GLOBAL RISK ASSESSMENT Global Risk Assessment Harold Osborne Ken Cromer MGT/448 April 25, 2017 GLOBAL RISK ASSESSMENT Contents Car passenger – Germany Market ................................................................................................................ 4 Introduction .................................................................................................................................................. 4 Mission and Objectives ................................................................................................................................. 4 Regional analysis .......................................................................................................................................... 4 i. Alliances ............................................................................................................................................ 4 ii. Physical environment and effects on trade ...................................................................................... 5 iii. Political, Stability ............................................................................................................................... 5 iv. Economic Stability ............................................................................................................................. 5 v. Finance options available.................................................................................................................. 6 vi. Competitive risk assessment ............................................................................................................ 6 vii. Social ............................................................................................................................................. 6 viii. Health ............................................................................................................................................ 7 ix. Environmental conditions ................................................................................................................. 7 x. .Terrorism threats ............................................................................................................................. 7 Country risk analysis..................................................................................................................................... 7 GLOBAL RISK ASSESSMENT i. Political stability ................................................................................................................................ 7 ii. Finance options available.................................................................................................................. 8 iii. Physical environment and its effect on trade ................................................................................... 8 iv. Cultural considerations ..................................................................................................................... 8 v. Social ................................................................................................................................................. 9 vi. Organization and product analysis ................................................................................................... 9 Description of the organization ........................................................................................................... 10 vii. Product needs assessment of the target country ....................................................................... 10 Description of product to meet the need ............................................................................................. 11 Taxation and double taxation risks ..................................................................................................... 11 viii. Entry strategy .............................................................................................................................. 11 Conclusion .................................................................................................................................................. 11 Specific risks and how I would manage these risks ................................................................................ 11 References ................................................................................................................................................... 13 GLOBAL RISK ASSESSMENT Car passenger – Germany Market Introduction Introducing new passenger car as a new business in Germany risk is an unavoidable aspect that every business organization must be aware of to ensure that the continuity and profitability of the business. Risks must be managed appropriately to control the negative consequences. The risk need to also be felt and to exploit openings for the growth, development and success. To acquire insight on potential risks, the assessment must be done carefully to come up with facts. Mission and Objectives The mission of a passenger car in Germany is to ensure that people in Germany are offered the best means of traveling within the country. Its objective is to give the customers complete means of transport as they handle their business and personal activities. Regional analysis i. Alliances Once risk is identified appropriate management strategies can be employed to eliminate or reduce the effects they might have to the business. Risk management is therefore concerned with confidence building to gain competitive advantage through minimizing failures and ensuring that the risks or threats do not tamper with the objectives of the business. The fact that there are so many automotive businesses operating in Germany, this creates competition for any business venture and therefore strengths and weaknesses of competing businesses must be assessed carefully. GLOBAL RISK ASSESSMENT ii. Physical environment and effects on trade Developed countries are slowly switching from manufacturing to service related industry. Despite the enormous returns that manufacturing brings to a country, most of them are aware of the pollution and health implications associated with production. On the other