Assignment 2 Review

• Answers are in the textbook – please use.

• If using outside sources, you must reference. Make sure you’re using
relevant references.
• Responses will have word limits for Assignment 3. Assignments
should be no more than 2 pages.
• Questions 2 a) and 3 b) came directly from costing sheets in textbook.
• Question 3 a) relates to modes of supply for export of services
(lecture 6 slides 6-10).
Risk Analysis and Management:
Analyzing and Mitigating Risks in
International Trade
Units 4 and 5
 Risk Analysis & Management

UNIT 4
Analyzing and Mitigating
Economic Risk
◎ What Is Economic Risk?
◎ The Risk Management Process and Economic Risk
◎ Review Historic and Current Data Related to Economic Risk
◎ Identify Key Risks and Measure Probability and Impact
◎ Rank Potential Risks and Specify Desired Outcomes
◎ Develop Options and Select Strategies
◎ Implement the Strategies
◎ Monitor, Evaluate and Adjust
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 Why Is This Important?

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 What Is Economic Risk?

Economic risks arise from rules and regulations countries impose

to improve their economies.

Examples of economic risks:

o Exchange controls, used by countries that do not have the necessary foreign
currency reserves
o Dual or variable exchange rates that change depending on the priority of the
transaction
o Application of local content laws, taxes on foreign goods and price controls
o Labour issues

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 Managing
Identify issues and set context
Economic Risk
Identify key risks and measure probability
Steps applied to
of impact
economic risk

Rank potential risks and specify desired

outcomes

Develop options and select a strategy

Implement the plan and monitor, evaluate

and adjust

FIGURE 4.1

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 Review Historic and Current Data
Related to Economic Risk

Economic risk factors to consider:

1. Target market’s inflation and unemployment rates
2. Growth rate of the target market’s GDP
3. Target market government’s fiscal deficits
4. Proportion of the nation’s export earnings needed to service its external debt
5. Export performance of its key export products
6. Target market’s international reserve position
7. Taxation schemes at the national, regional and municipal levels

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 Identify Key Risks and
Measure Probability and Impact
Examine Target Market’s Economic and Financial Fundamentals
o Gross Domestic Product (GDP) o History of economic cycles
o Consumer Price Index (CPI) o Signs of economic slow-down
o Credit rating (Moody’s, Standard&Poors) o Foreign currency reserves
o Inflation o Structure of financial markets
o Performance of stocks and bond markets
Risk Avoidance

Analyze Exchange Controls in the Target Market Risk Reduction

o Identify if exchange controls are present
o Determine how they may affect proposed venture Risk Transfer

Risk Retention

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 Identify Key Risks and
Measure Probability and Impact, Continued

Analyze Relevant Laws, Taxation and Trade Agreements

Investigate:
o Local content laws
o Duties and taxes on foreign goods
o Income taxes
o Price ceilings
o Tax benefits

Analyze Risk and Non-Payment by Government

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 Rank Potential Risks and Specify Desired Outcomes
Refer to BMOW example (Unit 3).
The following is sample information (data on Morroco) collected during research phase:

ECONOMIC EXCHANGE TRADE AGREEMENTS,

GROWTH CONTROLS CUSTOMS AND DUTIES
• Has been stable emergent market, • Exchange control and currency • United Kingdom has free trade
but drought and high commodity regulation governed by Foreign agreement with Morocco
prices have created shocks. Exchange Office and Moroccan
• Morocco has high tariffs, but none
Central Bank
• Some regulated prices. apply to BMOW’s venture
• Rules started to ease, e.g. non-
• Liberalization of trade regime
exporting companies now able to
• Strengthened financial sector open foreign exchange bank
accounts
• GDP grew 7.8% in 2023 after large
decrease (7.7%) in 2022; expected
to slow to 4.6% in 2024
• Agriculture important; employs
40% of population. Sever drought
in 2021
• Increased industrial activity

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 Develop Options and Select Strategies

Develop Relationships and Foreign Financial Involvement

Share Risk
Develop Contingency Plans, e.g. for:
o Non-payment by a government
o Implementation of new restrictive exchange controls
o Implementation of new unfavourable taxes and duties
o Potential Expropriation

Acquire Insurance
o Foreign Funds Insurance
o Contract Frustration Insurance (CFI) Sovereign Buyer

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 Implement, Monitor, Evaluate and Adjust

Monitoring, evaluating and adjusting the mitigation strategies is

an ongoing process.
Employees play an important role in the implementation process
and should be encouraged to contribute to the continuous
improvement of the practices.

