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Questions and Answers on Risk and Joint Ventures

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Question 1. There are four types of international risks. Namely (a) Cross-cultural risk; (b) Country risk; (c) Currency risk and (d) commercial risk. Briefly describe each these risks.

Question 6. Explain the advantages and disadvantages of a joint-venture or strategic partnership.

Question 10. Why is air transportation and air express so widely used in exporting when ocean transportation is much cheaper?

Question 4. Entering a new market through licensing is generally the best strategy because market potentials can be tested with little or no investment. Comment.

Question 2. Briefly explain why has international trade in agricultural products been expanding at a slower rate than exports of manufacturing goods?

Question 5. A multinational firm needs to have complete control over its subsidiaries in order to make optimum use of its resources and compete most effectively. Comment.

References

Question 1. There are four types of international risks. Namely (a) Cross-cultural risk; (b) Country risk; (c) Currency risk and (d) commercial risk. Briefly describe each these risks.

Cross cultural risk:

Cross cultural risk identifies the risk of adjustment of different two cultures. In international business sectors most of the time mangers send their skilled and intelligent employees to the foreign sectors so that they can play a vital role in the business purpose. But sometimes employees as well as manager fail to understand the local need and demand through their cultural pattern (Moore, 1983). Then they cannot adjust with their foreign environment. They may find food dissimilarity, life style problem and many others think.

Country risk:

Country risk is a term which is used to define the probable risk of investing in foreign country. In the field of international or global marketing company has to invest a lot of money in the foreign country. But some time the government or local people may go against the company. So in consequences the company has to scarify their profit or even investment. Mass riot or social and economical unrest of the country bring enormous loss.

Currency risk:

Currency risk is also popularly known as foreign exchange risk. In the sector of international marketing a fixed price is always set by the two sectors to import or export. But due to natural disasters and international pressure this fixed priced can be highly modified. So one of the two sides has to carry the loss. Domestic inflation and economic unrest will affect this sector badly.

Commercial risk:

Commercial risk is the uncertainty or the probability of the return of the investment in the foreign country. In the field of international business all companies forecast their probable rate of return or the profit so they can understand their future in the market (Pearson, 1987). But duo to political unrest, change in the consumers living stander and the modification of the government regulation may affect it badly.

Question 6. Explain the advantages and disadvantages of a joint-venture or strategic partnership.

Advantage of the joint venture

Joint venture is the recent innovative and effective way of get together of two companies. It provides a lot of facilities to both sides that’s why the number of joint venture companies is increasing day by day. It offers both company to use their innovation and technological advancement. It also provides opportunity to use others regional market place. So the number of consumers will increase. As innovative ideas are bring out more in this sectors proficiency can be achieved through new technological improvement (Hall, 1984). The joint venture helps both companies to use greater natural resources, and more expert employees. That will surely increase their production amount. It also offers to their partners to share their mutual risk. Another important advantage is being elastic in the market place.Any company can act to their consumers quickly and thoroughly through joint venture. Joint venture also helps to understand the new market quickly and easily.

Disadvantage of joint venture:

Some demerits are also associated with the joint venture production. It is very hard and nearly impossible to find a suitable partner for the joint venture. It takes too many time and efforts to find appropriate joint venture partner. Behind reasons of this problem may be a lot. Unclear aims of the joint venture section may be the first reason. Then all parties may not be interested to the aim. The aims of the joint venture have to be very corresponding otherwise no one will show interest. Disparity of the resources and the imbalance of the technological advancement are also effective reasons not to be a part of joint venture (Paakkunainen, 1992). Dissimilarity and the poor administration system also pave the discouragement of joint venture. Lack of thorough research and poor maintenance system are also responsible for this.

Question 10. Why is air transportation and air express so widely used in exporting when ocean transportation is much cheaper?

