How to Manage Risk in International Business
Conducting international business requires the proactive management of diverse and uncertain variables. Risks associated with the political and legal climate, the business environment, the economy, and the social culture are an ever present reality. Other risks stem from limitations in legal jurisdiction, since international customers may not be subject to the same laws and enforcement mechanisms as their foreign suppliers. Knowing how to manage risk in international business can help to keep your company profitable around the world.
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Instructions
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Do your homework before entering a foreign market. Do not enter any nation without being fully aware of the unique risks and issues presented by that nation. Asses political risks and the legal environment as well as the business and competitive environment, and develop strategies to minimize or circumvent these risks. Study the histories of local and international companies in the specific country and industry to gain deeper insight into what your own experience may be like. Pay careful attention to exchange rates, including their histories and expected future actions. Utilize the services of local consulting firms specializing in international investment. These firms will have thorough knowledge of the challenges and opportunities presented to international businesses in their specific country.
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Partner with local organizations. Much of the risk of uncertainty can be curtailed by cooperating with local organizations to take advantage of their market-specific expertise and local reputation. According to 12manage.com, effective cooperation strategies include joint ventures, licensing agreements, and contracts with local suppliers or customers.
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Be patient if environmental risk factors are currently unfavorable, and consider pulling out of a market if conditions become extremely adverse. If the business environment becomes unfavorable, do not hesitate to move your operations to a friendlier climate.
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Do not place all of your foreign investment in one country. If the business environment in a specific country turns sour, your business can benefit from having an established presence in one or more additional countries. Factory output from a given nation, for example, can be shifted to a factory in a different country, or spread among several factories, if you decide to pull out of the given nation.
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Purchase an international business insurance policy. Insurance policies covering political risk, terrorism risk, global property damage and liability, and international credit transactions are available to companies with exposure to international markets. According to castlerockinternational.com, international coverage for additional issues such as auto insurance, medical expenses, and workers' compensation can be included as well.
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Accept only letters of credit from trusted banks. Deal with banks with which your own bank has had positive dealings in the past, if at all possible. If your customer is only willing to use a foreign bank that is unknown to your own, consider requiring a significant initial payment when offering a credit arrangement, or declining the transaction.
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