International Risk Management
Introduction
Despite majority of the participants in global business arena associate German economy with efficiency and high quality, yet if the U.S. companies consider operating in this particular marketplace, they must be well-informed of different business risks. Therefore, this research paper is aimed at highlighted different business and operational risks which a U.S. based company might face while operating in Germany.
Exchange Rate Risk
The very first risk that the U.S. based company has to face in Germany pertains to the fluctuations in foreign exchange rate against the domestic currency. In case, the U.S. dollar appreciates against Euro, the profit earned in the guest country (Germany) would decline if the net income is transferred to the United States and translated into the U.S. dollar. This way, the sales revenue generation may be harmed if subsidiary of the U.S. Company sends the earned income back to the United States .
Political and Strategic Risk
In Germany, with the rise of Euro crisis, there is a greater possibility that its existing political authority (Government) may change its trade related policies pertaining to barriers to international trade as well as import/export quotas etc for protecting domestic businesses. Because of changes in trade policies of the Germany economy, there is an increased uncertainty that the U.S. Company may fail to implement its corporate strategy and achieve its business objectives in the face of rising debt crisis in Germany. Such a strategic risk may originate from changes in demand as well as buying preferences of the local target market, intense level of competition in Germany and inability to transfer U.S. technology from the country of origin (United States) to Germany. There is a possibility that cost of raw materials may increase for the U.S. Company that would raise the subsequent cost of generating sales, executing marketing activities and bear operating expenses.
Regulatory and Compliance Risk
While operating in Germany, the U.S. Company will have to face greater risk to comply strictly with local standards. Failure to do so will expose the U.S. Company to certain lawsuits, increase in litigation charges and penalties because Germany has its own market dynamics and safety precautions for which regulatory authorities require all businesses to strictly comply with domestic regulations.
Risk Originating from Euro-Zone Crisis
The Germany economy is facing problems concerning dramatic increase in its local as well as foreign debt. Due to this, it is more likely that Germany may be expelled from the Euro-Zone. This will increase pressures both on Germany as well as its trade related activities. With the passage of time, there is an increased uncertainty that the U.S. Company may eventually have to withdraw from the German marketplace in the face of German crisis .
Financial Risk
Doing operations in Germany will surely expose the U.S. Company to an unexpected risk that the business would find it difficult to raise enough capital from the debt and equity market for financing daily operational activities. Local businesses are already finding it almost impossible to raise capital from their lending institutions as the domestic economy is suffering from the debt crisis. The availability of credit has become rare where businesses can only get further loans at higher interest rates than normal . There is a risk for the U.S. company that it might not be able to get loan from German lending institutions (such as banks) but at increased rate of interest. This risk would increase the cost of debt for the U.S. Company. Subsequently, such a business, originating in the United States, will be at the verge of going bankrupt.
Works Cited
Bin, Xu and Liu Ying. The case study: How BMW dealt with exchange rate risk. 29 October 2012. 28 May 2016 <http://www.ft.com/intl/cms/s/0/f21b3a92-f907-11e1-8d92-00144feabdc0.html#axzz49tjQqI2M>.
Blake, Brock. High Interest Rate Business Loan: Take it or Leave it? 24 September 2013. 28 May 2016 <http://www.forbes.com/sites/brockblake/2013/09/24/high-interest-rate-business-loan-take-it-or-leave-it/#2730b61b3093>.
Das, Satyajit. The Big Challenges Facing Germany’s Economy. 3 February 2014. 28 May 2016 <http://www.dailyreckoning.com.au/the-big-challenges-facing-germans-economy/2014/02/03/>.
