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Large International Business Development in the Context of High Political Risks Essay


Introduction: a Global Company Exploring New Areas

In light of the recent entrance into the global economy realm, Company X has been considering the necessity to enter new markets that lay outside the current geographical boundaries of the firm’s expertise. Although the Western and Northern Europe markets can be viewed as a rather favorable environment for developing business, becoming the leader in the designated areas has recently turned increasingly complicated due to the

Significance of Expanding into Other States: New Markets

The importance of expanding a company and exploring its options in foreign markets is an essential practice that leads to a significant increase in the firm’s profit. By acquiring new customers and promoting itself to a larger population., the firm is likely to

Factors Defining the Firm’s Readiness to Expand

Apart from the positive factors that characterise the firm as ready to enter new markets, there are several negative ones demanding that Company X should explore its options somewhere else apart from the Northern and Western parts of Europe. The increasingly high competition issues re the first and the most obvious reason.

Seeing that the company operates in the industry that has already been dominated by larger and more powerful corporations, it is reasonable to assumed that Company X should consider becoming a leader in the states where competition rates are somewhat smaller.

Political Risks Outside the Western and Northern Europe: Analysis

Military Disturbances

As a rule, the countries that are defined as developing have political reasons for lacking economical advancement. Specifically, the problems related to military conflicts coming in all sorts and shapes, from a rebellion to consistent terrorist attacks, deserve to be mentioned. Operating in the specified conditions is very dangerous for an average organization, as he lives of its members may be jeopardized.

For instance, the notorious Syrian Civil War and the involvement of Russia in the conflict, which started in 2011 and has been going on since (Schmidt 2014; Bagdonas 2012), is likely to be a major threat to the firm in case of shifting its area of operations East and considering the use of services located in the vicinity of the military zone.

Apart from the obvious risk of a military attack, the company will be facing the threats of failing to meet deadlines due of the highly likely transportation issues emerging as a result of the above-mentioned attacks (Daud 2012). The insurgency in the North Caucasus can be viewed as another complicated military issue that may affect the wellbeing of Company X once it enters the designated market (Aliev 2013).

Last but not least, the current conflict in Ukraine is a significant threat to the firm’s progress. Since a big part of the state is affected by the military conflict, it will be rather complicated to carry out the key activities and at the same time facilitate the safety of all employees (Cohen 2012).

Logistics Related Concerns

Likewise, the need to develop an elaborate manner of managing the retrieval of the necessary supplies, the transportation of the raw materials and the delivery of the end product to the customers has to be considered.

Legal and Regulatory Issues

The challenges that a firm may encounter when working in the realm of the Eastern and Southern Europe environment are also related to the specific characteristics of the local legislation. Although the basic legal principles of running a business, including the necessity to promote clarity in a company and provide reports consistently are similar in most countries, certain states have unique legal features that may hamper the process of running a business.

Effects of Political Risks on the Development of an Organization: Negative Consequences and Rare Opportunities

Military Issues and Obstacles to Expansion into the Market

Apart from the obvious threat to the company’s members and the challenges that the military actions carried out in the vicinity will cause for the key logistics processes, one must mention the danger of the credibility loss. Remaining in the zone of a military conflict and not interacting with either of the sides is extremely complicated.

Therefore, once agreeing with the parties involved in the conflict, the company ay be accused by the supporters of both opponents of collaborating with the enemy. Thus, an inevitable drop in the amount of clientele is expected as the people in question may feel betrayed and refusing from purchasing the goods and services offered by the organization.

The constant threat, which the members of the organization will be exposed to on a regular basis, will also add to the number of negative factors that may hamper the further development of the business. Indeed, the military instability observed in the designated areas is likely to affect the staff’s enthusiasm significantly, bringing their motivation rates down.

Hence, it will be imperative to introduce the strategy that will help the members of the organization regain their enthusiasm, the provision of insurance options for every single member being the primary choice to be considered.

It will be reasonable, therefore, consider the provision of numerous incentives for the staff along with a well-developed retirement plan such as the defined-contribution plan: “In a defined contribution plan, the contribution rate is fixed, but the actual retirement benefit varies” (Rejda & McNamara 2013, p. 360). Once realizing that they are supported and valued by the firm, the staff members are unlikely to consider the option of resigning.

