Techniques for a company to deal with different political, economical and social environment

By | April 11, 2014

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As for companies which operate in foreign countries with obviously different political environment, there are political risks that may cause serious problems to the companies. Political risks are any changes in the political environment that may adversely affect the value o a firm’s business activities. Ownership risk, operating risk and transfer risks are the three most usual kinds of political risks. For example, in Afghanistan terrorist attacks such as kidnapping are happening frequently and some foreign firms are usually targeted in such terrorist attacks. As avoid and understand the political risks, political risk assessment is a good way; it is a systematic analysis of the political risks they face in the foreign countries.

In the area of economy, there are also many risks that need to be taken into consideration by the companies that operate in the foreign countries. For example, the currency exchange rate turbulence will increase the transfer risk for these MNCs. If the home countries’ currency become more valuable as a result of the appreciation, then by doing business in the foreign countries with other currencies which generate profits in foreign currencies, then if the MNCs want to transfer the profit back to the home countries, then there will be a lost in the currency exchange as the home currency has appreciated. The risk caused by the currency exchange rate to some extent and most MNCs could not exactly predict the trend of the exchange rates, but there are some measures to avoid such risks. MNCs while doing important international could require using the most globally acceptable with less risk to depreciate in the contracts.

As for the aspect of social environment, this will be more various with different countries, because the social and cultural environment is very different from country to country. For example, piracy in many developing countries is commonly acceptable and the government would not put too much effort in restricting such illegal behaviors which will benefit the home ground companies most because many home ground companies develop in such a social and cultural environment that they also purchase the pirate products irrespective of any property right. But to most MNCs which stick to the high ethical standard in their home countries, they are faced with the dilemma whether to adhere to the same ethical standard or to compromise such ethical standard in exchange for economic advantage which is enjoyed by many other competitors in the target market. In this point of view, the MNCs should uphold the high business ethics because in the long run the ethical requirement and social responsibility will require the MNCs to help protect and enhance the society in which it functions.