Managing International Business Risk CHAPTER 22 12/6/2018 CHAPTER 22 Managing International Business Risk 22-1 Global Risk Management 22-2 International Insurance 22-3 Reducing Global Risks INTERNATIONAL BUSINESS

LESSON 22-1 Global Risk Management GOALS Describe the types of risks related to international business activities. Discuss the risk management process.

International Business Risks 22 International Business Risks Political risk Social risk Economic risk Monitoring global business risk

Types Of International Business Risks 22 Types Of International Business Risks Political Risk Government instability Change in business regulations New trade barriers Social Risk Religious beliefs Values Family-work relationships Economic Risk Consumer spending patterns Inflation Exchange rate fluctuations

The Risk Management Process 22 The Risk Management Process Step 1: Identify potential risks Step 2: Evaluate risks Step 3: Select a risk management method Step 4: Implement the risk management program

Risk Management Methods 22 Risk Management Methods Risk avoidance Risk reduction Risk assumption Risk sharing

LESSON 22-2 International Insurance GOALS Explain the basic elements of insurance coverage. Describe elements of an insurance policy.

22 Insuring Against Risk Insurance is planned protection for sharing economic losses among many people. Insurance is an agreement between one party, called the insured, and an insurance company, the insurer. Stock insurance company Mutual insurance company

22 Insurable Interest A basic requirement of insurance is the presence of an insurable interest, something of value that may be lost or destroyed. For example, equipment owned by a company represents an insurable interest. In the case of life insurance, the insurable interest is the financial loss caused by someone’s death.

Insurable Risk 22 Common to many people Definite Not excessive in magnitude Not trivial Able to be calculated

Insurance Policy Elements 22 Insurance Policy Elements Declaration Insuring agreement Conditions Premium Deductible Exclusions Endorsement

LESSON 22-3 Reducing Global Risks GOALS Identify the major types of insurance coverages for international business activities. Describe strategies that multinational companies use to reduce risk.

Global Insurance Coverages 22 Global Insurance Coverages Marine insurance Ocean marine insurance Inland marine insurance Property insurance Loss of real property Loss of personal property Financial responsibility for injuries or damage Overseas Private Investment Corporation (OPIC) Inconvertibility Expropriation Political unrest Credit risk insurance

Risk Reduction for Global Business 22 Risk Reduction for Global Business Conduct business in many countries Diversify product offerings Involve local ownership Employ local management