Question

Start by explaining what are political risks and what are economic risks of operating in an international market Then, choose an organization operating internationally.How should the firm's management approach these kinds of risks Firm can not be walmart

Answer 1

Political Risks of operating in an international market:

First of all, we should understand what is political risk, It means when a country's govt. policies affect negatively to the foreign company. for eg trade barriers, which limits international trade.

1) Some times govt. will charge additional funds and tariffs in exchange for the right to export items into their country.

2) Tariffs and quotas are used in order to protect domestic producers from foreign competition. This can affect foreign company's profit negatively.

3) If the country is undergoing through political changes like due tp elections the winning party ideology is different from the foreign country this can also affect foreign trade for eg. in India, till the time congress was representing the political system till that Russia was the key player for trade, as soon as BJP govt. came rightist ideology more favouring US market and capitalistic ideology.

4) Suppose countries like Syria, Afghanistan are having an unstable situation, therefore, decrease the confidence of doing business.

5) It also happens if a foreign country has a strange relationship in these business persons avoid that country.

Economic risks:

It is generally associated with unexpected events in a country's financial, economic or business life.

1) Currency risk fluctuations risk of adverse exchange rate fluctuations, inflation and other harmful economic condition that create uncertainty of returns.

2) When the currencies fluctuate significantly, the value of the firm's assets, liabilities may be substantially reduced

3) The market price is also the key factor which creates economic risk as if market price decreases but the production cost is the same profitability will reduce.

4) Risk can arise if the raw material cost for manufacturing the commodity is increased.

5) If import or export duty increases profitability can reduce.

6) If a minimum wage is increased in the country, the cost of production is increased but, the market price remains stable leading to decreased profit.

Take the example of apple company which has a global presence of how this company manages its economic and political and economic risks:

Apple is the US-based MNCs who manufactures hardware products include iPhone smartphone, iPad tablet, etc,

1) the political risk can be minimised if the organisation manage its risk in terms of credit like before a crisis develops organisation should assess its potential credit risks and accordingly review credit control procr=edures.

2) Supply chain disruption due to political instability can be minimized by creating a network and response plan who ensures effective supply chain delivery.

3) economic risks can be minimised if we assess the govt. policy before investing in that country. it is the oblifation for the compny to understad that what exactle the exchbge rate, qulaity, intersest ratee tc.