Detailed Answers to Exam Questions for Introduction to International Business

- Question 1 (ch 1):

What types of risks are the globalization companies exposed to?

Globalization refers to the move towards a more integrated and interdependant world economy, where people of the world are unified into a single society. This process is a combination of economic, technological, sociocultural and political forces. Though many may see this process as a breakthrough for new and existing businesses to grow significantly, globalization companies become vulnerable to certain risks.

William G. Parrett, Chief Executive Officer, Deloitte Touche Tohmatsu (Deloitte), at the World Economic Forum spoke about how he believes that firms are now exposed to more risks than ever before. He says, ”One effect of globalization has been that risk of all kinds — not just fiscal, but also physical — have increased for businesses, no matter where they operate. Information travels far and fast, confidentiality is difficult to maintain, markets are interdependent and events in far-flung places can have immense impact virtually anywhere in the world. A broader framework for defining and managing the variety of risks will be necessary if corporations are to mitigate the threats they face, assure sustainability and deliver value to their shareholders."

In this increasingly interconnected world, we find that what happens in one part of the world, affects businesses not just in that particular area, but globally. In 2006, train bombings in India placed an enormous strain on business operations in the country. However, the events hit close to home for American companies with offshore operations in India. With global businesses and markets interlinked, we now live in a world where risks are collectively shared.

With rapid technological advancement, firms must continuously struggle to mantain their competitve advantage. It is now possible to sell products and services at far lower prices as a result of the internet. This has placed an enormous strain on many...