hand, developing nations see the void left in the manufacturing sector as an avenue to generate more revenue and improve their GDP. On of such countries is Germany. The region of Germany faces rising temperature and frequent heat waves which due to climate change which hinder productivity and hence low sales more frequent weather extremes surrounding the region have an indirect effect on the profit of most products including automobiles. iii. Political, Stability In the establishment of a global business venture there are lots of risks that must be accessed to ensure that the business is profitable and viable. Risks that relate to the political, legal, and regulatory risks must be checked. In Germany automotive company’s compliance has become an integral part of the transparent management of most companies. iv. Economic Stability Recent cases of data scandals and bribery made the businesses aware of the benefits that accrue to compliance to the laws of the country. This has made much emphasis to be placed on compliance issues, ethics in business and the corporate force of responsibility for business owners on how the business serve the society. Germany is politically stable but the cost of operating businesses there is a little bit higher than most investors would expect. The regulatory risks in the country are high with consideration on the many sectors which are off the economy yet they have become more oriented to the market. GLOBAL RISK ASSESSMENT There exist lots of restrictions with massive bureaucracy which makes approval for conducting business unpredictable and therefore preparation must be done carefully to avoid legal problems. To avoid landing into legal problems the legal, financial base and the reputation of business ventures must be conducted with diligence. The employees to be hired should be taken through a pre-employment screening process too. v. Finance options available Exporters and importers in Germany are faced with lots of currency risks in making deals with Germany. Foreign exchange risk is also known as FX risk and is the financial risk experienced in cases where monetary transactions are dominated by other currencies apart from the main currency of the company. It also exists in cases where some of the business departments in foreign countries maintain their finance statements in some other currencies different from the reporting currency. vi. Competitive risk assessment Competitive risk assessment is a crucial part of the industrial corporate strategy, especially in automotive where the leading companies in the world are based in Germany. In consideration of the competitive factors of a country, while making the investment it is necessary for a business firm to make decisions wisely. The fact that there are so many automotive businesses operating in Germany, this creates competition for any business venture and therefore strengths and weaknesses of competing businesses must be assessed carefully. vii. Social `The region is culturally diverse and thus the passenger car would have a wide range of diverse customers. The population is well educated, love to work, hence there will be a need for GLOBAL RISK ASSESSMENT the car passenger. However, there is a low birth of rate and the existing generations like to drive existing brands which they get used to it and no hassle for changes. viii. Health Healthcare expenses are low in the region due to employers and big companies provide health care packages for their employees. This lead to a spare income that can help in the car passenger selling market. ix. Environmental conditions Due to the vast number of industries in Germany, the country is facing increasing cases and pollution levels. Different types of pollution cases are present in China namely problem with energy consumption, water pollution and air pollution (Chen et al, 2013). The problem of energy consumption remains worrying. Hence, there will be a need of car passenger. x. .Terrorism threats We hardly can hear of any political conflict in the region and there is a high level of security that maintain individual welfare. The security agency is working hard to tackle any terrorist threats with a high level of intelligence. Country risk analysis i. Political stability Germany is a politically stable country with democratically elected governmental leaders. The automotive industry in the country are conducted regularly and the transition from one government GLOBAL RISK ASSESSMENT to the other is smooth and peaceful. Germany has rare cases of civil wars or cases of ethnic disputes that can affect its stability. (Kourtit, et al, 2013) ii. Finance options available In Germany, investors and business people who export or import goods or services face FX risks which bring them severe monetary consequences. The risks may be solved through the introduction of FX risk management tools which include FX options which can help in the reduction of loss risks and currency fluctuations. In cases where money is to be converted into another country’s currency while venturing into a business venture with the Germany, the exchange rate of the currency will cause a value to decrease. iii. Physical environment and its effect on trade Besides the food risks that can affect the car trading, Germany has the likelihood of its government being against any violent or unconstitutional means including terrorism and politically-motivated violence. Economic conditions Germany has numerous industries which have increased the emission of Carbon dioxide into the atmosphere hence causing global warming. The high demand for more energy to maintain a large number of manufacturers has also resulted in the utilization of energy from exhaustible resources (Chow, 2015). Due to this approach, experts are afraid that there may arise a shortage of energy in days to come. Hence, there is a need to car passenger that can help in saving energy and Carbon dioxide emission rate. Physical environment and effects on trade. (Description of the German automotive industry critical 2007). iv. Cultural considerations GLOBAL RISK ASSESSMENT The business adheres ethics and social responsibility that given a standardized culture