Risk Flashcards
Risk
Potential for disadvantage in a situation where we could get benefits from it
Risk is contextualised
The more you know about the context in which you’re making the bet, the more you have control of the risk
Danger
The undesirable outcome, unintended consequences, linked to personal/intimate effect
Why do we do risk analysis?
A company not aware of risks is not taking advantage of knowing about these - wasting its capacity.
Not to control environments/uncertainties that are out there, but to control the effect of them: defensive moves and strategy
Strategic decisions
- Aimed towards final goal
- Defensive actions: prevent ourselves from bad consequences
General schema of risk analysis
- Assess nature of environment
- Audit environmental influences
- Identify key competitive forces
- Identify strategic position
- Identify key opportunities and threats
- Strategic position
Strategic drift (frog diagram)
When something in environment is changing, companies change in a step-wise fashion, but are not changing as fast as the environment. The company becomes chaotic (feeling of uncertainty) - making decisions whilst not being connected sufficiently with the environment. Two outcomes:
- Either a paradigm shift takes place
- Or you going downhill
Data source
- Data on our own organisation
- Data on outside world
- Objective values (should be changing with environment)
- Process values: way we do things, take data on our organisation to get objective values (consider different cultures)
Nested constrains
We live in an environment that is highly constrained - we should know what these constrains are
- Local policy and issues > regional policy > home policy > foreign policy
- Morality and ethics, budgets come across all these nests
- Policy context of a firm is complex and hierarchical and is perceived polyvalently
PEST
What factors are affecting the organisation when you move your operation from one geographical context into another?
- Political/legal
- Economic
- Sociocultural
- Technology
PEST product
- Key environmental influences
- Drivers of change
- Differential impacts
- Resource resistance/efficiencies
Relation of strategy to SWOT
- Strengths, Weaknesses, Opportunities, Threats
- You only have strengths when it has a reality, all these work together
- Environment and resources drive decisions - leads to strategy, strategy feeds back to environment and resources (strengths and weaknesses)
Using SWOT in pairs
- Would this opportunity offset our weaknesses?
- Would this opportunity play to our strengths?
- Would this threat adversely affect our strengths?
- Does this threat exacerbate our weaknesses?
Political risk - Macro vs Micro
Effect of host government’s policy
- Macro political risk analysis: major political decisions likely to affect all enterprises
- Micro political risk analysis: policies and actions that influence selected sectors of the economy or specific
Risk and changes to conditions
Risk arises from changes to conditions assumed on market entry - challenge assumptions
- Political changes: government, political unrest, revolution/war
- Economic changes: slowdown, recession, depression, fiscal crisis
- External changes: terrorism, climate change
- Operational changes: change to transport infrastructure, power supply
Manifestation of risks
- Ownership control risks: expropriations, ownership restrictions
- Transfer risks: capital, payments, people, goods, technology, profit repatriation
- Operational risks: policies, procedures, regulations
- Soft pressure: not overt, explicit or written down
Macro risks
- Freezing assets of host country
- Limit on remittance of profits or capital
- Devaluing the currency
- Refusing to abide by contractual terms
- Industrial piracy (counterfeiters)
- Political turmoil
- Government corruption
Micro risks
- MNCs treated differently from others
- Industry regulation
- Taxes on specific types of business activity
- Restrictive local laws
- Impact of WTO and EU regulations
- Government policies that promote exports, discourage imports
Approaches to political risk - 3 related corporate political strategies
Relative bargaining power analysis: MNC works to maintain bargaining power position stronger than host country
- Integrated techniques: embrace difficulties of host countries in positive way
- Protective and defensive techniques: avoid, minimise effects of uncertainties and risks
- Proactive political strategies: lobbying and political interventions, shape your influence
Steps in risk management
- Identify risk
- Assess nature, probability and impact
- Determine options for managing/mitigating the risk
- Assess the residual risk: after what you’ve done to minimise risk
- Take actions
- Monitor outcomes
