Explain problem areas that businesses need to examine when planning to do business in another country.

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justaguide | College Teacher | (Level 2) Distinguished Educator

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In addition to political risks, international business also presents many other problems that have to be taken care of by businesses.

One of these is financial risk. This includes a change in profitability due to changes in exchange rate when funds are being invested abroad and when it is time to repatriate profits. In addition, companies have to closely consider the economic growth of the country and make realistic predictions about the changes that can be expected in consumption patterns both in terms of the quantity consumed as well as a shift in the type of goods consumed.

Before entering a new country a company has to understand the factors that would influence its operations there. This includes dealing with a new socio-cultural environment. The labor practices differ between countries and if a company tries to implement policies alien to ones that prevail in the country it is entering, it will not be able to operate at optimal levels.

In several countries, there could be a bias against the nationality of the owners of the company or against their religious beliefs. If these cannot be taken care of by using a reasonable amount of resources, there may be a need to reconsider plans to start operations there.

The legal framework in the country that the company is making an entry should also be considered closely. If a country does not have laws that provide adequate security against piracy, safeguarding proprietary information, etc., and the system is too slow when it comes to trying to enforce agreements it could result in serious problems.

pohnpei397's profile pic

pohnpei397 | College Teacher | (Level 3) Distinguished Educator

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One potential problem area that businesses need to examine when going into a foreign country is the area of political risk.  The term "political risk" refers to the risk that actions taken by the foreign country's government (or changes in the politics of the country) will do harm to the firm's investment.

To see where this would be a problem, think about the upheaval in the Middle East today.  If your firm were doing business in Libya, for example, your investment would be in jeopardy because of the fighting.  When you decided to do business in Libya, your firm would have needed to think carefully about whether the country might become unstable in the way that it has.

Another example might be that of Venezuela.  There, Hugo Chavez and his government have expropriated the property of many private companies.  A firm thinking about doing business there would have to consider the possibility that the government might simply decide to take their assets away from them.

Firms have to consider these sorts of potential problems when planning to do business in another country.

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