Risk Management, Legal Aspect, and Cultural Aspect

Question 1

What is country risk?

Answer 1

Expose to potential loss or adverse effects on company operations and profitability caused by developments in country’s political and/or legal environments.

Political and legal risks.

Question 2

Country Risk Produced by political system:

Answer 2

Confiscation = Seize of corporate assets without compensation.

Expropriation = Asset seizure with compensation.

Nationalization = Takeover of an entire industry, with or without compensation.

Sanctions = Bans on international trade, usually undertaken by a country, against another.

Embargoes = Bans on exports or imports that forbid trade in specific goods with specific countries.

Wars (insurrection & violence).

Question 3

Types of Country Risk Produced by Legal Systems:

Answer 3

• Foreign investment laws.
• Controls on operating forms and practices.
• Marketing and distribution laws.
• Laws regarding income repatriation.
• Environmental laws.
• Inadequate or underdeveloped legal systems.
• Internet and e-commerce regulations.

Question 4

How to manage country risk?

Answer 4

Proactive environmental scanning.

Strict adherence to ethical standards.

Alliances with qualified local partners.

Protection through legal contracts. (Conciliation, Arbitration, Litigation)

Question 5

What is Commercial risk?

Answer 5

Poor development/ execution of business strategies, tactics or procedures.

Failures in international markets are far more costly than domestic business blunders.

Firm reputation and profitability.

Fluctuation exchange rate.

Change in market conditions (in the foreign market).

Evolution of the competitive environment (supply and demand).

Non-payment risk.

Intellectual Property Rights. (ideas, trademarks, copyrights).

Question 6

What are the Currency Risk?

Answer 6

Exposure to fluctuations over time.
(Forwards, Future, Options)

Question 7

What are the 3 Hedging Instruments?

Answer 7

• Forward contract : A financial instrument to buy or sell currency at an agreed-upon exchange rate at the initiation of the contract for future delivery.
• Futures contract : An agreement to buy or sell a currency in exchange for another at a pre-specified price and on a pre-specified date.
• Currency option : Gives the purchaser the right, but not the obligation, to buy a certain amount of foreign currency at a set exchange rate within a specified amount of time.

Question 8

What are the 3 Cultural Risk?

Answer 8

Language

Local Customs

Sensitivities

Question 9

What are the 4 key guidelines for the intending negotiator?

Answer 9

• Know the negotiating partner’s culture.
• Try to expect the negotiating partner’s tactics.
• Determine the composition of the negotiating team.
• Pay attention to contract details.

Question 10

Regarding negotiation what is the difference between competition vs collaboration?

Answer 10

• Competitive Approach : Negotiator is concerned mainly about a favorable outcome at the expense of the other party.
• Collaboration Approach : Negotiator focuses on mutual needs, especially in the long term.