Political risks

Running head: GLOBAL BUSINESS OPERATIONS

GLOBAL BUSINESS OPERATIONS

Title: Benefits and Risks of Global Business Operations

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Global Business Operations

It is common for firms to conduct business on an international scale across a wide range of business areas. A global business is exposed to benefits and risks associated with the economic environment, individual industrial sector, and its operations among others. There are several benefits to getting into the global market as well as unique challenges (McKellar, 2015). Each country has certain potentials as well as woes associated with doing businesses with companies. It becomes difficult for a company to effectively operate to its full capacity under certain risks including business and political risks.

Political Risks

Even the most experienced companies doing businesses globally are sometimes affected with political issues. Political risks result from political actions and instability that may make it difficult for businesses to effectively and efficiently operate in different countries (McKellar, 2015). It tends to affect global companies operations and profitability due to negative publicity and influence created by top government officials. Political developments may require a company to reveal some of its trade secrets, or threaten access to an export market among others (Longenecker, 2011). Global business companies should be informed risk takers since they are willing to take big risks from the beginning. Political risk management should then be considered as an essential element of risk-taking.

Effective management of political risks can help multinational companies protect their investments as well as take of new opportunities that will help improve global business performance. Political risk management protects new and existing international investments and operations through anticipation of the business risk implications of political instability or change. A well-prepared organization can then exit markets that seem to be in danger of growing too unstable. Implementation of risk mitigation and operational oversight to help control against shocks is an option for short-term instability.

Business Risks

Risks for global business tend to influence markets as well as drive corporate performance in the following years. Operations and strategic risks are among some of the well-known global business risks. A global business should be capable of making strategic decisions that will help it to respond to any risk forces that it might encounter. Such forces affect a company’s competitiveness.

Global businesses are affected by conditions in the domestic and global economies. An operation risk may result from the breakdown of demand and supply of resources and products, machinery, lack of good logistic and inventory and shortfall of services and goods that will eventually lead to inefficiency of production. It becomes important for a global business to control costs, reduce unnecessary waste and contribute to efficiency in globalization.

Business Rewards

The main benefit of doing business globally is that a firm experiences international business expansion by developing market opportunities in foreign countries (Longenecker, 2011). A global business enjoys the diversity of high performers from different countries. The business receives creative and innovative ideas from its diverse workforce that enable it to attain high rates of productivity. It may also experience growth from consumer global spending since it is easier to access global customers by venturing a business into different countries. Brand awareness, market opportunities and penetration, and established relations are some of the benefits of global businesses (Christiansen, 2014).

Monetary Exchange Rates

Selling of products, purchase of raw materials and provision of services are some of the activities that global businesses do to become successful performers in foreign markets (Christiansen, 2014). They conduct their businesses in different foreign countries where some of their liabilities and assets are denominated in various currencies exposing them to risks from changes in foreign currency exchange rates. A firm’s financial results may be affected with the foreign currency exchange rates changes resulting from higher costs or lower revenues. A firm’s competitiveness is then affected. Increase in prices in local currencies as a way to seek compensation for lower revenues may harm the firm’s financial outcomes. Taking measures that may help to reduce the risks associated with foreign currency exchange rates may temporarily mitigate or delay severe effects of such fluctuations.

Conclusion

Few businesses are unaffected by the international economy. Most companies buy from, sell to, or have actual businesses in foreign countries that are associated with benefits and risks. Common risks of global business include operations, strategic, and political risks while benefits include expansion into new markets and access of global customers that may result into high revenues. A firm should ensure that it has the right or appropriate organizational structure that can enable it to attain success with its business overseas. It must identify an appropriate degree of control that it will maintain while performing its businesses.

References Christiansen, B. (2014). Handbook of Research on Global Business Opportunities. IGI Global. Justin Longenecker, J. P. (2011). Small Business Management. Cengage Learning. McKellar, R. (2012). A Short Guide to Political Risk. Gower Publishing.