Multinational Corporations Risk Analysis

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Danger is an event or outcome’s uncertainty. Danger is still involved in the execution of a business concept. All businesses, including multinationals, constantly face potential risk, such as natural disasters and economic risks. This is particularly true for multinationals as the complexities of the international market climate are complicated. Consequently, taking account of investment risk in a given country in strategic and operational decisions is quite relevant (Burton, 1994). Assuming that I am developing a multinational corporation called ‘Dope’ Collections that specializes in tailoring clothes for men, women, and children across the globe, the corporation will have a parent company which supervises the operations of the subsidiaries outlets outside of the home country. I will, therefore, engage the support staff in creating programs and making decisions about production, market-entry strategy, marketing, and financial activities which will apply to the various outlets. In addition to that, I will also carry out a risk analysis to identify potential risks associated with running a multinational corporation that specializes in designing, tailoring, and distribution of clothes across the globe. The various risks associated with operating a business include social risk, cultural risk, economic risk, political risk and I will need to come up with proper mitigation measures to avert them (Choucri, 1991).

One of the potential risk that the program is likely to face is a social risk. Social risks are very dynamic and the majority of which emanate from individuals, communities, activist networks, and terrorist groups. Social and cultural factors like religious beliefs, values, cultural norms and practices will have an impact on the success of the program. The organization should take into consideration the religious beliefs and accepted standards on the mode of dressing for different genders in the specific countries. This is because, in some cultures, it’s a taboo for women to wear trousers short dresses and short skirts. I will, therefore, take into consideration the various social risks to ensure the goods are tailored for specific markets.

There is also a likelihood of economic risk when running the multinational. This is mainly due to economic variation in the different countries example increase in taxes and changes to the currency which will have a significant impact on the operation of the specific business outlet. There is also variation in demand of the clothes based on levels of employment, the income of consumers and interest rates. There is a risk of inflation affecting the buying power of a currency hence reducing its purchasing power in the future (Barton, 1998). When the level of unemployment is high in a particular country, I will have to ensure the prices of clothes are favorable to avoid the risk of low or no purchase.

Political risk is another very important risk that may affect the operation of the multinational company in different continents. This is mainly because some countries are democratic with newly formed governments while others are autocratic having been led by the same leader for several years. There is also a possibility of civil unrest, and the new government may come in with new rules that would stop the operation of the multinational. In most cases, business regulations vary from country to country, import quotas, tariffs, currency exchange controls may be put in place to limit imported goods. This may result in the closure of the outlets.

In the operation of Dope collections, there is also a possibility of encountering technological risk and resource risk. This is because the degree of technical capacity and infrastructure will affect the operation of the multinational. I will have to take into consideration factors like broadband connectivity and the technical skills of the citizens of the particular country. Some countries do not have satellite communications and telephone hence our data systems would not be supported hindering transparency. It may be easier to establish and maintain technical operations in some countries compared to others.

Having identified potential risks associated with the multinational I have developed, I will put in place appropriate mitigation measures to ensure smooth operations while yielding maximum profit. This will entail evaluating the risk, selecting a risk management method and implementing the risk management program (Lundan, 2004). Risk management methods that we will employ will include risk avoidance, risk reduction, risk assumption and risk sharing.

Risk assumption will involve self-insurance where we will set aside money to cover for the potential financial loss. This will help the multinational save money since the different outlets across the globe are vulnerable to various risks example fire damage. We can also practice risk avoidance as a multinational only expanding the business in regions that are geographically safe and not prone to war using previous trends as the reference. Risk reduction is also possible since we will install sprinklers and security systems to minimize the risk of theft and fire. We can also carry out surveys to know what type of cloth designs are trending in the specific country to avoid supplying designs that are outdated and would not sell in the specific market.

We will also put in place risk sharing measures which involve taking insurance for financial protection from property loss and another similar risk. We may also share the risk with other similar companies in the region that are faced with the same uncertainty. We will also purchase political risk insurance, adopt flexible sourcing policy and invest in additional technology minimize risk and ensure we maximize on profit.

References

Barton, Ron, and Michael Bishko (1998). Global Mobility Strategy. HR Focus.

Burton, D. F. (1994). “Multinationals.” Challenge.

Choucri, N. (1991). The Global Environment and Multinational Corporations. Technology review.

Lundan, S. M. (2004). Multinationals, Environment, and Global Competition. Amsterdam: Elsevier.

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