Introduction
In a business situation, the executive management will face a series of problems in the region the organization operates. Some of the best approaches to addressing these issues and concerns include identifying and preparing for risks in different global markets. Moreover, it is crucial to pinpoint, assess, and classify threats based on their effect on a business and examine how they shall be addressed to exploit their full potential. This report aims to review different reports depicting the market in Latin America from where it shall determine, assess and categorize risks in the area to develop multiple risk mitigation strategies.
Risk Evaluation
Economic Risks
Argentina has one of the most robust economies in Latin America. It is known for having vast natural resources in energy and agriculture, but they depend on services and manufacturing, with a gross domestic product (GDP) of approximately $ 941.8 billion (Central Intelligence Agency, n.d.). Even though they have a vast GDP, they have had a -10% decrease in growth over the year with a -2.8% five-year compound annual growth (Central Intelligence Agency, n.d.). The population there is 45.4 million people, and there is an average of $20,571 per capita (Argentina Economy, n.d.). However, implementing new laws and standards has increased the country’s high inflation rate to 50 percent (Argentina Economy, n.d.). This comes mostly from specific laws being implemented that reduce business and trade freedom.
Chile is one of the most prosperous countries in South America. It is renowned for producing copper, and exports of minerals, wood, fruit, seafood, and wine drive growth in gross domestic product. Chile also has a potent economy within Latin America, with a GDP of around $454.7 billion (Chile Economy, n.d.). Chile does not have the size of GDP of Argentina, and they had a -5.8% growth from last year, but the positive is that their 5-year compound annual growth was 0.4%. Chile’s population is around 19.1 million, with $23,366 per capita (Chile Economy, n.d.). The population is less than in Argentina, but the average per capita is higher per person. The most significant benefit of Chile is its low corporate tax rate, which is topped at 27% (Chile Economy, n.d.). Still, it also gives a business more freedom in choices to earn profit and has an easy process to gain licenses and permits for projects and investments.
Environmental Challenges
In Argentina, there are plenty of challenges when making environmental decisions while doing business. It is even harder to succeed in a country with different environmental standards or lacking resources like power, water, or waste disposal. Waste disposal is a big problem in Argentina, with few resources to dispose of waste quickly or cost-effectively (Bernhardson, 2023). Energy is also a significant issue due to the mismanagement and disinvestment in the country’s fossil fuel production. That causes them to import natural gas, which increases the overall price of gas-powered energy.
Like most countries, Chile has numerous environmental issues in the market. These issues are comparable to most countries in the South America Region, especially Argentina. These issues include air pollution, industrial and vehicle emissions, water and solid waste pollution, and widespread deforestation (Bernhardson, 2023). These are all environmental risks that will be the responsibility of any business but will also increase the overall production and distribution of their products.
Political Atmosphere
Argentina is a federal, democratic republic with governing power divided between executive, legislative, and judicial branches. Even though a stable government is in place, they face several challenges, including corruption from weak organizational standards and little transparency (Council on Foreign Relations, n.d.). These issues have caused distrust among the public and businesses within the country. These are common and typical issues taking place in countries throughout the world nowadays.
Chile is a unified state divided into several administrative regions governed under a presidential system. Some risks that are taking place are corruption and social and economic inequality that are bursting into some violence and protests that took place in 2019 (Council on Foreign Relations, n.d.). There is also drug trafficking that is common that has led to deadly confrontations with police. Chile is a country that is continuing to work towards embracing equity throughout the country, which will benefit everyone.
Cultural and Social Risks
Argentina has a longstanding problem with human rights, including police abuse, poor prison conditions, and endemic violence against women. These problems have involved people taken from their families as children from past dictatorships, torture, or ill-treatment in federal prisons. This has led to the death of some and a lack of legal protections for Indigenous people who are facing obstacles accessing justice, land, education, healthcare, and essential services (Central Intelligence Agency, n.d.). There have also been issues with children’s rights due to the lack of education available for lower-income families, also women’s and girls’ rights regarding pregnancies and abortion availability. Most countries have plenty of social risks, but Argentina recognizes these problems and works to improve them.
Like Argentina and most other countries, Chile has had human rights issues. These issues include prison conditions that include abuse, lack of rights for migrants and refugees, lack of rights of women and children, lack of rights for Indigenous people, and finally, the lack of rights of the LGBT community. These issues are mostly the same as those in Argentina (Central Intelligence Agency, n.d). Chile is actively working on increasing and bettering the rights and protection of its people.
Strategy Development (Priority and Measures of Addressing them)
Economic Risks
Regarding priorities, economic risks come first, followed by environmental hazards, cultural and social risks, and political risks being the lowest. One approach to addressing economic risks in Argentina and Chile is diversifying revenue streams. By reducing dependence on a single source of income, organizations can mitigate the impact of economic fluctuations (Crispim et al., 2019). Furthermore, they can be managed by improving cost management, and this is achieved through reducing unnecessary expenses, improving efficiency, and maximizing value for money. Strengthening cash flow is another method of addressing economic risks. Organizations can maintain a healthy cash flow by managing expenses carefully, ensuring timely payment of debts, and improving debt collection.
