BBB4MCHAPTER 9

9.1 Canada’s government seeks to promote Canadian business in other countries and to lessen the risk for foreign companies. They

Establish import and export policiesDevelop trade policies and regulationsAssist Canadian exporters succeedMatch potential Canadian exports with international clientsMaintain and improve relations with other nationsAssist Canadian companies adjust the changing international marketFoster innovation and human resource development

Political Risk Types of Political Systems

Democratic Model – The general population has the right to vote in free elections. (market or capitalist economy)Totalitarian Systems – they centralize power and often use military control. Citizens have little say (command economy)Mixed system of government

POLITICAL INTERDEPENDENCE

9.2 Types of political risk

Risk of general political instabilityOwnership riskOperations riskTransfer risk

There are a number of questions a company should ask itself to predict the possibility of risk, provide for it, and still project a profit:

Is terrorism part of the political landscape?Could extremist groups pose a danger to the general stability of society?Has there been a withdrawal of freedoms?What, if any is the military’s role in government?Could religious or ethnic pressures lead to civil strife and endanger employees or property?

Evaluating Political Risk:What are the chances of political and economic instability in the host country over the next five years?What agreements are in place between the Canadian government and the host government regarding Canadian investments?How committed is the current government to rules of ownership rights?If a new government were to emerge, how would its platform and ideology change the current state of business affairs?Would a new government be likely to propose changes in policies that would affect the country’s way of doing international business?How would changes in government affect the profitability and safety of a n international project?

Consequences of TerrorismTerrorism tends to occur when least expected and becomes a greater concern when open borders make it easier for terrorists to carry out their plans. A terrorist attack has many negative consequences on a countries economy and its businesses. It also affects transportation, security and travel

Evaluating legal concernsLaws and regulations differ from one country to the next, when doing business in a foreign country, you must obey the laws from that country.

9.3Economic SystemsAn economic system is what allows a country to decide what to produce, how to produce, and for whom to produce. These systems include natural resources, labor, capital, management and standards for creating products.

Market economiesCentrally planned economiesMixed economies

Global economic systemsInterdependence, clustering

Business cyclesDepression, Recovery, Prosperity and Recession

The world economic freedom indexEconomic freedom rating

Canada’s global entrepreneursAround the clock world marketsCommon currency

9.4Strategies to manage financial risk

Foreign exchange managementCredit controlOpen accountsInsurance

Analyzing foreign investment climatesGeneral political instabilityGovernment policies towards foreign investmentPolicies and legal factorsEconomic environmentInternational payments