Question

Discuss the risks that an international fast food restaurant, such as Subway, would have by operating abroad rather than just domestically. Include at least two factors or policies, and explain the impact of each.

Answer 1

If an international company/ international fast food restaurant; subway setup its business in foreign country rather than just domestically it has to face so many risks such as foreign exchange risk, change in demand and taste of consumers, market competition, political risk, trade regulations and restrictions etc.

All these risks affect the market share and profit margins of fast food restaurant. We can explain the impacts as follows:

1. Foreign exchange risk : risk due to change in value of foreign currency as compare to domestic currency is known as foreign exchange risk. If the value of foreign currency appreciates as compare to domestic currency than the business in foreign earns profits and if value of domestic currency appreciates as compare to foreign currency than business in foreign country occurs loss.
2. Change in demand and taste of consumers: change in demand and taste of consumers in foreign country also affect the business in foreign country. If consumers does not like the taste of the fast food and decreases its demand than the business/ restaurant will occur loss and if people like the taste and increases demand than restaurant will earn profits
3. Market competition : increasing competition in the foreign market also affects the business
4. Political risk: political stability and instability affects the business of restaurant because if government suddenly changes its policies it become difficult for outside company to cope up with the changes.
5. Trade regulations and restrictions also create risk for the business