Risk can be broadly defined as the possibility of the actual outcome of an event to deviate from expectations. General Electric subdivides its risks into three categories: strategic risks, which consider the effect of the markets, competition and other external factors on the company, operational risks, which are mostly internal and relate to the GE operations and processes, financial risks, which may arise both internally and externally, as well as legal risks, which are related to external changes in the legislation.
According to the 2010 Annual Report of General Electric, the company has identified a number of strategic risks that are important to consider in the current environment. Firstly, the gradual recovery of the global economy contributes to the increase of commodity prices, thus putting additional cost pressure. Geopolitical risks can be a serious threat for General Electric, as the company’s operations are spread all over the world, including geopolitically unstable countries such as Egypt and Greece. The company is also highly concerned about financial risks in the post-crisis environment, therefore General Electric has reduced its leverage and maintains a substantial amount of cash to ensure liquidity. Financial risks are also managed by involving GE Capital, which helps to avoid some of the external risks and reduces the overall risk exposure by diversifying GE businesses. Moreover, exchange rates and interest rates fluctuations are being managed by hedging activities. Credit risk is another external source of uncertainty for the company, therefore credit risk management is extensively pursued by GE (General Electric, 2011).
It is hard to list all sources of risk that a multinational corporation, such as General Electric, faces in its daily operations. Moreover, the volatility of the current environment makes the future more uncertain for the company. Therefore, General Electric puts significant efforts into assessing and mitigating the potential strategic, operational, financial and legal risks in order to minimize the adverse effects of the risk events on the company and its operations.
References
Definition of Risk. In Investopedia Retrieved from
http://www.investopedia.com/terms/r/risk.asp#axzz22KdIT4iN
General Electric. (2011). GE 2010 annual report. Retrieved from
http://www.ge.com/ar2010/pdf/GE_AR10.pdf
