BBB4M CHAPTER 9

9.1 Canada’s government seeks to promote Canadian business in other countries and to lessen the risk for foreign companies. They Establish import and export policies Develop trade policies and regulations Assist Canadian exporters succeed Match potential Canadian exports with international clients Maintain and improve relations with other nations Assist Canadian companies adjust the changing international market Foster innovation and human resource development

Political Risk Types of Political Systems Democratic Model – The general population has the right to vote in free elections. (market or capitalist economy) Totalitarian Systems – they centralize power and often use military control. Citizens have little say (command economy) Mixed system of government POLITICAL INTERDEPENDENCE

9.2 Types of political risk Risk of general political instability Ownership risk Operations risk Transfer risk

There are a number of questions a company should ask itself to predict the possibility of risk, provide for it, and still project a profit: Is terrorism part of the political landscape? Could extremist groups pose a danger to the general stability of society? Has there been a withdrawal of freedoms? What, if any is the military’s role in government? Could religious or ethnic pressures lead to civil strife and endanger employees or property?

Evaluating Political Risk: What are the chances of political and economic instability in the host country over the next five years? What agreements are in place between the Canadian government and the host government regarding Canadian investments? How committed is the current government to rules of ownership rights? If a new government were to emerge, how would its platform and ideology change the current state of business affairs? Would a new government be likely to propose changes in policies that would affect the country’s way of doing international business? How would changes in government affect the profitability and safety of a n international project?

Consequences of Terrorism Terrorism tends to occur when least expected and becomes a greater concern when open borders make it easier for terrorists to carry out their plans. A terrorist attack has many negative consequences on a countries economy and its businesses. It also affects transportation, security and travel Evaluating legal concerns Laws and regulations differ from one country to the next, when doing business in a foreign country, you must obey the laws from that country.

9.3 Economic Systems An economic system is what allows a country to decide what to produce, how to produce, and for whom to produce. These systems include natural resources, labor, capital, management and standards for creating products. Market economies Centrally planned economies Mixed economies

Global economic systems Interdependence, clustering Business cycles Depression, Recovery, Prosperity and Recession The world economic freedom index Economic freedom rating Canada’s global entrepreneurs Around the clock world markets Common currency

9.4 Strategies to manage financial risk Foreign exchange management Credit control Open accounts Insurance Analyzing foreign investment climates General political instability Government policies towards foreign investment Policies and legal factors Economic environment International payments