Risks And Uncertainty In Entering New Markets Finance Essay - Free Essay Example

Sample details Pages: 7 Words: 2105 Downloads: 7 Date added: 2017/06/26 Category Finance Essay Type Analytical essay Did you like this example? No one can deny that expand the business activity and entering new market as much as having new market for its resources is valid to survive This decision face obstacle which has variety of importance levels, some of them are reach a level of risks and other stay at uncertainty level and have to be considered in order not to reach the higher risk level The word uncertainty means that a number of different values can exist for a quantity and risk means the possibility of loss or gain as a result of uncertainties. In this report we will discuss the case of risk and uncertainty in Syrian case . Don’t waste time! Our writers will create an original "Risks And Uncertainty In Entering New Markets Finance Essay" essay for you Create order Risks: Whenever a purchase or sale is made there is a level of risk this risk can be progress from uncertainty to high risk; in order to fully study the type of risk and uncertainty influence on the international business we have to categorize it according to area of impacting here we will discuss those ideas according the following arrangement: Systematic Risk which include the political Economical and Exchange Risk in general and in Syrian market in specific Market risk which discuss Specific Risk Also in this essay we will discuss the Uncertainty and how we can manage it in order not to revert to risks after discussing the type and the different it and the risks. Systematic Risks: Political Risk: Political decisions can impact on many vital areas for business such as the education of the workforce, the health of the nation and the quality of the infrastructure of the economy It is imperative to evaluate the potential level of risk by using several different approaches and techniques, these approaches fall into several general and common categories: Systemic risk: It is Risks faced by investors as a result from shifts in public policy. New political leadership may adopt policies that differ from its predecessors. For example, Syrian released new regulation at the beginning of 2010 the new role assume that each Commercial Invoice not legalized form the Syrian Embassy of the exporter country is not trustworthy; therefore each exporter to Syrian market has to get a document from the Syrian embassy to certify that the Commercial Invoice value and information of this goods is authoritative; this new procedures badly affect any transaction related to export to Syria be cause not all embassies infrastructure is good enough to arrange all that type of legalization and documents (the size of work are related to the exporting volume to Syria from that country the most confusing situation was in Syrian embassy in China) which mean that the goods has to be wait at the port of discharge or the port of lading according to the type of goods, which mean increase the cost of demerge for goods in boards as well as the discrepancy of banks if the exporter choose the Letter of Credit as a payment term, fortunately this new regulation life period was short and they stop work on it after one month which create another confusing for international trade. A very uncertain political and economic outlook and a business environment with many troublesome weaknesses can have a significant impact on corporate payment behavior. Corporate default probability is high. Procedural risks: Political intervention in procedures to apply specific policy this policy can affect the economy in general. it Created by one movement of people, products and funds that move from point to point in the global market between the units involved, whether units of a company or units of a country. This situation appeared in Syria in the middle of 2006 when the government decides to switch from the Oriented Economy System to Social Market Economy The question arise here how it can affect the purchase or sale internationally and how it affect the companies which decide to login the Syrian market? In fact this policy shifts can create opportunities for some of foreign investors and some local investor as well, since the government apply a lot of facilities and low taxes for specific sectors like trade and tourism on the other hand it will badly affect the other economy sector such as the industries, agriculture and welfare. On the other hand the documentary risk is the main reason behind slow or non-payment in the international trade most of problem is related to the document incorrectly preparation, this document is required to complete the transaction, Cross-border transactions involve many documents, yet just one missing document or a discrepancy in a document can stop a payment temporarily or permanently, for example in the Syrian regulation information and stamps mentioned on the Commercial invoice has to match the one on the Certificate of Origin in case of producer and goods description while the Bill of Lading information has to match the information on the Certificate of Origin in case of carton number, weight and the H.S. CodeÃÆ' ¢Ãƒ ¢Ã¢â‚¬Å¡Ã‚ ¬Ãƒâ€šÃ‚ ¦ etc. Some of the more common document problems are caused by Letters of Credit, some information dont match the open LC condition like the date of shipments and the port of lading nameÃÆ' ¢Ãƒ ¢Ã¢â‚¬Å¡Ã‚ ¬Ãƒâ€šÃ‚ ¦ etc. Certifications such as certificates of origin, the information on it dont include the H.S. Code and other information required in host country custo ms. Customs documents: like real packing list or any specific document required according to country policy (in Syria if CI dont bear the paragraph which certify that this goods dont have any Israeli material of labor activity may stop the declaration procedures according the Syrian problems with Israel) Transportation documents, BL may not bear the H.S. code or the consignee party doesnt match the name of registered name of the company which receives the documents. Most important set of documents in Syria is Certificate of Origin, Commercial Invoice, and Bill of Lading, those documents may not have the same priority in other countries according to that country laws. Recently most countries start use the digital world features to facilitate preparing these documents, specially CO and other type of Certificates such as Health Certificate and Certificate of analysis for certain type of goods. Any mismatch between this information will increase the cost of declaration, dela y the payment and may stop the import procedures in all. It is important to pay more attention to the Procedural risks since