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Mastering the Risks of International Business – What Leaders Need to Know

Mastering the Risks of International Business – What Leaders Need to Know

As an international company, the activities and reputations of your leaders and the organisation itself are exposed to numerous critical risks. Failure to plan for and learn from these economic, political, and social pressures can put your work in peril, so it is crucial that you make efforts to master them. In this article, we will identify these challenges, and offer tactics and strategies on how to overcome them.

What are the challenges of international business?

Organisations that span multiple borders expose themselves to various risks, the likes of which, left unchecked, can severely harm profitability. These can be categorised into four broad groupings:

  • Political: Political risks include any that are borne out of the actions of a political actor. This includes ordinary business considerations such as tax rates, laws and regulations, to more pressing issues such as political instability, uncertainty, war, and economic nationalism. Risks can also appear if your business takes a political stand, such as the Chinese backlash against western clothing brands responding to allegations that Uighur are being used as forced labourin Xinjiang.
  • Economic: If your company is exposed to various markets around the world, you open yourself up to more risks. Changing currency rates can confound forecasting efforts, products and their prices may need to be regularly appraised based on national rates of inflation and wealth, and problems with shipping can put your supply lines in danger. Additionally, business partners or suppliers may become insolvent, owing money to your company.
  • Social: Different communities have varying values, which can make conducting international business difficult – one way of operation may offend one group, but be entirely above board for another thousands of miles away. Navigating cultural differences and different ways of communicating can be complex, and if you do not have a handle on your supply chains, worker exploitation scandals can damage investor and customer relations across multiple markets.
  • Environmental:The environment has a large part to play in the fortunes of your international business. The impact of your operations on the environment and the positive or negative press that is generated as a result can affect how customers perceive you. Environmental degradation can make sourcing raw materials difficult. And extreme weather caused by the climate emergency can damage your supply chains and facilities.

What are the best tactics and strategies to overcome overseas risks?

To master these risks and many others, there are several tactics and strategies you can employ.

Gain legal counsel

For many businesses, international legal professionals are their shield againstall manner of risks; a means of reducing exposure and countering risks head on when they occur, such as a restructuring orthe insolvency of partners and suppliers. Trusted legal teams can operate entirely in-house, or work for a dedicated legal organisation, on a retainer or working on a reactive basis, assisting when risks appear.

Adopt a hedging strategy

A useful means of protecting against any sort of uncertainty, hedging strategies involve reducing your exposure to perceived risks, while not entirely removing yourself from the area of risk in question. It allows you to revert back to the status quo if the uncertainty resolves itself in a positive manner, while protecting you from the worst if the risk were to play out.

Rebalance your activities

Rebalancing strategies involve you moving your activities away from risky areas to those that offer growth potential. While still carrying an element of risk, the idea here is to take advantage of the prospect of much better business opportunities, typically in less developed regions.

Salvage your business

Salvaging strategies are a last-ditch measure to protect your business activities. It typically involves using up company cash reserves to weather a period of risk and is based on the idea that doing so would be less costly and disadvantageous than avoiding the risk entirely, moving activities somewhere else. For instance, Jaguar Land Roverrecently shut their production facilities in anticipation of continuing supply chain disruption. They did this as a means of shoring up future supplies without having to pay to keep their facilities open.

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