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Literature Review – Mnes, International Business and Country Risk Essay

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Introduction

This review is written to give readers a understanding of the meaning of Country risk Management, International Business and Small and Medium sized Businesses. When business or institutions engage in international lending or cross-border exposures, they undertake not only the customary risk but also country risk, which is the risk associated with the economic, social and political conditions within a foreign obligator’s home country/jurisdiction. Therefore the understanding of Country Risk Management is of importance.

International business is a term used to describe all commercial transactions of private and governmental institution on sales, investments, logistics, and transportation that take place between two or more regions, countries and nations beyond their political boundary.

In the world the importance of international Business keeps growing. This review will provide information on what the meaning is of international Business and it will give the reader a better understanding of International business, the driving forces of International Business and explain about the restrictions that play a role.

Regarding Small and Medium sized enterprises. This will give readers a view on in what accept they operate which companies are considered SMEs and what role they play in the world. This will also show you the difference between SMEs and MNEs.

Country Risk Management

When you look at the definition of Country Risk Management, it refers to taking account of the possibility that economic and political conditions, or an event in a foreign country, could adversely impact an institution’s or business in that country. The institutions that works in those countries in international lending or having other cross border exposure are vulnerable to country risk and you have to take that as a country risk manager in account. “Country risk is not limited to an institution’s international lending operations; rather because their other on balance sheet activities and as well as off balance sheet exposures also contain country risk.” [5]

When looked at businesses or institutions that outsource internationally, such as electronic data processing, electronic banking or any consultancy/management services, with overseas parties that are involved, this also carries country risk. Institutions are indirectly exposed to country risk as a result of their exposure to domestic entities that have significant cross border exposures, these institutions are not required to take into account such exposures in their formal country risk management process.

However, such indirect country risk assessment pertains to credit risk management and banks are expected to give due consideration to this aspect while taking an exposure on such domestic entities. Institutions can exercise little direct influence on the country risk they are exposed to. This distinctive nature of country risk necessitates that banks having significant cross border risk exposure should have adequate country risk management framework.

The term “country” in country risk management should be widely interpreted to include different jurisdictions or economic entities. For example, when you look at China, you should treat the Mainland China, Hong Kong and Chinese Taiwan as separate jurisdictions / economic entities in their country risk management processes. [6]

“Country risk can be broadly classified into sovereign, transfer/convertibility and contagion risk. * Sovereign risk denotes a foreign government’s capacity and willingness to repay its direct and indirect (i.e. guaranteed) foreign currency obligations. * Transfer/Convertibility risk arises if changes in government policies, or any event, result in a barrier to free conversion or movement of foreign exchange across countries. Under such conditions, a borrower may not be able to secure foreign exchange to service its external obligations.

* Where a country suffers economic or political problems, leading to depletion of its foreign currency reserves, the borrowers in that country may not be able to convert their funds from local currency into foreign currency to repay their external obligations. Contagion risk refers to the possibility that any adverse economic or political factor in one country has an impact on other countries in that region. “

International Business

International business is a term used to describe all commercial transactions of private and governmental institution on sales, investments, logistics, and transportation that take place between two or more regions, countries and nations beyond their political boundary. Private companies mostly do such transactions for beneficial reasons; governments also do them for profit and also for political reasons.

International Business is not a new phenomenon, trade across the globe is as old as business itself. Today, every nation has increasing number of companies buying and selling goods in the international market place. A number of developments around the world have helped to fuel this activity. “Some of the major forces driving International Business are – LPC Movement, MNCs, Technology, World economic trends, regional economic integration, Transportation and communication improvements, product development costs, competition”. [3]

International Business has gained wide popularity, because of the growing rate of multinational enterprises. During the last-three decades, the field of modern International business began to develop. Today, it has become a separate field of study in the management courses. The reasons to study this subject are, because almost all of the large enterprises in developed countries are international in character.

