International Risk Management
A.T. Kearney’s annual survey of global business executives identifies the following items as the most critical risks facing international corporations: Host government regulations, financial/currency risk, and political instability. Rounding out the list of international business risks are rule of law issues, supply chain disruptions, corporate governance problems, security threats, terrorist attacks, product quality and safety concerns, IT malfunctions, and intellectual property theft.
International business risk is particularly high in regions of the global economy (emerging, developing, and transitional countries) where regulatory structures are fragile, rule of law is weak, and political/economic uncertainty is deep. But it is precisely these regions—particularly the rapidly growing markets of emerging Europe and developing Asia—that offer the greatest commercial potential for Western firms in coming years.
Companies looking at these regions for growth opportunities must do two things:
, they must carefully analyze the target markets to permit corporate decision makers to specify the risks attending market entry and make informed judgments about the balance between those risks and the anticipated rewards of entry.
, having taken the decision to enter the target markets, international business executives must ensure that the appropriate corporate mechanisms are in place to mitigate the resultant risks.
For the Global Economics Company, the key challenge at hand is not eliminating risk—which is inherent in any business venture—but rather managing risk in a manner that permits clients confidently to pursue their international growth objectives.
Fortunately, improvements in the quality and availability of foreign market information and the expansion of derivative markets have enlarged the scope of international risk management tools at the disposal of American companies. GEC’s International Risk Management practice draws on these resources to help its clients mitigate their global business risks:
- Performing country analyses to identify the political/economic risks clients are likely to encounter in their target markets, assess the risk/reward calculus of entry into those markets, and formulate risk mitigation strategies designed to advance clients’ international business goals
- Analyzing the foreign exchange risks facing clients in overseas markets (including exposures to the Euro, yen, and emerging market currencies) and devising the appropriate blend of FX management instruments (including financial and operational hedging) needed to manage those risks
- Identifying the legal and proprietary risks associated with specific foreign markets and preparing strategies to reduce those risks to acceptable levels