Country risk is defined as the exposure to a loss in cross-border lending caused by events in a particular country. These events must be, at least to some extent, under the control of the government of that country; they are definitely not under the control of an enterprise or individual. All cross-border lending in a country â whether to the government, a bank, a private enterprise or an individual â is exposed to country risk. Country risk is thus a broader concept than sovereign risk, which is the risk of lending to the government of a sovereign nation. Further, only events that are, at least to some extent, under the control of the government, can lead to the materialization of country risk. A default caused by bankruptcy is country risk if the bankruptcy is the result of the mismanagement of the economy by the government. It is commercial risk if Continue reading
International Business Basics
Negotiations between Host Governments and MNEs
Home and host countries evaluate business propositions of  Multinational Enterprises (MNEs) from their points of view. The evaluation relates to size, place, product, price, process, people and partnership related issues. Negotiations are take place between MNEs and host government whenever consensus is not reached on major issues. Here comes the importance of business-government relationships. The business negotiations and diplomacy between companies and governments determine the terms of international business operations. MNEs attitude to Governmental Stipulations Multinational Enterprises (MNEs)  attitude to Governmental Stipulations may be one of complying. This is highly positive. In a hierarchical view of governmental authority, companies accept regulations as âgivensâ, and MNEs comply with. Occasionally they try to circumvent, avoid or repudiate operating because of the regulations. MNEs comply with Government regulations when the regulations donât unduly constrain their desired mode of operations, when benefits are sufficiently attractive in spite of regulations, and when they cannot practically Continue reading
Structural Design of Multinational Enterprises(MNEs)
Organizational structure gives the framework or lines of communication, authority, responsibility and accountability. Organizational structure specifies the firmâs reporting relationships, procedures, controls and authority and decision processes. It is a critical component of effective strategy implementation process. Organizational structure provides for specialization and interfaces among specializations for collaborative synergism and competitive dynamism. For Multinational Enterprises(MNEs) deciding the organization structure is very important because it cannot be the same for all units and at the same time cannot be just one design for all. Whatever the design, it must be organic enough to adapt to situations. The structure must have stability to facilitate day to day activities to go on consistently and flexibility to facilitate taking advantage of opportunities that environment throws up. While it is becoming true that form must follow function, there are some traditional/ classical organizational structures that are followed; besides new structures are experimented with. Â Multinational Enterprises(MNEs)Â Continue reading
Managing Political Risk in International Business
Political environment could involve a risk to businesses, domestic and foreign. Such risk is called political risk. Political risk is that perception by the businesses that their interests will get deteriorated when certain political upheaval happens. Political risk can occur in both democracies as well as in the totalitarian set ups as well. Political Risks are of different types. There are micro and macro political risks. Micro political risk is the one that affects a particular firm or class of firms. Usually firms owned by one class of businessmen, say, the foreigners from certain country, a particular business family or region/state. Micro political risk risk can be hedged. Macro political risk affects all. There is no sparing of any business, any nationality, any trade or industry. Formulating and Implementing Strategies to deal with Political Risk The following course of action, suggested by John D Daniels and Lee H Radebaugh will Continue reading
International Trade Theory of Country Size and Technology Gap
Trade Theory of Country Size Country size has some definite relation to international trade as to what is traded, how much is traded and so on. The classical trade theories do not go into country-by-country differences in size to deal with the lines of specialization. When a small and big country are involved, the small country may be pushed into specialization, but not the big one for all its need for the other product canât be produced by the other small country, nor that small country take all export surplus of the big nation resulting from specialization. Thus a nexus exists between global trade and country size. Vastness of Country size and Variety of Resources go together: Size of a country is measured by the geographical space here. Big countries have vast space and hence more and diverse resources. With that they could be self reliant. Considering their size, their Continue reading
Political Environment of International Business
Political factors constitute an important environment factor in International Business. Actually politics and economics are inter-related as one influences the other. That was the reason for early writers of Economics preferred to caption their work as Political Economy. Political system, political parties in power, political parties in the opposition, political maturity of the parties, number of political parties, political awareness of people, political stability and the like have great impact on the business environment in a country. The economic policies pursued by a Government are to a great extent the by-product of political environment that impacts businesses very often. Basic Political Ideologies Political ideology refers to, âthe body of ideas, theories, aims and means to execute the ideas, adapt the theories and fulfill the aims that constitute a sociopolitical programme for actionâ. Depending on the mix of different âideas, theories, aims and meansâ, there exists Pluralism, Democracy and Totalitarianism as Continue reading