Question

Before investing in a foreign location, a firm must take three things into consideration: the costs, benefits, and risks (political, economic, or legal) associated with entering into a business venture there.

Imagine you are the manager of a foreign company considering an investment in your home town. What would be some of the expected costs, benefits, or risks of starting a new business where you live? How high would you rate your location on its overall attractiveness to investors?

Note that you need to validate all definitions, and matters not known as facts, by citing from credible sources.

Remember that discussion posts must be substantial and supported (using APA) adding to the conversation/discussion. Discussion Question 1.1 is worth 25 points.

Answer 1

Here ican ibe imany ibenefits ito istarting iyour iown ibusiness, iincluding:

1. Rewards. iNot ieveryone idefines ireward ithe isame iway. iFor isome iit imight ibe iseeing ia inew iventure igrow iand isucceed. iFor iothers iit imay ibe iconquering ithe iunknown iand istriking iout ion itheir iown. iHowever iyou idefine ireward, istarting ia inew icompany imight ihold ithat ipromise ifor iyou.

2. Being iyour iown iboss. iWhen iyou istart ia ibusiness iand iare iself-employed, iyou iare iyour iown iboss iand iultimately icontrol iyour iown idestiny.

3. Income. iWhether iyou iview istarting ia ibusiness ias ian ieconomic inecessity ior ia iway ito imake isome iadditional iincome, iyou imight ifind iit igenerates ia inew isource iof iincome.

4. Flexible ihours. iOwning iyour iown ibusiness iis ihard iwork iand ioften irequires ilong, iodd ihours. iIn isome icases, ihaving iyour iown ibusiness imay iallow iyou ito ihave imore iflexible ihours. iMany istay-at-home iparents, ifor iexample, ichoose ito ibecome ientrepreneurs.

5. Purchasing ian iexisting ibusiness. iWhile iit imay inot ibe iviewed ias i“starting” ia ibusiness, ipurchasing ian iexisting ibusiness ihas iproven ibeneficial ifor imany ibusiness iowners—but iit iundoubtedly irequires iboth ifinancial iand itime iinvestments. iFor ibusinesses ithat iare ialready iprofitable, ithese inew ibusiness iowners ijump ipast ithe itrue istartup iphase iinto irunning ia imature ibusiness.

Starting iUp iis ia iBig iFinancial iRisk

Financial irisk, iof icourse, iis ithe ibig ione. iMost ibusinesses irequire iinvesting isome iof iyour imoney i– iand ioften iother ipeople's. iIf iyou icommit ito iworking ifull itime iat iyour inew igig, iyou're ialso irisking iyour iability ito ipay ithe irent iand iput ifood ion ithe itable. iCareful iplanning, ibuilding iup ia icash ireserve iand ibudgeting iwell ican ireduce ithe irisk, ibut ithey ican't ieliminate iit. iAll iit itakes iis ione iwild icard i– ithe icost iof iraw imaterials ior irent ishoots iup, ia icustomer idoesn't ipay i– iand iyour icompany's isuddenly istruggling.

Most ientrepreneurs iare irisk-takers iby inature. iMany ientrepreneurs irisk iall ithat ithey ihave iwhen ithey idecide ito ilaunch ia ibusiness. iFor ientrepreneurs, ithere iis ino isecure imonthly iincome, iand ispending itime iwith ifamily ican ibe ia ichallenge. iHere iare isome iof ithe irisks ithat ievery ientrepreneur iand iinvestor ishould ievaluate iand iminimize ibefore istarting ia ibusiness.

Changing iRules iand iLegal iRisk

Any icapable ientrepreneur istarts iout iknowing ithe ilaws icontrolling ihis ibusiness. iTrouble iis, ilaws ican ichange. iNew ihealth iand isafety iregulations. iNew ilabeling irequirements. iNew irules iand iguidelines ifor ihow iyou itreat iyour istaff.

When ian iorganization idecides ito iengage iin iinternational ifinancing iactivities, iit itakes ion iadditional irisk ialong iwith ithe iopportunities. iThe imain irisks ithat iare iassociated iwith ibusinesses iengaging iin iinternational ifinance iinclude iforeign iexchange irisk iand ipolitical irisk.

These ichallenges imay isometimes imake iit idifficult ifor icompanies ito imaintain iconstant iand ireliable irevenue. iIn ithis iarticle, iwe'll ireview ithe istrategies icompanies ican iemploy ito ireduce ithe iimpact iof ithe irisks ithey iface ifrom idoing ibusiness iinternationally.

