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Risk in International Business

In: Business and Management

Submitted By Mike1234
Words 1642
Pages 7
Commercial Risk
Commercial risk involves the ability of firms to strategize successfully and implement its strategy through effective tactics. The challenge is that any mistakes made abroad can be more costly due to local government regulations. Sudden changes in the trade laws and legal systems in other countries exposes international firms to regulatory risks. For instance changes in a country’s banking system may limit a firm’s access to funding or their ability to repatriate money to their home countries.
A major commercial risk is usually lack of knowledge of the international market. If exporters, for example do not have in-depth knowledge on the area where its sales are being made, it is more likely to fail in international business. Commercial risk occurs as the result of inadequate formulation and implementation of strategies, tactics and procedures. These also include timing of the company into a particular market, the competitive intensity existing prevailing in the market, poor strategy execution and the weakness of the partner and also the various kinds of operational problems. It should however be considered that commercial risks are usually unpredictable and it is therefore essential for firms to lay down effective strategies in place to ensure that this risk is reduced.

Currency Risk
Currency or Financial risk occurs as a result of the daily fluctuations of different currencies against each other. It also includes the valuation of assets and the foreign taxation policies available in different countries. This risk is mainly to do with the adverse fluctuation of exchange rates, inflation and other harmful economic conditions that may affect a firm’s return on investment. When there is a significant fluctuation of exchange rate, the value of a firm’s assets, liabilities and operating income is likely to be diminished.
It is therefore essential...

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