Various risks of internationalsing

By Thabiso Mphuthi

Four risks in internationalisation

•Gross-cultural risk•Country risk (political risk)•Currency risk (financial risk)•Commercial risk

Gross-cultural risk

A situation of cultural misunderstanding putting some human values at stake.• This are unique values transmitted from one generation to

the other.• This values can be mind-sets, lifestyles, cultural and

language differences, decision making styles and ethical practices.

• Example: a South African doing a business with Chinese people who have a different decision making style compared to south African.

Country risk(political risk)

Is potential adverse effects on company operations and profitability caused by developments in rules and regulations of the foreign country.• It is based on the intervention of a foreign government

posing limitations to how should businesses operate.• Restrictions that government implement to regulate

commercial activities.• Example: unstable political systems.

Currency risk (financial risk)

Risk of adverse fluctuations in exchange rates.• Currency exchanges difference due to not having one

common value of money.• Currency risk occurs as international transactions are

conducted in more than one country.• Example: increasing tariffs charged to countries out of

state member economic bloc.

Commercial risk

Firm’s potential loss or failure from poorly developed or executed business strategies.• Managers making poor decisions when selecting business

partners, timing of entry market and pricing their products.• They may be high costs in changes that are added in

international businesses than in domestic/host countries. • Example termination of business partner performing poorly

may be expensive in a business abroad.