1. The imajor iinternational irisks ifor ibusinesses iinclude iforeign iexchange iand ipolitical irisks.

2. Foreign iexchange irisk iis ithe irisk iof icurrency ivalue ifluctuations, iusually irelated ito ian iappreciation iof ithe idomestic icurrency irelative ito ia iforeign icurrency. i

3. Political irisk ihappens iwhen icountries ichange ipolicies ithat imight inegatively iaffect ia ibusiness, isuch ias itrade ibarriers. i

4. Employing ihedging istrategies iand ipurchasing ipolitical irisk iinsurance iare itwo iways icompanies ican ireduce ithe iimpact iof iinternational ibusiness irisks.

Environmental, iPolitical, iand iEconomic iRisk i

Some ithings icannot ibe icontrolled iby ia igood ibusiness iplan ior ithe iright iinsurance. iEarthquakes, itornadoes, ihurricanes, iwars, iand irecessions iare iall irisks ithat icompanies iand inew ientrepreneurs imay iface. iThere imay ibe ia istrong imarket ifor ia iproduct iin ian iunder-developed icountry, ibut ithese icountries ican ibe iunstable iand iunsafe, ior ilogistics, itax irates, ior itariffs imight imake itrade idifficult idepending ion ithe ipolitical iclimate iat iany ipoint iin itime. iAlso, isome ibusiness isectors ihave ihistorically ihigh ifailure irates, iand ientrepreneurs iin ithese isectors imay ifind iit idifficult ito ifind iinvestors. iThese isectors iinclude ifood iservice, iretail, iand iconsulting.

Financial iRisk

An ientrepreneur iwill ineed ifunds ito ilaunch ia ibusiness ieither iin ithe iform iof iloans ifrom iinvestors, itheir iown isavings, ior ifunds ifrom ifamily. iThe ifounder iwill ihave ito iput itheir iown i"skin iin ithe igame." iAny inew ibusiness ishould ihave ia ifinancial iplan iwithin ithe ioverall ibusiness iplan ishowing iincome iprojections, ihow imuch icash iwill ibe irequired ito ibreak-even iand ithe iexpected ireturn ifor iinvestors iin ithe ifirst ifive-year itimeframe. iFailure ito iaccurately iplan icould imean ithat ithe ientrepreneur irisks ibankruptcy iand iinvestors iget inothing.

Strategic iRisk

An iimpressive ibusiness iplan iwill iappeal ito iinvestors. iHowever, iwe ilive iin ia idynamic iand ifast-paced iworld iwhere istrategies ican ibecome ioutdated iquickly. iChanges iin ithe imarket ior ithe ibusiness ienvironment ican imean ithat ia ichosen istrategy iis ithe iwrong ione, iand ia icompany imight istruggle ito ireach iits ibenchmarks iand ikey iperformance iindicators i(KPIs). i

Technology iRisk i

New itechnologies iare iconstantly iemerging, iparticularly iin ithe iera iof ithe iFourth iIndustrial iRevolution. iSome iof ithese ichanges iare icharacterized ias i"paradigm ishifts" ior i"disruptive" itechnologies. iTo ibe icompetitive, ia inew icompany imay ihave ito iinvest iheavily iin inew isystems iand iprocesses, iwhich icould idrastically iaffect ithe ibottom iline.

Market iRisk

Many ifactors ican iaffect ithe imarket ifor ia iproduct ior iservice. iThe iups iand idowns iof ithe ieconomy iand inew imarket itrends ipose ia irisk ito inew ibusinesses, iand ia icertain iproduct imight ibe ipopular ione iyear ibut inot ithe inext. iFor iexample, iif ithe ieconomy islumps, ipeople iare iless iinclined ito ibuy iluxury iproducts ior inonessentials. iIf ia icompetitor ilaunches ia isimilar iproduct iat ia ilower iprice, ithe icompetitor imight isteal imarket ishare. iEntrepreneurs ishould iperform ia imarket ianalysis ithat iassesses imarket ifactors, ithe idemand ifor ia iproduct ior iservice, iand icustomer ibehavior.

Competitive iRisk i

An ientrepreneur ishould ialways ibe iaware iof iits icompetitors. iIf ithere iare ino icompetitors iat iall, ithis icould iindicate ithat ithere iis ino idemand ifor ia iproduct. iIf ithere iare ia ifew ilarger icompetitors, ithe imarket imight ibe isaturated, ior, ithe icompany imight istruggle ito icompete. iAdditionally, ientrepreneurs iwith inew iideas iand iinnovations ishould iprotect iintellectual iproperty iby iseeking ipatents ito iprotect ithemselves ifrom icompetitors.