of how trading are governed. Besides of existing large number of competitors can affect the selling price of the car passenger. Social, ethnic and cultural risks come along with ill consequences like fraud, corruption, unethical behavior, racism and nepotism. Business ethic laws in Germany legal system is ill designed with the risk of investors. In attempts to avoid the ethical breaches that the company might cause, all the companies that venture into operations in the country must engage in ethical programs with due diligence on all partners, vendors and the investment targets. The people of Germany are not held by any closed cultural system like the Arabs. It gives access to an open and free society where investors can set up and run businesses. Interactions with the local citizens are not hard. v. Social With the recent economic recession that has affected the german market particularly the automotive has led of individuals losing their jobs. Besides, there is a poor distribution of income within the country that can affect the selling price of the car passenger. Social, ethnic and cultural risks come along with ill consequences like fraud, corruption, unethical behavior, racism and nepotism. Health The requirement for full coverage of employees is a risk to business considering that when one of the sales team is hurt or killed in the course of duty would involve the public prosecutor vi. Organization and product analysis GLOBAL RISK ASSESSMENT Description of the organization MOTOVISE Company would be selling passenger cars with headquarters in Munich. It will operate two other branches in Hamburg and Cologne each headed by a managing director and each will have sales representatives A. The CEO will be based in Munich and will oversee the overall organization Business ethic laws in Germany legal system is ill designed with the risk of investors. In attempts to avoid the ethical breaches that the company might cause, all the companies that venture into operations in the country must engage in ethical programs with due diligence on all partners, vendors and the investment targets. The people of Germany are not held by any closed cultural system like the Arabs. It gives access to an open and free society where investors can set up and run businesses. Interactions with the local citizens are not hard. (Kourtit, et al, 2013) vii. Product needs assessment of the target country The expansion of businesses to a global scale is good but it comes with costs that are accrued to it. The passenger car in Germany business venture should be in a position to consider the complexity of issues surrounding the United States and Foreign Tax in Germany. Some countries possess a territorial system of taxation which impose no additional tax costs in home country or any business activity profits outside the country unless if the profits or earnings are sent to the home country. Germany tax rates are relatively low which makes it a good venture for investment GLOBAL RISK ASSESSMENT Description of product to meet the need Toyota Highlander Hybrid 2016 model 7-passenger car with a 3.5-liter V6 engine It has economical gas mileage and it’s a battery-assisted vehicle when making a cut and a 280 horsepower. (Kan, H., Chen, R., & Tong, S. (2012). Taxation and double taxation risks .Tariffs can be defined as hurdles in the business and the business enterprise should ensure that they are adequately solved. The posing of tariffs protects local industries from facing competition from the threat of new entrants and therefore they are used to protect the local companies. Non-tariff barriers affect market access negatively together with the profitability of the company. The effects of the non-tariff barriers place companies in a state of risk. Some of the nontariff barriers in Germany include Tariff Quotas, Governmental Procurement, technical barriers, export constraints and quantitative restrictions. viii. Entry strategy Marketing is meant to inform and attract customers to enjoy the passenger car being offered, maintain them and grow profits from their offers. Marketing helps in the development of passenger cars that can satisfy needs of customers and it is therefore important in increasing competition to lower price attracting more customers Conclusion Specific risks and how I would manage these risks GLOBAL RISK ASSESSMENT Germany can change its policies from time to time and this can have a negative effect on foreign company’s investment plans. Some of the changes are in form of trade barriers which are made to limit or eliminate international trade. Through the use of tariffs, the government of Germany might ask additional funding for a company to be allowed to venture into business in Germany. Therefore businesses that operate suffer from difficulties that arise from political, legal, economic, security and operational issues. Some of the companies fail while others succeed. Some of the other difficulties that might be experienced in venturing into a business in Germany is language barrier where some of the local languages are hard to understand and therefore a local translator will be a requirement. All the political, legal and regulations set in Germany should be complied through observing the laws, policies, regulations and the recommendations that have been recognized by the company. All the ethical and social culture issues should be observed to ensure that the business doesn’t go against the social norms of the country. Firewalls, Encryptions and access control techniques are chiefly used to protect data from any external threats that can result from reliance on the use of internet and other technological innovations. For the passenger car in Germany to remain profitable and establish itself well, it must embrace technology well completely. It should also hold to an assurance that its personal information is well managed. Cyber security in Germany is well taken care of as it involves all business processes as well as the networked infrastructural environment. The risks associated with cybercrime are serious and therefore appropriate plans must be kept in place by the passenger car venturing in Germany. (Schroll-Machl, 2011). GLOBAL RISK ASSESSMENT References Description of the German automotive industry critical analysis of the. (2007). Place of publication not identified: Grin Verlag. Kourtit, K., In Nijkamp, P., & In Stimson, R. J. (2013). Applied regional growth and innovation models. Schroll-Machl, S. (2011). Doing business with Germans: Their perception, our perception. Göttingen: Vandenhoeck & Ruprecht. Chow, G. C. (2015). .Germany's economic transformation. John Wiley & Sons Kan, H., Chen, R., & Tong, S. (2012). Ambient air pollution, climate change, and population health in Germany. Environment international, 42, 10-19. Running head: GLOBALIZATION Globalization Harold Osborne Ken Cromer Course name: April 03, 2017 Globalization 2 Contents Introduction ..................................................................................................................................... 