What are the different risks faced by mncs
Changes in the law or the political system can put a business in jeopardy if the controlling government decides to nationalize certain industries or ban the production of certain goods.
This often happens when oil production slows or when investors flock to buy oil as a safe haven investment during stock market crashes. Micro Risk Management If you are the chief financial officer CFO of a multinational company, what steps could you take to minimize international risk?
Complexity of managing multinational corporations
Ultimately, a company may have to wait for months before any compensation is received. There are many individuals and organisations who have critical and negative views about MNCs, and then of course there are those who support them. Difficulty in maintaining efficient and fast global communication and coordination: Even though the advent of computers and satellite communications has expanded the communication network so that in most situations it is possible to have instantaneous communication between and among countries, the connections are still very poor in and with the underdeveloped countries. Though it may prove difficult, a company needs to have sufficient cash available to deal with the previously discussed risks associated with entering a foreign market, particularly risks based on the political and business climate of the country. One type of exchange risk faced by multinational companies is transaction risk. References How to Minimize Exposure to Political Risk So how can multinational companies minimize political risk? On mainland Europe, other concerns were noted. In Germany for instance, large cyberattacks and terrorist attacks come in the number one and two spots respectively. There are a couple of measures that can be taken even before an investment is made. The European-based organization offers a wealth of nation- and region-specific information about the economic, social, political and business climates of various nations and regions, as well growth prospects, information on credit risks and potential country risks in any nation.
Different cultures and regions may have very different social norms, courtesies, and expectations. Technology Many businesses gain a competitive edge over rivals in a particular industry by embracing technological advancements.
Business companies in general face different and varied risks as a result of activities which occur within the organization.
Problems faced by multinational companies in developing countries
Lower skill levels and lower motivation in the work force in underdeveloped countries: The development of skills is a phenomenon which sometimes takes years to perfect. They are sometimes called transnational corporations or international corporations. Political instability can cause great turmoil in financial markets such that country risk can reduce the expected return on investment ROI. But the key to success of managing risks associated with a multinational corporation requires doing your homework, being realistic about the risks inherent in entering any foreign market, and being willing and able to deal with them proactively. This was a time of unprecedented global exploration, colonization, and other imperialist ventures Some of the risks involved in these situations are: 1. References Many companies lost their assets in Cuba when it came under communist rule. For example, after Fidel Castro's government took control of Cuba in , hundreds of millions of dollars worth of American-owned assets and companies were expropriated. China, with more than 1. Buying Political Risk Insurance If you do go ahead and enter a country that is considered at risk, one of the better solutions is to purchase political risk insurance. How to Minimize Exposure to Political Risk So how can multinational companies minimize political risk?
A case in point is the winding up of Coca Cola company operations in India when the opposing party became the governing party in and changed some of the policies which negatively affected the operations of Coca Cola Company.
An MNC that expands internationally faces risks related to the different countries and regions in which it plans to operate, including institutional failures, crime, political instability and violence, as well as fluctuations in currency exchange rates.
However, the problem with this solution is that the legal system in the host country may not be as developed, and foreigners rarely win cases against a host country.
However, multinational companies encounter more complicated risks, especially because of the scarcity information about the new environment As a result of this the company looses money if the interest rate falls below their fixed rate during the period the loan is for.
Certain conditions, such as trying other channels for recourse and the degree to which the business was affected, must be met. It's vital to consider country risk before an MNC enters the market of any country. Castello advises that a multinational corporation should, "Assign a New Product Introduction NPI team to determine correct business and operating models and profit expectations before entering a target market.
One type of exchange risk faced by multinational companies is transaction risk.
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