Risk Management Strategies for Businesses Operating in Multiple Countries

International business offers numerous opportunities but also involves significant risks. These risks include fluctuating exchange rates, cultural differences, political instability, and online fraud. By partnering with the right international businesses, you can effectively assess and manage these risks, ensuring the success of your cross-border ventures.

This blog post explores the risk management strategies international business corporations can explore to mitigate risk. Before we go deep into this topic, it is important to list the risks associated with international businesses. 

• Financial Risk
• Political and Economic Risk
• Security Risk 

FINANCIAL RISK

Unlike domestic trade, international business presents both unique financial challenges and rewards, these financial risks include; 

1. Foreign Exchange Risk:  International businesses are exposed to exchange rate risk, which arises from constant currency-change fluctuations. Businesses can mitigate this risk by using the hedging strategy. The hedging strategy comprises one or more of the following steps; 

• Buying currency ahead of time when exchange rates are favorable
• Making currency forward contracts with banks to lock in a certain exchange rate for an upcoming currency sale or purchase
• Setting sensors to trade currencies once the exchange rate reaches a predetermined value
• Investing in a range of national and international funds to even out fluctuations in individual markets

2. Tax Risk: International businesses face the risk of “country risk,” where a country may suddenly change its tax laws, leading to increased taxes, tariffs, export taxes, or subsidies for domestic industries. While you cannot directly control in-country risk factors like changes in taxation rates, you can mitigate their impact by:

• Maintaining a Reserve Fund: Keeping a reserve of funds can help you weather unexpected changes in tax laws.
• Adjusting Prices: Increasing your prices can offset the higher costs associated with increased taxes.
• Partnering with a Merchant Services Provider: Working with a reputable merchant services provider can help you ensure compliance with each country’s tax regulations.

POLITICAL AND ECONOMIC RISK

Beyond exchange rate and taxation risks, international businesses face other country risks. These include political and economic factors:

• Political Change: A change in government can significantly impact the business climate, as some political parties are more supportive of foreign investment than others.
• Political Instability: Protests, strikes, wars, and natural disasters can disrupt operations, hinder transportation, and reduce consumer spending.
• Regulatory Changes: New government policies may impose restrictions on businesses, such as changes to environmental regulations, labor laws, or import/export procedures.
• Natural Disasters: Natural calamities can cause damage to property, disrupt operations, and harm the local economy.

SECURITY RISK

Operating in a foreign country exposes businesses to the risk of theft, including data breaches, financial losses, and theft of physical property, intellectual property, and employee assets. International transactions are vulnerable to fraud perpetrated by cybercriminals, dishonest employees, and unscrupulous business partners. Ransomware attacks surged by 435% in 2020, targeting government agencies, healthcare organizations, and data-rich companies.

To mitigate these risks, partnering with a reputable global payment processing company that utilizes secure encryption and advanced fraud protection is crucial.