Political Risk International Business

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  • Topic: Risk, Risk management, Investment
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  • Published : November 25, 2012
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POLITICAL RISK IN INTERNATIONAL BUSINESS

The term business normally refers to the act of doing any transactions that ends up in earning or losing money. The act that is ending up in financial implications is called business. This business can be considered as a result of collective commercial transactions of all types involving government, private, corporate, individual or a group of individual, and so on. Anyone involve in the business usually undertakes such operations only for the purpose of making profit, and only in the case of government involved business, there will be some other reason than profit making which could be political, economical, etc.

International business is recognized and / or defined as the business that is done across two or more country borders. International business involves selling, buying, making investment, transporting goods, logistical activities, etc between two or more countries. The companies that are doing business worldwide are called multinational companies (MNCs).These companies are normally formed and incorporated in one country and then create their operations in various countries, and will have access to all the markets wherever they do trading. These companies are having different strategies and different approaches for different country operations due to many factors such as culture, interest, etc of the people in those countries. To mentions some examples, McDonalds, Sony, Shell, General Motors, Toyota, etc.
The very basic purpose of doing business is only to make money, predominantly, although there are businesses which are not mean for money or profit. Hence for the international business also, the basic purpose will be only profit making. However, there are some additional purposes for the international business, since the effort involved in the establishing the international business is more and complicated than just doing a domestic business. Some of the purposes of international business are discussed hereunder.

New Opportunities: While the corporations are extending their operations to the international market, the opportunities for them to develop their business and increased sales / revenue are more. Since the international business brings new products and new services to the country, there will be a good opportunity for finding new customers, and making a good volume of sales among the customers. Also, based on the geographical conditions, climatic conditions, available resources, etc there will be more opportunities for the MNCs to develop their business in terms of infrastructure, product lines, etc.

Low Cost: This is an advantageous purpose for the MNCs to have their operations in various countries. In countries like China, India, the human resources will be available in large number and hence the cost of labour becomes comparatively cheaper with the countries of origin of those MNCs. Hence the companies start their operations in those countries and reduce their cost of production lesser and lesser. Those products that are produced from there can be transferred to the other country’s operations of the same MNC. Hence over all the company’s cost of production is slashed to a very minimum amount. For example, many Sony opened their operations in China, and most of the Sony products available in any of the country come from the manufacturing units of Sony in China. This way Sony capitalizes the international business concept.

Resources: Resources are one of the major assets for any organization. Business while going international, get opportunities to improve the standard of the resources, many times at a cheaper cost. While the business is international, the organization will have access to various types of resources from various countries. This is an added advantage to the company in developing their knowledge, and work force. Hence cross country knowledge is acquired by the organization, and hence the knowledge repository of...
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