Risks CONNECTED WITH International Business Transactions Economics Essay

International business has came out in the annals to satisfy the need of merchandises from long distance nations, it was an international trade. It begins in the 19th hundred years BC where it has came out in Assyrian product owner colony in Cappadocia. Camels allows Arab to move spices and silk from far east and trade it, building the silk street which will make a connection to trade Chinese language and Indian goods with the Romanian empire goods. Vasco de gamma ( Portuguese explorer ) has generated a sea way between European countries and India.

As international trade extent to reach all nations, the need of restrictions or an international business legislations has been increased. The main convention for international trade was the us convention on agreements for international sale of good (CISG) which established by UNCITRAL (United nations percentage on international trade law).

International Business Law entails two parts, private and general population laws, the private legislations related to international business business deal like international trade, financing trade, licensing and distributing contracts. the public legislation related to contracts that help make a legal construction which international business occurs ( e. g. Treaties, Traditions, Tariff. . )

International Business Transactions

A business deals begins when a buyer and a retailer agree the terms and conditions to purchase a specific goods with an in depth amount and price ( deal of deal ). With this contract, from the buyer point of view what's essential is to gain the ownership of the goods, for owner what is important is to have the legal terms offering acquiring money.

An International business trades differ from home business transaction, because it's usually include long distance which means higher risk in goods transiting, which signify higher insurance, how money will be moved and who is responsible of the goods delivery, all that should be included and obviously in international business deal contract.

import - Export trade

Imports are goods or services that are made or grown overseas then purchased or receipt by the importer and distributed domestically. Exports are goods or services that are created or cultivated inside the country then sold or rendered by the exporter to be allocated abroad

The need of export - transfer trade generally is because on country has an edge over others in specific items, some countries have comparative advantages like manufacturing (ex. Germany, japan. . ) others have comparative gain in natural resources like engine oil or gas ( ex. Saudi Arabia, Russia ).

Exporting can be direct or indirect. Immediate exporting is when the manufacturer take the duty of most of the export operations, usually they use International sales agent or foreign distributer in the exported country. Indirect exporting is when a company use intermediaries ( export trade company, export management company ) to enter the international market, usually happen because lack of capital or because the business don't have the needed experience to enter this foreign country.

Trades usually governed by the regulations of the trade countries, they use tariffs and non-tariffs obstacles, this reflect the way that companies trade with each country. In 1947 nations accept General Arrangement on Tariffs and Trade, this motion happened to liberalize trade by minimizing tariffs and non-tariffs obstacles. in 1995 WTO (World Trade Firm ) has been intended to manage the rules and assist settling the trade disputes between WTO countries.

foreign Direct Investment

Foreign Direct Investment is when a company make investments its workforces and resources to buy or even to build an procedure in another country. those company called MNC (Multinational Company). Countries usually welcome FDI because MNCs has many impacts over hosts country economics and political system. FDI is a significant decision for just about any company because its filled with costs and dangers.

MNCs companies has many ways to enter into the market of your international country considering of many factors like capitalization, legal things to consider and market condition, MNCs decide to enter overseas market as Joint Venture, Mergers, Subsidiaries or Acquisitions.

When a firm owned 100% by a foreigner, from the wholly managed subsidiary. A jv is an organization that is created by several companies or with the international government they talk about risk and investments, companies use joint venture to reduce the risk of entering international market. ( e. g. Peugeot "France" has a jv with Dongfeng Engine "China")

A tactical alliance can be an agreement between opponents to attain common goal. (e. g. Airlines Coding share )

Licensing, Franchising

Licensing is an agreement where in fact the Licensor (Company) grants or loans a Licensee (Foreign Organization) the right to use its intellectual property ( patent, logo design, solution, etc. ). Licensing can be completely within one country, but it's a way that companies use to distribute its products with minimum amount risk considered, where there's a percentage of profit paid by the licensee to the licensor.

Franchising is a kind of licensing which the Franchisor (mother or father company) offers equipment, materials, trademarks, technology to the Franchisee (trader), in the other hands the franchisee should pay a charge or a percentage of the revenue to the franchisor. (e. g. McDonald's)

Franchising is an excellent way to inter the foreign market because the franchisee provides the capital for investment and the management and franchisee will offer with customer and labor problems, franchising usually associated numerous legal requirements, it depends on the united states, un US the national trade commission payment is regulating the franchising. in other submit china they taken out the majority of the restriction on franchising.