Logistics Problems and the Effects on the Company’s Progress

As it has been stressed above, the existing military conflict in the area is most likely to trigger huge problems in the logistics department. However, even in the countries with a lack of military attacks in its political landscape yet still developing major risks in its political development, the procurement issues, in general, and the logistics strategies, in particular, will most likely cause some problems.

First and most obvious, the existence of political issues in the environment of a certain country points to the fact that the consistent improvement of its infrastructure is, probably, not the top priority on the state authorities’ agenda.

Therefore, the states with high political risk rates can have a very poor infrastructure, which will slow down the delivery of the required resources and, therefore, make the firm default on its deadlines ona regular basis. The failure to provide the promised services and goods on time may lead to a significant drop in the Company X popularity. As the number of clients shrinks, the entrepreneurship will face the risk of its net profit margin reduction (Arbogast 2013).

A closer look at the countries in question will reveal that the logistics-related problems are going to affect company X in a very meaningful way. Specifically, the firm should be aware of the fact that the logistic infrastructure has not been developed in the target areas of Europeand Asia fully yet. A recent report shows that there are opportunities for the infrastructure to be developed in the nearest future, though:

More and more of these materials in the future, may well reach their final destinations via the Southern – South Eastern ports such as Gioia Tauro, Taranto, Pireaus, Thessaloniki, or the main ports of the Black sea. This will result in an additional shift in the connecting inland freight transport towards these areas. (Giannopoulos 2005, p. 8)

Nevertheless, the current state of infrastructure in the target areas is quite deplorable.

Legal Problems: Corruption and Inadequate Laws

Needless to say, operating in the environment of a foreign country presupposes complying with the rules an regulations that are accepted in the designated state. Herein the significance of carrying out a large investigation of the target market’s functioning specifics lies. Unless the key characteristics of the laws that the designated states are operated by are identified, Company X will be unable to provide its services to the target denizens of the population.

A closer look at the legal problems that may emerge in the target areas will reveal that most of them are stricken by corruption. The specified problem can be deemed as rather difficult to deal with as it will require the ability to reconsider the financial policy of the organization and at the same time reduce the possible costs to a minimum. The specified approach is often viewed as middle ground between complete compliance with the corrupted system of the country and the avoidance of following the existing unspoken rules:

Some companies employ the strategy of social contributions and public donations as an alternative to both avoidance and compliance. For example, sometimes bribes are presented as agent fees or fees for public services that might not otherwise be available. (Doh et al. 2003, p. 123)

The approach in question can be deemed as a fairly reasonable as it helps the entrepreneurship retain its ethical integrity and at the same time helps it fit into the target market without conflicting with the people and organizations that control it. While the specified strategy will require profound diplomatic skills and stellar negotiation abilities, it can be considered the best opportunity for Company X in the target market (Tao & Zhenji 2014).

In addition, the criminal issues in some of the states in question may jeopardize the successful development of the firm. For instance, according to a recent study, a range of the South Eastern Europe states have been known notoriously for the drug trafficking problem:

The continued prominence of the Western Balkans in heroin trafficking, despite the existence of more direct routes through South East Europe and, indeed, the fact that traffic must leave the EU in order to enter these countries, points to the existence of substantial criminal logistics in the region. (Drug situation analysis report: South Eastern Europe 2011, p. 9)

Therefore, it can be assumed that the corruption rates are dangerously high in the specified region.

Apart from the criminal issues, the overall corruption rate seems rather bearable.

Risk Management in the Designated area: Tools to Address the Issues

Insurance as the Key tool for Safety Promotion

The significance of insurance can hardly be underrated in the environment of a foreign market. Therefore, exploring the existing insurance options is a must for the Company X. According to a brief overview of the target area, the firm should consider the provision of insurance to its staff firsthand. Seeing that the reduction of costs is the current goal of the entrepreneurship, the split liability concept deserves to be mentioned (Hiduke & Ryan 2013).