Moreover, implementing flexible pricing strategies proves beneficial in reducing these uncertainties and risks. The organization can adjust prices in response to changes in the economic environment to maintain profitability. Another way to address risks is by building solid supplier relationships (Smith & Merritt, 2020). Establishing strong relationships with suppliers can help to secure better deals and more favorable payment terms, thereby reducing the risk of supply chain disruptions. Finally, Organizations can implement strategies to mitigate the impact of fluctuations in currency exchange rates, such as hedging or diversifying foreign currency exposure to manage currency risk. The economic risks may be managed by using an insurance policy that provides vital financial protection against potential losses and uncertainties such as bankruptcy, accidents, or natural disasters.
Environmental Risks
Environmental risks in Argentina and Chile can be addressed through operational changes. Adopting sustainable practices is one of the methods which involve reducing waste, increasing energy efficiency, and minimizing harm to the environment. Conducting environmental impact assessments is another approach aimed at reducing environmental threats (Willumsen et al., 2019). Organizations can assess the potential impact of their operations on the environment and implement measures to mitigate any adverse effects. Additionally, organizations should address these risks by investing in renewable energy. Promoting sustainable supply chain practices is another helpful method for reducing environmental threats. Thus, organizations can work with suppliers to reduce their environmental impact by sourcing raw materials from sustainable sources. By implementing these changes, organizations can reduce their environmental impact, meet regulations, and improve their reputation, thereby mitigating ecological risks and ensuring long-term sustainability.
Political Risks
Monitoring political developments is one of the methods of managing political risks in Argentina and Chile. Businesses can stay informed about political advancements in the country, including changes in government policies and regulations, to identify potential risks and respond proactively. In addition, organizations may address these uncertainties and threats by diversifying operations (Wideman, 2022). They can reduce their dependence on a single market by expanding into new regions or diversifying their product offerings, reducing their exposure to political risks in any location. Similarly, businesses should strive to build long-lasting relationships with key stakeholders. They can engage with key stakeholders, including governments, trade organizations, and other companies, to build solid relationships and minimize the impact of political risks. Another approach entails implementing risk management strategies, such as hedging against currency fluctuations, to mitigate the effects of political risks on their operations.
Legal and Ethical Guidelines
Compliance with local laws and regulations is part of the legal considerations and another method of addressing risks. Businesses should ensure that their operations comply with local laws and regulations, to reduce the risk of legal and reputational risks (Wideman, 2022). Finally, business organizations should maintain transparency and good governance practices to improve their reputation and reduce the risk of political conflicts. By implementing these changes, organizations can reduce their exposure to political risks, maintain stability, and improve their reputation, ensuring long-term market success. Knowing these risks and finding ways to overcome them are keys to running a successful business.
While addressing the risks mentioned above, the organization will consider ethical implications. To achieve this, the organization shall promote accountability, integrity, and honesty in its mission statement and ensure that the leadership supports the values. Another aspect involves ethical training whereby all workers will understand the consequences of their actions. Similarly, the business shall ensure that appropriate checking, reporting, and management systems are in place to deter unethical activities.
Methods of Addressing Cultural and Social Risks
There are different ways of addressing cultural and social risks in the Latin American market, specifically Chile and Argentina. One of these involves understanding cultural differences, where organizations can invest in cultural training for employees and engage with local communities to understand their cultural norms and values better (Wideman, 2022). In addition, organizations should promote diversity and inclusion by creating a workplace culture that values diversity and promotes inclusivity to reduce the risk of cultural conflict. They should also build strong relationships with stakeholders by engaging with local communities, governments, and other stakeholders to build trust and understanding and reduce the risk of social conflict. Another method of addressing these types of risks is by respecting local laws and customs.
Organizations can ensure that their operations comply with local laws and customs to avoid legal and reputational risks. Organizations should strive to provide social benefits such as education, health care, and housing to local communities to improve their well-being and reduce the risk of social unrest (Wideman, 2022). Businesses should also adopt responsible business practices, such as avoiding child labor and forced labor, to improve their reputation and reduce the risk of social and cultural conflict. By implementing these changes, organizations can mitigate cultural and social risks, improve their reputation, and build strong relationships with local communities, ensuring long-term market success.
Defense
Costs and Benefits Associated with Employing Risk Management Strategies
Risk management in the organization will involve identifying, evaluating, and managing threats to the businesses’ earnings and capital. Some of these threats emanate from different sources, such as technology issues, accidents, financial uncertainties, natural calamities, legal liabilities, and strategic management errors. The organization will employ an enterprise risk management program that considers the full range of the risks it faces, examining the relations between threats and the ripple effect they might have on the business’s strategic objectives. This strategy is integrated in that it emphasizes anticipating and understanding threats across the organization.
