Every country presents its own investment opportunities. Before expanding your company overseas, however, be aware of the additional risks of the foreign trade market. In general, the risks of conducting international business can be segmented into four main categories: Political, Country, Cultural& Regulatory and Business risk.
Politicial Risk
Determine the political climate of the country you hope to enter.
An unstable or ineffective government will be unable to protect
your business interests. Lack of a strong foreign trade policy
means that your business will have to navigate through the nuances
of allying with government officials who may fall from power. An
incoming government may not be business-friendly, and may decide to
increase tariffs or impose quotas.
Country and Cultural,Regulatory Risk
A sudden change in trade laws or a poor legal system exposes your
business to regulatory risk. For example, a country without clearly
defined intellectual property laws make it difficult for foreign
software companies to protect their investments. Changes in banking
laws may limit your company's ability to repatriate money to your
home country or may limit access to funding.Weigh the benefits of
your company doing business abroad against the potential pitfalls.
Poor infrastructure such as roads, bridges and telecommunications
networks can make it expensive to operate a business in another
country. Economic conditions such as high unemployment or a largely
unskilled labor force can be barriers to entry. Rogue nations may
have untapped potential, but may also pose risks such as terrorism,
internal conflict and civil unrest. Anti-foreign sentiment among
citizens, workers and government officials may also make doing
business abroad especially challenging. Other country risks include
crime and corruption.
Business Risk:-
Fluctuations of a foreign country's currency can diminish profits
when converting back to the home currency. Analyze the risk and
rewards of making an investment in another country. The currencies
of stable governments are less volatile than those of
less-developed countries. Hedging strategies could mitigate some of
the currency risk; however, your business is still at the mercy of
the vagaries of the local currency market. Sudden changes in
monetary policy will also affect currency rates, If you are
planning to do business overseas, contact the local office of the
International Trade Association, or ITA, in your state. The ITA is
one of many agencies within the U.S. Department of Commerce and is
responsible for providing small- and medium-sized businesses with
customs and trade facilitation support in foreign markets. The ITA
has Commercial Trade Service professionals in more than 100 U.S.
cities and nearly 80 countries.
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