3 Globalization theories ..................................................................................................................... 3 Pros of globalization ....................................................................................................................... 3 Cons of Globalization ..................................................................................................................... 5 Globalization effects on communities ............................................................................................ 6 Globalization effects on organizations............................................................................................ 7 Role of government in promotion of global business ..................................................................... 7 References: .....................................................................................Error! Bookmark not defined. Globalization 3 Introduction Globalization refers to the integration of the entire globe regarding financial, economic, trading and communication. Globalization allows people, goods, and ideas to spread through the whole world, which leads to increased integration and interaction amongst different cultures of the world, economies, and governments. Globalization intends to set both local and nationalistic business dimensions which result in interconnected and a free environment which people freely transfer goods, services, and capital beyond national borders. Globalization theories According to Pérez, and Andrade-Eekhoff, (2003), Ricardian model is an example of the trade theories supporting globalization. According to the model, globalization occurs as a result of international trade between two nations. The trade between the two countries occurs because of the different production technologies and is very advantageous to the people. A specific factor model is yet another theory which aimed at illustrating the trade effects in an economy whereby a production factor is unique to a given industry. Pros of globalization Tilly and Welfens, (2014)argued that those that supported globalization felt that they made the world a better place, apart from solving deep-seated issues related to poverty and unemployment. The first benefit of globalization is free trade that eliminates tax barriers and tariffs. However, other nations still practice the tax barriers in various parts of the world. Globalization supports free trade around the world that is responsible for increased economic growth, for instance, people would get employed, companies would become competitive, and prices of commodities would reduce because of many companies offering the same products to the customers. Globalization 4 According to Pérez, and Andrade-Eekhoff, (2003), globalization drives competition amongst nations, which is responsible for reduced prices of goods. However, the success of competition does not yield much success because given countries alter their currency because it would work to their advantage. Poor countries also grow economically, through the infusion of technology and foreign capital, which in turn increases their chances of prosperity. The global business dimensions create an environment where respect for human rights and democracy flourish among nations. Globalization and democracy work hand in hand. Tilly and Welfens, (2014)argued that globalization resulted in the development of markets that avails products to consumers from different nations, and their goods also get markets. Globalization led to the development of world powers unlike the case of compartmentalized powers. Increased spread of information, ideas, and goals amongst different economies, similarly, different cultures come together. The report argues that different nations learn the cultures of the various countries. Nations, through their governments, come together, with the intention of resolving their economic and ecological problems as they share the same financial interests. Nations outsource labor from other countries, while other countries market and showcase their skills. Although the receiving nation might benefit, the giving country could face pressures related to wages, and brain drain issues. Tilly and Welfens, (2014)argued that shared technology between the technologically advanced countries with the developing countries enhances progress amongst the nations. The Globalization 5 report found that small nations benefited from technologically advanced nations like Japan and America. However, countries like China turned into competitors. Cons of Globalization A trending notion that globalization propelled the already wealthy nations to become wealthy, whereas the developing nations remained poor. The managers at the top enjoyed the fruits, whereas the workers that performed the actual plans suffered a lot. Although globalization aims to eliminate trade barriers, individual nations still get locked out of the trade because of trade barriers. Individual taxes and import duties are relatively expensive for countries to participate in the business activities fully. The US does not put VAT on imports, whereas other 161 nations excessive VAT, such as Europe which is 21.6%. According to Pérez, and Andrade-Eekhoff, (2003), the big and developed countries