Business Development in a Global Market

Topics: International trade, Free trade, Economics Pages: 5 (1454 words) Published: October 28, 2008

Developing a business opportunity or introducing a new product into the global market place is a risky business at the best of times. Strong and precise business strategies along with extensive market research are the keys for developing a successful global enterprise. This essay will cover the core fundamentals required to best enter the global market while minimizing the risks. Core fundamental include, indentifying potential markets, product competition, risks involved, future growth potential, entry strategy and costs involved to enter the market place.

When identifying potential markets we must consider the benefit, risks and costs associated with each market. There are several questions that need to be asked. The first one being, what is the political stability and economic growth rate of the country. This will determine how high the risks are to enter and the future profitability of the market. In less developed nations you will find the risks are greater, the costs may also be greater as there is likely to be less infrastructure, more back handed payouts to the government for entitlements to do business etc. but the potential growth rate may be higher than in well developed political stable nations. Will the product offend or not be accepted by a nation’s religious or cultural environment. Once entered is expansion into surrounding nations accessible with free trade agreements. Is there any legal risk involved and at what cost. Available resources and the product competition must be known. This information is crucial when it comes to making the final decision on entry mode and strategy.

From these questions we can take a closer look at the risks associated in finer detail before deciding on the best potential markets for entering. First we will look at the political risks faced by investors, corporations and governments. This is a risk that can be understood and managed with proper thought and investment. Political risks are the complications businesses and governments may face as a result of political decisions or “any political change that changes the expected outcome and value of a given economic action by changing the probability of achieving business objectives.” Political risk faced by firms can be defined as “the risk of a strategic, financial, or personnel loss for a firm because of such nonmarket factors as macroeconomic and social policies (fiscal, monetary, trade, investment, industrial, income, labour, and developmental), or events related to political instability (terrorism, riots, coups, civil war, and insurrection).” For a business, the implication for political risk is that there is a measure of likelihood that political events may complicate its pursuit of earnings through direct impacts (such as taxes or fees) or indirect impacts (such as opportunity cost forgone). As a result, political risk is similar to an expected value such that the likelihood of a political event occurring may reduce the desirability of that investment by reducing its anticipated returns. There are both macro and micro- level political risks. Macro-level political risk looks at non-project specific risks. Types of risk include government currency actions, regulatory changes, sovereign credit defaults, corruption, war declarations and government composition changes. These events pose foreign direct investment risks that can change the overall suitability of a destination for investment. Micro-level political risks are project-specific risks. These types of political risks might look at how the local political climate in a given region may impact a business endeavor.

With majority of countries adopting more and more liberalised policies and free trade methods, economic risks in international trade are less threatening in today's market of trade and commerce. Various goods and services are exchanged across geographic boundaries of several countries and the political...
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