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Political and Economical Risks in Conducting International Business

Businesses that operate overseas face quite a range of economic risks. They risk exchange controls, which restrict the movement of capital into and out of the country, which makes it hard to remove profits from or make investments in the host country. Sometimes these exchange controls are even put on selected products to intentionally reduce the importation of the goods. Exchange controls may not only affect the importation of products, but if pushed too far, could result in severe unemployment, or even the shutdown of the plant.

There is risk in tax policies, which countries use to invite foreign investment and gain some control over multinational corporations. This can raise much-needed revenue for the country with the tax policy; it can also severely damage the operations of foreign investors. The chain reaction eventually has a negative effect on income in the long run. Political pressures sometimes force governments to control the prices of products or services that are imported. In countries that suffer from inflations, devaluations, or sharply rising costs, companies may be forced to either shut down the company or continuing to produce goods at a loss of profits.

Since politics and law are quite intertwined with each other, if change were to take place, it would have to comply with the law. Political risk involves ethical dilemmas such as simply ignoring prevailing rules and hoping to get away with whatever you're doing, or to provide input to trade negotiators and expect problem areas to be resolved as multilateral negotiations. The down side of this is that it is a time consuming process, and the issues at hand would still remain outside the control of the company.

There is ownership risk, as a branch of political risk. In this situation, companies with foreign subsidiaries could be exposed to the risk of losing properties. In some cases, death is also a possibility. Then there is operating risk, which deals with companies that have partners in politically unstable environments. They risk interference or setbacks to ongoing operations, including loss of contracts or disruption of local manufacturing facilities. Transfer risk is the final risk; the difficulty of shifting funds from troubled countries leads to potential losses in the host company.

Companies also risk such things as boycotts, bribery, and corruption. All these things could tear a company apart and prevent it from ever surviving in the corporate world. Anything that 'greases the wheel' of international trade, in turn forcing international companies to make payments to officials to conduct business, is considered bribery and corruption. Anti-trust laws also affect international business. They prohibit monopolies, restraint of trade, and conspiracies that inhibit competition.

There are a lot of different risks in going global. Businesses that eventually want to export must be willing to take on the risks of possible violence and conflict, heated competition, confiscation, war, strikes, extortion, and any number of other potential problems that could crop up. Any company that is willing to export products or services to foreign countries despite these overwhelming odds is a company to admire.