Strategic risk means the risk of fragile or bad tactical decision regarding the competitiveness the company in the international country, it's the threat of misanalysing of the porters five pushes which will be the threat of new entrants, threat of substitute products or services, Bargaining ability of customer, Bargaining power of suppliers and the depth of competitive rivalry.

Usually MNCs companies is more concerned about this risk, where a well done review of the marketplace is necessary before getting into the international country. An example of a company which failed Inside the strategic risk thought.

Political risk

International managers should comprehend the substantial ramifications of politics decision making in country before beginning its business, and understand how politics decision making can influence its business. Political activities and instability makes it difficult to the company to operate well. International administrator should become aware of the ideology of the number country, the economic system ( communism, socialism, capitalism ) and the political system ( democratic, totalitarianism ) and the composition of the number government, a threat of embargos and sanction of deals which usually used for politics pressure somewhat that financial issues. Understanding the balance of web host country political system can avoid many risks, a new and hostile authorities may replace the friendly human relationships and therefore expropriate foreign resources. The firm most understand the regional stability and international affairs of the coordinator country. The organization can do politics risk analysis to aid in firm decision making.

operational risk

Operational Risk is the chance concerning functional activities, machineries malfunction, way to obtain resources, logistics and inventory problems. By creating a good operational risk evaluation and analysis, companies can reduce operational reduction, pre-detecting of illegal activities, lowering auditing costs and reduce exposures to future risks, and that well lead to lessen misuse and improve processes, it will develop lead-time and increase efficiency in international business.

In export - Import international business deal, a delivery risk is an operational risk, where a buyer didn't acquire bought goods, it can happen because of staff strike, or wait in the shipment. One form of delivery risk is property risk, and it's a loss or damage to the products before they get there.

The threat of Pilferage can affect all types of trade transaction, specially transfer - export one, this has been issues for many years, a new way of boxing (cargo) and new systems entered this sector to minimize the chance of pilferage.

country risk

When the firm decided to do business broad, it will consider the essential infrastructure needed for the firm operation, that what country risk means. Roads, Bridges and telecommunication, criminal offenses rate and corruption, internal issues or civil unrest and the monetary condition ( unemployment rate, unskilled work force etc. ), terrorism, in the coordinator country all those things can make it difficult to enter or conduct business safely, effectively, proficiently for the reason that country.

Country risk can be the Vocabulary and Cultural dissimilarities and the risk of exposure to foreign legislation and courts, too little language differences consciousness can cause many problems that will result in courts, an example of that, what took place in1975, Usa district judge, between Gaskin (US citizen) and Stumm Handel GMBH (German company ), an employment contract written in German has been agreed upon by Gaskin, who does not have any knowledge about German language.

technological risk

Lack of security in electronic transaction, lack of information technology infrastructure and the expense of quickly developed technology, all of that will effect creating problems that will affect conducting business in the number country.

environmental risk

Environmental risk can lead to damage the trustworthiness of the Firm if firms function resulted air pollution ( Air, drinking water, environment. etc. ) and that may cause risk to the firm. And vice versa if the variety country has air pollution, that could cause medical condition to organizations employees.

economic & Financial risk

Changing in home fiscal or financial policies, devaluation or inflation rate, GDP, unemployment rate and the ability of the web host country to meet financial obligations, all that produce an Economical risk that needs to be careful understood before doing international business.

In this area, Forex rate can have big result over international trade and investment decisions used by the company. Fluctuations in international country money can diminish earnings when the company convert them back to home money, some countries may create rules that will decrease the flexibility of the firm to send money outside the country, hedging strategies could mitigate a few of the forex rate.

In export-Import international deal a financial risk can be a payment risk, where the buyer will neglect to purchase the ordered goods, it'll costs a great deal specially if the expense of delivery is so high (Because of hypersensitive or heavy shipments ).


The International Business environment has changes a whole lot within the last decades, with the high competitiveness of international market, International mangers more recently should become aware of economic, politics, culture and other dissimilarities on earth to be affective in his position.

The three main international business types, export-imports, FDI, and Licensing and franchising. In each kind of them there are risks that needs to be considered and pre-determined to have the ability to build and plan a good strategy that will reduce any risk which could face solid international business.

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