Some of the costs in the organization will be incurred in direct losses. These include all uninsured and self-insured losses sustained by the firm, such as the immediate property damage resulting from an accident or disaster (Saeidi et al., 2019). In addition, there would be costs associated with scenarios leading to increased productivity or profits in the organization, including loss of reputation, penalties, fines, decrease in production capability, and damaged storefronts. The approximate total cost that the organization will set aside for these risks is $150,000. The third category of costs includes risk management administration costs which typically consist of external and internal claims, and administrative costs, such as claims investigation and reporting.
One of the advantages of having a risk mitigation strategy is that the organization can leverage its expert group to pinpoint and offer a profound knowledge of all kinds of uncertainties that are not apparent. This is because committee members usually need help identifying risks outside their experience and expertise (Saeidi et al., 2019). A good risk management strategy aids in reducing business liability because shareholders and regulators consider litigation risks a business liability (Saeidi et al., 2019). Finally, the strategy is cost-effective since it consolidates and enhances risk reporting so the organization may identify threats, quantify and control them better and implement the appropriate measures to prevent the risks.
Importance of Addressing Cross-cultural Differences in the Development of Risk Mitigation Strategies
Cultural differences offer additional risk factors, which are both negative and positive. Individuals from diverse backgrounds in which different aspects, including the importance of the group, and personal responsibility, are essential. That may be countered when project managers accept and comprehend the diversity of perspectives in each project team (Schmidt et al., 2020). Additionally, the organization will embrace training on cultural diversity that encourages self-assurance in people and groups by equipping them with self-control over formerly complex uncertainties and risks. That should be geared towards understanding their preferences, background, culture, and experiences to facilitate their inclusion and positive contribution to risk mitigation strategies (Schmidt et al., 2020). The organization will adopt an efficient cultural understanding that establishes and supports an environment where authentic opportunities, concerns, and open disclosure can be freely voiced.
Justification of the Risk Management Strategies
One of the ways of addressing economic risks in Chile and Argentina is by diversification of revenues. By diversifying revenue streams, the organization will get financial stability, decrease business risks and make it infinitely more marketable regarding sales (Can Saglam et al., 2021). This technique will aid in risk reduction by distributing investments across multiple securities to reduce losses by making investments in various areas that might respond otherwise to the same incident. Similarly, enhancing the cash flows helps a business understand if it can pay its bills and generate sufficient cash to continue its operations indefinitely. Constant positive cash flow indicates good things being done, while a negative one may indicate a potential bankruptcy.
Adopting a sustainable supply chain helps organizations improve productivity while saving money. For instance, organizations faced with similar risks and uncertainties adopt sustainable resources and techniques to increase the effectiveness of vehicles, buildings, and machinery at significant cost savings (Can Saglam et al., 2021). Thus, organizations have implemented the necessary measures to manage sustainability risks in their supply chains. Some of these include establishing a solid risk culture that will help the business to prevent potential disasters. In addition, inclusion and diversity are critical parts of the risk management program in ensuring that all workers are treated fairly.
Contingency Plan
In case of a network failure in the organization, the following is a contingency plan showing a way of addressing the issue. Even though it is difficult to control and unpredictable, network failure is one of the risks the business may face. That may result from internal flaws or unforeseen external factors, including bad weather. In terms of the preparation for the risk, the information technology team will access the secondary networks in case of failure of the primary network. For the organization to continue running smoothly, all data will be backed up and made available on the offline network.
Additionally, the customer-facing and marketing teams shall draft communications that will be disseminated to consumers, informing them that services are interrupted, but some people can still help. The response would involve the IT team immediately switching to secondary networks and telling all workers as soon as possible. The team shall constantly work to restore original networks and collaborate with the relevant external parties. They also work to resolve consumer issues and notify them that it might take longer than usual to resolve. Immediately after the primary network is restored, all workers in the organization and the consumers must be notified. If something awry occurs, I would advise the organization to appoint a risk management team that shall assess liability, evaluate loss exposure and promote internal controls to successfully continue the business operations.
Conclusion
This report has outlined and assessed the degree to which risks in the Latin American market may influence the well-being of an organization. Moreover, it covers the risk management strategies explaining how the threats may be addressed along with the ethical and legal principles relevant to the business and its market. The paper also compiles research and other supporting evidence before making a justification for implementing the risk mitigation strategies. It is crucial to assess and evaluate the impacts of economic, environmental, political and cultural, and social risks in the market where an organization plans to operate. In addition, the threats and risks should be prioritized, and measures taken by the organization to address them should be incorporated to ensure the continuity of business operations. Similarly, an organization should determine the costs and benefits of using risk mitigation interventions and develop an effective contingency plan in the event of uncertainty.
References
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