the custom and monetary system is Syria is not flexible and have a lot of penalties in case of any mistake in the documents caused by the distrust between government and trader, however the procedural risk can be avoided by dealing with local commentator agency which moderate this kind of risks. Distributive risk: Distributive political risk reflects revisions in such items as tax codes, regulatory structure, and monetary policy imposed by governments in order to capture greater benefits from the activities of foreign firms. The new world system in this case is to use the H.S. Code to categorized the goods type and apply the tax accordingly that in case of trade as import and export; another case is to invest in a foreign country the dynamic of distributive political risk is creeping expropriation, a gradual elimination of foreign companys local prope rty rights. As the business grows more successful, officials may question whether they are receiving their fairÃÆ' ¢Ãƒ ¢Ã¢â‚¬Å¡Ã‚ ¬-share of the growing profits. Most of foreign investor in Syrian market has a good condition and medium tax rate comparing with neighbor countries but they cant own the land they work on it, but usually the corporate financing information often not available and when available usually unreadable Debt collection is unpredictable. The institutional framework has many troublesome weaknesses. Intercompany transactions run major risks in the difficult environments rated C according to COFAC the company who is specialised export credit insurance, managing its own products and State guarantees for French exports. Catastrophic risk: Catastrophic political risk includes those random political developments that adversely affect the operations of all firms in a country; this type of risk can devastate companies and countries as well. It includes political developments that adversely affect the operations of every company in a country, recently civil disorder has appeared which make troubles the trade in general that affect the . POINT-COUNTERPOINT: Political Risk Management POINT- ACTIVE POLITICAL RISK MANAGEMENT: Active political risk management reasons that if one measures the right set of discrete events, one should be able to calculate the degree of political risk in a country and estimate the likelihood that politically risky disruptions, will occur (e.g., civil strife, terrorism, regime change, ethnic tensions, contract repudiation, financial controls, transaction risks). In Syria case the political risk can be predicted since the scene political policy is same since last decade and sharply changes are improbable for the next decades if the catastrophic problem which starts recently become controllable by government so the other risk will be acceptable and can be managed easily. COUNTERPOINT- PASSIVE POLITICAL RISK MANAGEMENT: Many firms choose to treat political risk as an unpredictable hazard of international business. They adopt a strategic response by find a cost-effective way to minimize the risks like purchasing insurance for each of its operational activities which mean increase the cost of establishing of lunching the new market Economical Risk Economical risk can sometimes be forecast but is often completely out of the control in both the buyer or seller sides. Purchasing transaction insurance is essential for a buyer to minimize economic risk. In order to fully analysis the economical risk we will have a deep look at the Syrian Macro Economy act by analysis the following points: exchange rates Foreign exchange risk occurs when the rate of exchange between the sellers currency and the buyers currency changes dramatically between the time the order is quoted and the time the final payment is received, usually this risk appear when the political policy is not clear, in Syria the political policy stability add more stability to the exchange rate and add more trust to foreign investor. Trade Burden size CAD/GDP 2009: According to the World Bank data we can calculate the following: CAD/GDP= -1.1% it is greater than -2% and that a good indicator for low risk Debt service ratio 2009: Relates the cost of repaying foreign debt to the amount being earned by exports. It can be calculated as following: DSR= Total Dept Service/ Export X Total Export/ Export Goods Services DSR= 3.1 X 11,817/18,351= 1.996 It is less than 20% which is very good indicator for low risk Import Reserve Ratio 2009: To analysis how country can compensate its imports we will calculate the IRR IRR= Reserves / Total imports X12 IRR =6512 / 16121 X12 = 4.85 months since it is more than 3 it consider good After years of autarky, Syria still hardly open to the world, but this policy protect it from the bad effects of the economy crises 2009 and we can realize the booming in the real estate sector, also the oil production of country support the currency and government policy, the government facility for foreign investors as much as the availability of raw material and great location of Syria make the investment in the agriculture and transportation is good choice. CAD/GDP, DSR and IRR ratio is n ot the right indicator to evaluate any economy but it can advise us a background of general image of that country economy. POINT-COUNTERPOINT: Economical Risk Management POINT- ACTIVE ECONOMIC RISK MANAGEMENT: some company prefer to consider the Economical Risk management as part of market analysis research which mean that each result will be accompany with other evidence and can have a good research result as a result to have the right decision. COUNTERPOINT- PASSIVE ECONOMIC RISK MANAGEMENT: consider the Economic Risk analysis as a first indicator can give you a first sight at the target market and according to the result some companies prefer to precede the market research, but those companies have to draw more attention that considering the Economical risk analysis alone as a first step will let company loss a lot of good opportunities because usually the greater economy in the worlds can have high risk in some points such as CAD/GDP which has high risk in USA but it still have the best FDI chance since they support the FDI by good facilities offered to foreign investor. Specific Risk: Which also can called Market risk Choose the wrong industry? Choose the wrong positioning? Different types of Strategy.. Corporate Business Who is responsible for what? Uncertainty: https://www.wikinvest.com/stock/International_Business_Machines_%28IBM%29/Market_Risk https://wikieducator.org/Introduction_to_Political_and_Economic_Risk https://globaledge.msu.edu/countries/syria/risk/ https://www.coface.com/CofacePortal/COM_en_EN/pages/home/risks_home/country_risks/country_file/Syria?extraUid=572216