face problems because some of their jobs get transferred to the developing countries. Nations like China became the beneficiaries of the jobs which got moved from the rich countries like America. The developing countries enjoyed the labor input to the wealthy and developed countries. In other cases, growing nations offer relatively cheap labor, forcing the rich countries to reduce the pay scales of the people in the advanced countries like America. Fear results among the white-collar workers because government institutions no longer credit them as important. Big multinational companies, on the other hand, prefer generating their services from the developing nations. Multinational corporations, on the other hand, may utilize tax havens and avoid paying taxes to their governments. Unfair working conditions, social injustices and lack of Globalization 6 environmental concern are some of the key issues raised from globalization. Multinational companies that invested in other nations bothered about the caring for the environmental and natural resources in given countries. Tilly and Welfens, (2014)argued that production of goods and products in other nations in the name of cheap labor puts the patency of the items getting stolen and imitated. Many firms go to courts each day claiming that their technologies have taken by other nations. Diseases also spread through globalization, for instance, HIV spread through the world because of increased mobility of people. Globalization effects on communities Globalization affects people at the individual level, for instance, foods that people eat, and religious views and clothing of the individuals. The location, income and the level of educational attainment determine the impact standards of a person. Globalization not only brings the world together, but it gets also blamed for widening the gaps between the rich and the poor in the society. Globalization favors the educated and wealthy individuals, who reside in the rich nations like America. According to Pérez, and Andrade-Eekhoff, (2003), individuals from the developing countries remain disadvantaged compared to the people within the developed countries. Cheap labor gets found in the developing countries, yet they have nothing to show. The third world and developing nations are the most underserved regarding technology. The supply of internet and computers to the developing countries does not yield much because they don’t have access to ready education facilities and means of utilizing the services. Globalization 7 Globalization interfered with the local cultures in various communities. Traditional norms get replaced by the American culture, and the youth become relatively westernized, from their dressing to general lifestyle. Communities no longer eat their favorite traditional dishes but prefer the junk and westernized foods. The dressing style of the contemporary communities disappears, and people adopt the westernized culture, with women preferring trousers and skimpy clothing that don’t cover their entire body parts, in what people refer to like fashion. Youths became relatively Americanized and dropped their initial norms. Globalization effects on organizations Tilly and Welfens, (2014)argued that the first impact of globalization is market expansion. Businesses no longer deal with domestic customers but depend on the entire globe as a source of clients. The auto industry is an instance of a sector whose markets heavily relies on the international markets. The fall of communism positively influenced the nations that initially got controlled by communist markets. The business profits of the nation increased substantially. Cheaper resources reached all countries instead of relying on their expensive and inadequate raw materials. Most countries prefer producing their products in the people’s republic of china because it results in reduced costs and increased efficiency of production. The benefit translates into reduced prices of commodities and increased profit margin. Labor outsourcing is standard, which lets nation take advantage of labor from other countries. Reduced labor reduces the costs of production and in turn, increases the profit margins of the nations. Role of government in promotion of global business States created infrastructures and facilities attracting foreign investments. Local governments engage in given services aimed at the provision of services that supports the business activities of the foreigners. For instance, the government engages in the provision of Globalization 8 clean water, electricity and security agencies. States also perform actions aimed geared towards safeguarding the nation against financial crisis. The result is growth capacity of the firms that invest when banking sector get assured of adequate financial services in the country. Governments that encourage transparency in its dealing with international investors increase their chances of growing and ultimate development. Governments of developed nations work in partnership with developing countries to create improved working standards and stringent labor services, which aims to prevent the nations from getting exploited. Governments work towards protection of infant industries and promoting them with financial assistance through their development till they reach international status. States also perform research and developments acts to fully make use of the opportunities within its capacity in manners that favor both local and foreign investors. The government must also come clearly in addressing the challenges that face the individuals and business people in most of the towns, and industrial setting. Globalization 9 References Pérez, S. J. P., & Andrade-Eekhoff, K. (2003). Communities in globalization: The invisible Nahual. Lanham, Md. [u.a.: Rowman & Littlefield. Shenkar, O., & Luo, Y. (2008). International business. Thousand Oaks, Calif: Sage Publications. Tilly, R. H., & Welfens, P. J. J. (2014). Economic globalization, international organizations, and crisis management: Contemporary and historical perspectives on growth, impact, and evolution of major organizations in an interdependent world. Berlin: Springer.