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Breakout Groups
A Swedish travel services company is analyzing the feasibility of opening a branch
office in Malaysia. They have developed the following economic risk profile.

a. Complete the chart with the associated threat values.

b. Rank the risks in order of priority.
c. If the organization decides to introduce strategies to reduce its economic risk,
what is one strategy that it could implement?
Breakout Groups
• Venezuela’s 21st Century Socialism
• Review case study in MyLearning and answer questions.
1. What measures should a company in Quanture’s position have
taken to reduce its exposure to political risks in Venezuela?
2. What could foreign investors in Venezuela who avoided
expropriation do to protect themselves from this political risk?
3. What main business impacts could foreign investors in Venezuela
prepare for if their companies are expropriated?
 Risk Analysis & Management

UNIT 5
Analyzing and Mitigating
Social Risk
◎ What Is Social Risk?
◎ The Risk Management Process and Social Risk
◎ Review Historic and Current Data Related to Social Risk
◎ Identify, Measure and Rank Potential Risks
◎ Develop Options and Select Strategies
◎ Implement the Strategies
◎ Monitor, Evaluate and Adjust

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 Why Is This Important?

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 What Is Social Risk?
Social risk arises from negative perceptions of an organization’s
impact on the community.

Examples of social risk: Corporate Social

o Environmental pollution Responsibility (CSR)
o Hazards to human health
o Safety and security
o Threats to a region’s biodiversity and Triple Bottom Line (TBL)
cultural heritage

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 Social Risk Components
Issue
o Heightened significance on global level
1 o Specific to organization, target market
and planned venture

Stakeholder
o Any person or group who may have
2 interest in the issue
o Includes ‘non traditional’ stakeholders

Stakeholder Perception
o Based on various information sources
3 o Negative perceptions can be accurate or
inaccurate: both are challenges

Means
4 o Stakeholder may have variety of means to
affect organizational conduct
FIGURE 5.1
Source: Bekefi, Tamara, Jenkins, Beth and Kytle, ‘Social Risk as Strategic Risk’
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 The Risk Identify issues and set context

Management
Process and Identify key risks and measure probability
of impact
Social Risk
Managing Rank potential risks and specify desired
outcomes
Social Risk

Develop options and select a strategy

Implement the plan and monitor, evaluate

and adjust

FIGURE 5.2

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 Review Historic and Current Data
Related to Social Risk
Human Rights
Corruption
Land Use and Ownership
Indigenous Rights
Environment
Working Conditions and Fair Wages
Public Health
Other Local Social Issues

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 Identify, Measure and
Rank Potential Risks
After potential social risk factors has been collected and
reviewed, organizations need to identify key risks and measure
probability and impact.

Consider acquaculture industry. An acquaculture organization is analyzing

potential risks for a new venture in Thailand. See Tables 5.1 to 5.5.

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 Identify, Measure and Rank Potential Risks, Continued

Based on this analysis, the most important social risks are:

o Effect on community and environment
o Supplier’s perceptions related to feed and additives used, use of drugs and chemicals
o End consumers’ concerns about foreign labour practices
Risk Avoidance
Other concerns:
o Effect of pest and disease control operations on local people Risk Reduction
o Pollution hazards of cultured animals
o Community concerns over safe containment of cultured animals Risk Transfer
o End consumers’ concerns about drugs and chemical use
Risk Retention

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 Develop Options and Select Strategies

Wherever there is risk, there is opportunity.

Proactive strategies to mitigate social risk:

o Incorporate local content into business planning
o Establish strategic relationships
o Establish and adjust policies and procedures By enacting these
strategies,
o Ethically obtain rights to purchase or use land organizations
o Monitor suppliers for compliance contribute to their
own
o Communicate risks and mitigation strategies to stakeholders Corporate Social
Responsibility
(CSR)

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 Monitor, Evaluate and Adjust

Monitoring, evaluating and adjusting the prioritization of social

risks and the associated mitigation strategies is critical, as the
concerns in this area can change rapidly.
To stay current, organizations must encourage their employees to
report any signs of new social issues that are present as a
venture is executed.

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Breakout Groups
• Yasuni National Park
• Review case study in MyLearning and answer questions.
1. What risks did Lucia’s team uncover in its analysis of a potential oil
venture in Ecuador and what are the possible consequences of each?
2. Using the risks identified in Question 1, analyze each risk and place a
checkmark indicating the degree of impact (critical, serious or marginal)
in the second column.
3. What strategies might the risk analysis team suggest to mitigate the most
probable and impactful risks identified in Question 2?
4. Based on the overall risk posed to ParaSol should it successfully submit
and win the bid, what should Lucia’s team finally recommend?
Next Class
• November 12 – in person – Room 137
• Read Units 6-7