Due to the economic liberalization and globalization, immense international business opportunities have been created. In most companies the manager needs to have knowledge about international business for managing complexities and understanding the various factors. Now a days public policy issues are very often related to international trade, investment and finance. There is no country that can neglect the foreign trade sector, when drawing up its economic policies.

In business rules are highly diverse and unclear within International business. There are many languages and differences in culture, varied financial climate, patriotism hinders, multiple currencies and taxation system, integrative approach to study, product planning & development according to foreign markets, multiple & unstable marketing environment. Control of business activities is within International Business is difficult.

International business is a wide concept and it encompasses a varied activity that makes its scope even wider. With the advent of the LPG Movement, the global Market place has shrinked and became one platform for conducting market activities, creating a wide range of operations and activities under its.

There are several forces that restricts international business crossing the borders of the nation is not an easy task, as one has to face many barriers on various fronts. “Some of the restricting forces of IB are – Management Myopia, National Controls, High Investment required, Trade Blocs, Exchange Instability, and Technological Piracy”[3]

International Business is an extension of domestic business. Today, all types of business enterprises are inspired to carry on business across the globe.

Both IB & DB are similar in some ways, such as Business whether domestic or international, involves buying and selling of goods and services, Profit is the main objective of every business, whether domestic or international, Both in domestic as well as IB success depend upon satisfying the customers, Building goodwill is another common objective of both the business, Research and development for product improvement and adaption is necessary in both businesses, Business concepts, processes and principles are universally applicable, and the marketer’s task is same in both.[3]

Small and medium sized enterprises

Institutions recognize small and medium enterprises also known as SMEs, as companies whose personnel numbers fall below certain limits. The abbreviation “SME” is used in the European Union and by international organizations such as the World Bank, the United Nations and the World Trade Organization (WTO). Small enterprises outnumber large companies by a wide margin and also employ many more people. SMEs are also said to be responsible for driving innovation and competition in many economic sectors. [2] There is also an important variation of called a multinational enterprise also known as MNE.

That is a company that has a worldwide approach to markets and production with operations in more than one country. An MNE is often called multinational corporation (MNC) or transnational company (TNC). Well known MNCs include fast food companies such as McDonald’s, Burger King etc., vehicle manufacturers such as General Motors, Ford Motor Company and Toyota, consumer electronics companies like Samsung, LG and Sony, and energy companies such as ExxonMobil, Shell and BP. Most of the largest corporations operate in multiple national markets.

Areas of understanding within MNE of within this topic include differences in the legal systems, political systems, economic policy, language, accounting standards, labor standards, living standards, environmental standards, local culture, corporate culture, foreign exchange market, tariffs, import and export regulations, trade agreements, climate, education and many more topics. Each of these factors requires significant changes in how individual business units operate from one country to the next. [2]

The conduct of international operations depends on companies’ objectives and the means with which they carry them out. The operations affect and are affected by the physical and societal factors and the competitive environment.

Conclusion

This review tries to give readers a better understanding on “Country Risk Management”, “International Business” and “Small and medium sized enterprises”. In addition, information from previous publications that are related is used to strengthen the topics that are being discussed. The paper starts with the definition of explaining the known understanding of Country Risk Management and continues explaining International Business and Small and medium sized enterprises. This shows you what importance these subject have and what role they play on multinationals and for you working in multinationals

Source:
[1]http://www.ncr.org.za/pdfs/Literature%20Review%20on%20SME%20Access%20to%20Credit%20in%20South%20Africa_Final%20Report_NCR_Dec%202011.pdf [2]http://ec.europa.eu/enterprise/policies/sme/files/sme_definition/sme_user_guide_en.pdf [3]

http://www.gurukpo.com/admin/bookpdf/57.pdf
[4]http://www.uscib.org/docs/international_business.pdf
[5]
http://www.sbp.org.pk/bsd/2004/Anex-C3.pdf
[6]http://www.amcm.gov.mo/rules_and_guidelines/laws/bank/En_Av_08_2008.pdf [7]http://www.prenhall.com/behindthebook/0131738607/pdf/CKR_Why_We_Wrote_This_Book.pdf

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