Transitional Economy and Its Effects on the Firm’s Progress

The transnational economy is linked directly to the firm’s progress as the further promotion of the organization’s services and goods is likely to make it famous worldwide and open new opportunities for increasing its profit margin by becoming an essential part of a foreign market. Gaining power in the Western and Northern Europe is quite problematic due to the obvious prevalence of other companies offering similar services and being established there for an impressive amount of time (Ayub et al. 2014).

Evolving in the Realm of Military Disturbances

There is no secret that the Eastern and Southern parts of Europe have been affected by devastating conflicts that have been going on for quite long. Particularly, the two current issues that have been persistently reiterated in both traditional and modern media, the conflicts in the North Caucasus and Ukraine should be viewed as the major obstacles in the company’s evolution in the specified areas (Foxall 2014).

In addition, the fact that the staff is likely to refuse from operating in the areas that are deemed to be under a military strain needs to be addressed.

Apart from the obvious financial incentives, the provision of perfect retirement options and the facilitation of a completely safe environment for carrying out the key operations, the Company X must use the concept of the Corporate Social responsibility (CSR) as the basis for promoting the required behavioral pattern and convincing the staff members to deliver the most efficient performance possible (Mermod & Idowu 2013).

Because of the complicated political situation of the target market areas, the necessity for the staff members to make a choice of either being committed to the organization or leaving it will ultimately emerge. Therefore, it is imperative for the well-being of the firm to make sure that the staff’s loyalty rates should be very high and that the ethical principles that their decisions are based on should be in line with the code of ethics promoted by the organization.

Thus, there is a strong necessity to establish the principles of CSR in the organization. Defined as the understanding of the role that one plays in the company, the values thereof and the ethical principles that the organization holds as the foundation for its decision-making, as well as compliance with the specified principles (Bonetti & Masiello 2012), CSR can be viewed as the ultimate tool for reinforcing the significance of corporate values and promoting responsibility among the staff members.

It is quite remarkable that “SCR is not a traditional management tool” (Bonetti & Masiello 2012, p. 9), as a recent study says, yet it seems to have become the foundation for most companies’ functioning in the global economy realm.

In other words, the promotion of the given concept will help the organization convince the employees to accept certain ideas and values so that the further steps made by them in the realm of the Eastern and Southern Europe economy should be based on the specified values. Once the priorities are set straight, a streak of success can be expected.

Reducing the Risk of Transportation Issues

The dents in the current infrastructure of most Eastern and Southern Europe areas presuppose that the risks relate to logistics in general and procurement in particular will have to be reduced significantly. As far as the process of the company’s operations in the designated markets is concerned, it is essential that Company X should be able to use the services of the trusted organizations (Shenkar, Luo, ‎& Chi 2014).

In addition, it is imperative that the firm should consider the idea of splitting liabilities with a partner company. Because of the incredibly high risk rates, the further process of investing in the project will have to be supported by a partner organization. Thus, a considerable number of costs will be cut significantly. According to the existing definition, the concept of a split liability is one of the most popular tools for bringing the risk rates down (Surminski 2012).

Addressing Legal Concerns: Locating Regulatory Solutions

As stressed in the recent reports, the Entire Europe can be deemed as the area affected by corruption to an extensive degree (Vachudova & Spendzharova 2012) Particularly, the issue of bribery deserves to be listed among the primary issues that have to be addressed. Therefore, it is important to learn to adjust to the existing situation by reconsidering the current financial policy.

There is no need to stress the fact that fighting corruption, let alone in several states at once, is beyond impossible; it is insane for an organization that does not have a global influence and cannot use the support of the local authorities. As a recent study points out, the latter may assist the firm in avoiding the situations in which bribery or any other forms of extortion (Osuagwu 2012).

The specified characteristics of the target areas of the firm’s operation, therefore, defines the further course of actions for the company. Particularly, the entrepreneurship leaders will have to consider creating strong business ties with the local authorities and the key governmental representatives. As a result, the issue regarding money extortion will be addressed adequately. Before the cooperation with the local government members is arranged, however, Company X will have to get ready for taking extra expenses.

Conclusion: Further Steps to be Taken

Summary

A brief overview of the current situation in the eastern and southern areas of Europe has shown that there is a strong need to design a well put together risk management strategy due to the unique and rather challenging environment that the company will have to operate in. Among the key problems to address, high corruption rates, a range of ongoing military conflicts, and a very poor infrastructure need to be listed.

