Introduction to International Business
October 18, 2005
Containing Risks of International Trade
The domestic market is stagnant, competition lethal, and trends disfavorable. The obvious solution: move to a fresh market in another country! Venturing to do business internationally can be lucrative. It can also be dangerous. The brave trader will face potentially huge differences in legislation, tastes, culture, and general economy; a refreshing variety of threats are also available, ranging from fierce competition by entrenched local businesses to kidnappings of key employees.
Fortunately, there are ways to safeguard against risks and minimize their negative impact. The ways can be broadly grouped into two simple major categories: careful thought, and direct action. Some details and applications of both will be considered below.
The first and foremost mean to contain risk in international business is to stay awake. As no doubt any seasoned businessman would attest, being aware of risks before they descend upon you allows you to avoid much misery. Before barging abroad, a careful look must be taken to assess new factors and expect the unexpexted. As we have learned over the course so far, the standard way of doing this is by way of preparing a Country Marketing Plan. Some of the things it must take into account are: current conditions in the target country (such as laws), analysis of current and potential markets, consumer differences, current and projected internal company situation, and which strategies would be the most fruitful to follow.
Even with a good plan in hand, the company has to keep an eye out for any hints of changes in the environment. One effective course for a company to take is to hire a risk manager, perhaps academically trained or someone with experience in dealing with international risks, because the economy, competitors, and politics need time-consuming monitoring.1 How will pricing need to be changed due to current economic trends? What is the competition up to? Will talk of war slash exchange rates any day now? Is it time to strike out, or move out? The business plan has goals, and improvements may become apparent by keeping track of how well those goals are met, for example, in sales revenue after a new, aggressive marketing campaign. With all that under control, a company can stay on top of most situations and will know when and where to act.
Some threats can be neutralized by attacking them. Governments can be a boon or a bane - tilt the scales in your favor by establishing a strong lobby and a squad of lawyers. This way it may be possible to deflect unfavorable regulations or political interference from local competition, at least if you did stay awake and learned of the attempt in time. Of course, possibly the most feared risk, political instability, is not easily remedied. Another dreaded factor is the fluctuation in foreign exchange rates. While carefully drafted agreements with sound financial forecasting and a touch of luck can reduce the potential losses incurred by exchange rate movements, in some extreme cases the least harmful action to take may be to withdraw operations at least temporarily.
Many other risks are nullifiable through a socially responsible approach. To combat a negative "foreigner" image, setting up production in the new country or engaging in joint ventures with local companies will make you seem that much more precious to the locals. To protect ex-patriate employees in a hostile environment, swift and stealthy action may get them home before anything bad happens. To avoid cultural misunderstandings, intensive and extensive intercultural communication training for managers may be worthwhile. This is more important than many new to international activities realize, because cultural blunders can make both employees and customers very miserable.2 Examples of such abound.
On the whole, doing international business is a rewarding challenge. Although there are many hurdles to cross - regulations, politics, a new culture and a total of twice as much bureaucracy - abundant harvest awaits the international reaper. Avoiding potential disaster is as easy or as hard as carefully using common sense: think first, then act, then think some more.
Course: Introduction to International Business
www.capitalvenue.com/NewNewsletter/NL1-3-2008InternationalBusinessRisk.htm (seems to have disappeared)
- Making the Case for Intercultural Training