Foreign iExchange iRisk

Foreign iexchange irisk ioccurs iwhen ithe ivalue iof ian iinvestment ifluctuates idue ito ichanges iin ia icurrency's iexchange irate. iForeign iexchange irisk iis ialso iknown ias iFX irisk, icurrency irisk, iand iexchange-rate irisk. iWhen ia idomestic icurrency iappreciates iagainst ia iforeign icurrency, iprofit ior ireturns iearned iin ithe iforeign icountry iwill idecrease iafter ibeing iexchanged iback ito ithe idomestic icurrency. iDue ito ithe isomewhat ivolatile inature iof ithe iexchange irate, iit ican ibe iquite idifficult ito iprotect iagainst ithis ikind iof irisk, iwhich ican iharm isales iand irevenues.

Political iRisk

Geopolitical irisk, ialso iknown ias ipolitical irisk, itranspires iwhen ia icountry's igovernment iunexpectedly ichanges iits ipolicies, iwhich inow inegatively iaffect ithe iforeign icompany. iThese ipolicy ichanges ican iinclude isuch ithings ias itrade ibarriers, iwhich iserve ito ilimit ior iprevent iinternational itrade.

Some igovernments iwill irequest iadditional ifunds ior itariffs iin iexchange ifor ithe iright ito iexport iitems iinto itheir icountry. iTariffs iand iquotas iare iused ito iprotect idomestic iproducers ifrom iforeign icompetition. iThis ialso ican ihave ia ihuge ieffect ion ithe iprofits iof ian iorganization ibecause iit ieither icuts irevenues ifrom ithe iresult iof ia itax ion iexports ior irestricts ithe iamount iof irevenues ithat ican ibe iearned.

Tips ifor iMinimizing iRisks

Don't ilet ithe ipotential irisks idiscourage iyou ifrom iliving ithe idream. iTo ikeep ithe idream ialive, ido iyour ibest ito ianticipate ithe ipossible irisks iand ihave ibackup iplans ito ideal iwith ithem. iAsk iyourself ihow iyou'll icope iif ia icustomer itakes itoo ilong ito ipay. iCan iyou ifind ialternative isuppliers iif iprices igo iup? iHave iyou ibought ienough iinsurance ito iprotect iyou iagainst isome iof ithe ipossible icatastrophes? iSuccessful ientrepreneurs iknow ithat idespite ithe irisks, ithey ican't iwin iif ithey idon't imove iforward

There's imore ito ia ibusiness ithan ifurnishings iand ioffice ispace. iEspecially iin ithe iearly istages, istartup icosts irequire icareful iplanning iand imeticulous iaccounting. iMany inew ibusinesses ineglect ithis iprocess, irelying iinstead ion ia iflood iof icustomers ito ikeep ithe ioperation iafloat, iusually iwith iabysmal iresults.

1. Startup icosts iare ithe iexpenses iincurred iduring ithe iprocess iof icreating ia inew ibusiness. i

2. Pre-opening istartup icosts iinclude ia ibusiness iplan, iresearch iexpenses, iborrowing icosts, iand iexpenses ifor itechnology.

3. Post-opening istartup icosts iinclude iadvertising, ipromotion, iand iemployee iexpenses.

4. Different itypes iof ibusiness istructures—like isole iproprietorships, ipartnerships, iand icorporations—have idifferent istartup icosts, iso ibe iaware iof ithe idifferent icosts iassociated iwith iyour inew ibusiness.

Startup icosts iare ithe iexpenses iincurred iduring ithe iprocess iof icreating ia inew ibusiness. iAll ibusinesses iare idifferent, iso ithey irequire idifferent itypes iof istartup icosts. iOnline ibusinesses ihave idifferent ineeds ithan ibrick-and-mortars; icoffee ishops ihave idifferent irequirements ithan ibookstores. iHowever, ia ifew iexpenses iare icommon ito imost ibusiness itypes.

Business iStartup iCosts

1. The iBusiness iPlan

Essential ito ithe istartup ieffort iis icreating ia ibusiness iplan—a idetailed imap iof ithe inew ibusiness. iA ibusiness iplan iforces iconsideration iof ithe idifferent istartup icosts. iUnderestimating iexpenses ifalsely iincreases iexpected inet iprofit, ia isituation ithat idoes inot ibode iwell ifor iany ismall ibusiness iowner.

2. Research iExpenses

Careful iresearch iof ithe iindustry iand iconsumer imakeup imust ibe iconducted ibefore istarting ia i