Recommendations

The management of the above-mentioned problems is possible with the introduction of the principles of CSR and an elaborate choice of partners, a financial approach and an insurance strategy. Particularly, the firm will have to reconsider the current set of values that the employees use to make the company-related decisions.

Moreover, a range of incentives for the staff members, including an expanded insurance option, have to be suggested so that the company members could retain their loyalty rates. Finally, it is crucial to reconsider the current financial policy due to the large possibility of spending much on developing the necessary relationships with the local authorities and the possible business partners (especially in the logistics and procurement area).

Reference List

Aliev, H 2013, ‘Socio-Political and socio-economic causes of conflict escalation in the North Caucasus’, Ethnopolitic pPapers, vol. 25, no. 1, pp. 3–31.

Arbogast, S V 2013, Resisting corporate corruption: cases in practical ethics from Enron through the financial crisis, John Wiley & Sons, New York, NY.

Ayub, A, Razzaq, A, Aslan, M, & Iftekhar, S H 2014, ‘A conceptual framework on evaluating SWOT analysis as the mediator in strategic marketing planning through marketing intelligence’, European Journal of Business and Social Sciences, vol. 2, no. 1, pp 91–98.

Bagdonas, A 2012, ‘Russia’s interests in the Syrian conflict: power, prestige, and profit’, European Journal of Economic and Political Studies, vol. 1, no 1, pp. 55–77.

Bonetti, E, & Masiello, B 2012, ‘Attracting R&D foreign direct investment through an evolutionary model of place marketing. The case of Ireland’, International Journal of Management Cases, vol. 16, no. 4, pp. 4–17.

Cohen, A 2012, ‘A threat to the West: the rise of Islamist insurgency in the Northern Caucasus and Russia’s inadequate response’, Backgrounder, vol. 1, no. 2643, pp. 1–17.

Daud, S 2012, ‘Peace situation in the Middle East and the oil and water resources: a descriptive study’, Interdisciplinary Journal of Contemporary Research in Business, vol. 5, no. 3, pp. 492–524.

Doh, J P, Rodriguez, P, Uhlenbruck, K, Collins, J, & Eden, L 2003, ‘Coping with corruption in foreign markets’, Academy of Management Executive, vol. 17, no. 3, pp. 114–127.

Drug situation analysis report: South Eastern Europe 2011. Web.

Foxall, A. 2014, ‘’, Forbes. Web.

Giannopoulos, G A 2005, ‘Main transport challenges in South Eastern Europe, after enlargement’, European Transport, vol. 1, no. 30, pp. 3–13.

Hiduke, G & Ryan, J 2013, Small business: an entrepreneur’s business plan, Cengage Learning, Boston, MA.

Mermod, A Y & Idowu, S O 2013, Corporate social responsibility in the global business world, Springer Science & Business Media, Berlin.

Osuagwu, L 2012, ‘Conceptualization of corruption in business organizations’, American International Journal of Contemporary Research, vol. 2 no. 5, pp. 18–25.

Rejda, G E, & McNamara, M J 2013, Principles of risk management and insurance, 12th edn, Pearson, Upper Saddle River, NJ.

Schmidt, N 2014, ‘Neither conventional war, nor a cyber war, but a long-lasting and silent hybrid war’, Obrana a strategie, vol. 14, no. 2, pp. 73–86.

Shenkar, O, Luo, ‎Y, & Chi, T 2014, International business, Routledge, New York, NY.

Surminski, S 2012, Reflection on the current debate on how to link flood insurance and disaster risk reduction in the European Union, Center for Climate Change Economics and Policy, Geneva.

Tao, Z & Zhenji, Z 2014, ‘Coordination mechanism and negotiation model to resolve conflict of communication virtual service in information network corporation’, International Journal of Grid Distribution Computing, vol. 7, no. 3, pp. 167–176.

Vachudova, M A & Spendzharova, A 2012, ‘The EU’s cooperation and verification mechanism: fighting corruption in Bulgaria and Romania after EU accession’, SIEPS, vol. 12, no. 1, pp. 1–21.

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