Introduction
Even though recent scholarly reports indicate that the United Kingdom is experiencing a tough global financial mayhem, the nation, as empirical research points out, is a Country Risk Tier one with the very low-risk level that runs through its three sectors namely political, economic, and financial sectors.
This means that the UK is a nation with a transparent legal environment, a well-established business infrastructure, an adequate financial system regulation that has a capital market, as well as an established insurance industry. Because of this, its economy is indicated to recover at a low pace, which according to Gordon (6), is driven by the lower inflation rate, high rate of employment, and a lessening worry over the Eurozone.
Political Risks
Political risk, as defined by Gordon (7), is any political change that can adjust the values and results expected from a given economic action. This can occur when an ingrained business objective is diverted. This type of risk is majorly influenced by politics; most unpredictable economic alterations are frequently noted to be political.
Therefore, a nation with capabilities to maintain political stability is most likely to achieve unaltered business objectives like in the case of the United Kingdom, which enjoys political stability (Gordon 13). Also, the United Kingdom as a member of European Union, as Gordon (13) notes, attained a special treaty that does not only bind them to use Euros as their currency but also allows them to use pounds.
The use of pounds has enhanced business in the region since it is widely accepted in the region. Similarly, the United Kingdomâs government implemented several stimulus packages at a time when its economy was dropping; the government has since established strong monetary measures to restrict government spending. The country enjoys stable political relations with its neighbors, given its high international democratic principles.
Economic/Financial Risks
Whereas the UK government has gone through hard financial hitches, the government is currently fighting the menace.
According to Hunter and Jones (78), the United Kingdom in their effort to get rid of the misfortune, has implemented new banking regulation to raise the power of the Bank of England to both the inbound and oversee financial stability. This is witnessed by the target changes in the banking sector that include limiting bonus earned, introducing taxation on foreign banked money, as well as curbing risk behavior that may lead to bank frauds.
Similarly, the United Kingdomâs financial sector, however, faces numerous challenges, including liquidity and raising adequate capital. Because of the uncertainty that regards Eurozoneâs growth, it is noted that the economy has stabilized following the efforts by other banks in the UK who have agreed to increase lending for businesses, hence making the country a low financial risk country.
Moreover, the United Kingdom is regarded as the main center for worldwide insurance and reinsurance. Also, the London Stock Market, an extensive market entitled to write the risk is based in the UK, makes the country a preferable business destination with low financial risks. Likewise, the United Kingdom service industries that include financial services, as well as real estate activities are a show of a three-quarter economic creation.
Even though the growth rate is low, the analysis indicates that it has taken a positive trend. Therefore, the United Kingdomâs policies are a major boost to prefer the destination for investment.
Also, as Gordon (27) asserts, the bank of England has introduced new lending schemes that aim at encouraging people with small businesses. Additionally, the United Kingdom has introduced tight credit condition and soft global growth, thus making the United Kingdom a good choice for investment.
Legal Risks
The United Kingdom, as Hunter and Jones (74) note, has a well-established legal system that encourages a free and fair trade to any individual willing to engage in a business in their country. The country notes that all the regulations that include the environmental and health regulations, food standard agency rules amongst other non-governmental regulation are strictly followed.
In support of these, the United Kingdom further initiated a bribery act to help various organizations and individuals understand the legislation and offer clarity on how the laws operate, as well as to avoid manipulation of the available legal rules. This, in essence, is a show that the United Kingdom has well-established laws, which can prevent risks from the legal sector.
Labour Risks
The UK government, as Andre et al. (17) indicate, is one of the countries that have an inclusive workforce. Majority of the UK population can find a working environment that suits them. Therefore, most of the UKâs population can easily enter into market labor, as well as retain positions or rise to higher levels that they consider fit within their organization.
Over the years, the UK government has encouraged an agreement between employers and the employees, thus promoting effectiveness in the labor market. Notably, the move has benefited the country and the individual citizens since the human capital available in the UK is fully utilized; the nation does not lose any human capital on unemployment as in the culture of several developing countries.
However, for upcoming industries, the absorption of all the population to all-inclusive employment critically affects the capability to introduce new firms since the entire population of the UK citizen are already absorbed and are comfortable at their workplaces, hence getting a good workforce to start a new firm is challenging.
Nevertheless, the flexibility that has been witnessed in the UKâs labor market over the years led to comparative reforms on taxation by the UK government to control and manage inequality in the employment sector.
According to Andre et al. (19), the initiative by the UK government to restrict tax relief, fight tax evasion, and close loopholes has so far led to relatively equal employment opportunities, hence reducing the involvement of labor unions in employment and retaining many workers at their workplaces. The labor unions that exist abide by the UKâs government policies that aim to reinforce equality in the employment sector.
Cultural Risks
To reflect the differences noticed in cultural phenomena, culture has been defined severally in different ways. Its symbols include religious rituals, language, and the unique features that every society represent (Dear, Kimmel, and Lopez 37). This makes culture a major factor in the flow of business.
For any distinct country, business culture is mediated through some factors that include consumer decision, cultural force, and cultural messages as manifested in the education systems, family, and the national identity of the country.
Whereas, moral principles and ethics, design, and behavior and the role models influence cultural messages, empirical evidence, on the other hand, asserts that universal and societal needs are the major influencers of culture (Dear, Kimmel, and Lopez 46).
Fortunately, in the case of the United Kingdom, a common language â English – is widely spoken in the entire country, as well as globally, thereby eliminating the cultural risks associated to the language barrier in business transactions in the country.
Similarly, language as a crucial tool in communication in a business environment enables the trading partners to negotiate and agree on commodity prices. At the same time, those involved in the business can read and understand the terms of trade (Dear, Kimmel, and Lopez 48). Since the UK uses a language that is understood by most people worldwide, English, as a cultural issue, does not pose much risk of conducting business in the country.
The ease of doing the business of a country, as well as its economic performance depends on the structure and operations of its legal system, political system, and societal norms and values. Political economy, therefore, cuts across several players, such as the state, market, society, individuals using economical, sociological, and political tools and methods of analysis.
Comprehending the UKâs political, social, legal, cultural, and economic systems are imperative before investing in the country since the help investors to understand the logistics and agencies involved in starting, managing, and closing a business.
From the analysis of the risks assessment, it is verified that in the United Kingdom, even though there are risks involved in almost all the sectors that include financial/economic risk, legal risk, and labor risk, the risk is limited, hence making the nation a favorable investment country.
From the analysis, it is evident that the United Kingdomâs economy, despite all the challenges, has taken a positive trend, which makes it favorable for investment. Moreover, the United Kingdom has financial policies and incentives to any individual, as well as a valuable and stable currency that encourage investment.
Work cited
Andre, Christophe, Clara Garcia, Giulia Giupponi, and Jon Kristian Pareliussen. Labor Market, Welfare Reform, and Inequality in the United Kingdom. N.p., 10 June 2013. Web. 22 May 2014.
Deari, Hasim, Viktoria Kimmel and Paola Lopez. Effects of cultural differences in international business and price negotiations. N.p., 17 Feb. 2012. Web. 22 May 2014.
Gordon, Kathryn. Investment Guarantees and Political Risk Insurance: Institutions, Incentives, and Development. N.p., 3 Oct. 2008. Web. 22 May 2014.
Hunter, Bridget, and Clive Jones. Business risk management practices the influence of state regulatory agencies and non-state sources. N.p., 6 July 2006. Web. 22 May 2014.