Reward Calculation

What is Business Risk and Reward Calculation?

Yes, what is Business Risk and Reward Calculation is a frequently asked question. Many a businessmen are still trying to figure out what exactly is the meaning of Business Risk. In short what can be said is that when you start a business all entrepreneurs have some amount of risk involved in it. It may sound tough but budding entrepreneurs have to strike a balance between this risk and rewards in business.

The impact of risk is very high and you always have to know an answer to the question how to evaluate risk. To start with starting your own business is full of risks. Whether the business will run or not, will you succeed or not and will you be able to achieve all that you dream of are always at a risk.

Then there is risk of loss of finances which makes it all the more complicated. Usually entrepreneurs invest their own hard earned money into their business. But if it crashes then they will suffer financial loss. This will lead to a setback in their career as well. So this also has a risk of dooming their careers as well.

All this negatively affects a human being. This failure may cause depression in a person. This is definitely takes a bearing on the social life of an entrepreneur. They take out their anger on their near and dear ones at times.

Sometimes they do not even do so and their loved ones get worried. Hence what we see is that it is a vicious cycle of risks. You need to break this cycle by knowing the answer to the question how to evaluate a business opportunity.

Now about the Reward Calculation is that starting a new thing of your own is quite rewarding in itself. It is a positive thing to do all by you. This zeal is one of a kind and you need to enjoy every bit of it.

Again once you start making profits and making money you will find it rewarding financially. So this is another way of getting charged up for future planning. This also brings with it another reward in the form of being sociable. Yes when you are happy you find the entire environment around to be happy and positive.

Above all you need to give your business the tome to flourish. Mere evaluating and analyzing your business sitting in an air conditioned room will not help. You need to understand that everything requires time. Bill Gates and Steve Jobs did not make it big in a day. You need to give your line of business the time. Only time will clearly help you with Business Risk and Reward Calculation.