Transportation is the biggest part of modern international business sectors. Quick response, cheap cost and the arrival power of remote area are the crucial factors of transportation sectors. Considering all other system it can be easily said air transportation system is used regularly and increasingly. The reasons behind this are many. Quick response is the most important and effective criterion in this sectors. All medical equipments and medicine are mostly transported through air express because of their call to reach necessity. Another important factor is remote area reaching power (Puffer, 1941). All electronic and perishable goods are transported by air express. It also carries the products time value and necessity. For quick response the customer can get the latest product and service so they prefer the new one rather than old one. So to grab new growing market most of the retailers like air express. So for fragile and luxury product air express is must. On the other hand sea transportations are cheap but so time consuming. And product like daily commodities and unnecessary product are transported through sea transportation. It takes three to four days for delivering some products on the other hand air express will take few hours to reach the place. Bad and unpredictable weather is another reason of decreasing s the use of sea transportation. Recently the pirates’ problem has increased in an alarming rate so merchandisers like air express over sea transportation (Bailey, 2009). It is very hard to trace the delivery in sea transportation which is another reason of discouraging sea shipment.

Question 4. Entering a new market through licensing is generally the best strategy because market potentials can be tested with little or no investment. Comment.

Licensing is a widely used term in the field of international marketing. Specifically licensing is the process of granting application or permitting other party to use own intellectual property like logo, trademark, motto and some other brand name. The party who granted permission to use is called licensor and the other party who get the permission of using this property is known as licensee. Actually licensing is a good term for the new comer in the business sectors. Very few people trust the new comer in the international business sectors. So it is so tough for them to stay on business.Moreover new environment and new customers’ attitude take a tough test from the new comer (Sherman, 1999). So to explore the full recourse of the local environment and become popular in entering position licensing is the best process. Another important and crucial help to company is to pave the pipe to do business with readymade customer and with their trust.Licensing also helps his partner by proving the free advertising which can be very costly and ineffective. So automatically they will get new and potential customer to serve and get reputation. So all the way licensing provide critical facilities like present and future customer, free adverting and market goodwill with little or without any money cost.

Question 2. Briefly explain why has international trade in agricultural products been expanding at a slower rate than exports of manufacturing goods?

In modern business sectors all products and services are included in international marketing. They can be divided in two categories. First may be agricultural products and the second can be manufacturing products. But comparing with manufacturing products, agricultural products are exported in a minimal rate. The main reasons behind this are the customers living pattern. Mainly agricultural products are the main base of their livelihood. They cannot easily change it. Or they are not interested to change it. So all their necessary livelihood things are produced by ones native country (Foley, 1999). And they are produced in a high amount. So they don’t need to import them from other country. And another reason of slow export ratio is that the agricultural products are not so suitable to store for a long transportation without using comical which is highly unhygienic for health. So no country wants to depend on others about their main agricultural food. They try to produce them all by themselves. Another reason may be profitable side. Agricultural products may not be so profitable for the exporter. It cost a lot to produce but the cost is nearly similar to the entire county throughout the world. Agricultural products take long time to be produced and need more space. On the other hand manufacturing products provide the competitive advantage to the manufacturer. They can be produced a lot if amount in short time by dent of improved technology. That can be produced after the export order and it take short time to deliver. They can be stored for a long time. And also their transportation facility is easy (Paul, 2008). So considering all those factors the manufacturing products get higher priority to export.

Question 5. A multinational firm needs to have complete control over its subsidiaries in order to make optimum use of its resources and compete most effectively. Comment.

Multinational corporations (MNCs) are corporations found in one country but activate throughout the world with permanent amenities and workers in numerous countryside. A few types of multinational companies are Industrial corporations that produce goods and sell them in a variety of countries for example cars, electronics. So the main company is called parent company and the host company is called subsidiary company. Main company holds the authority to negotiate and implement power and the subsidiaries are bound to follow the rules. At the same time the subsidiaries company have to able to amplify their capability. But it is so important that parent company have to have full control over Subseries Company. Otherwise subsidiary companies will loss the power to produce the best. The host companies have to follow the host nation’s regulation and the profitability of the parents companies. So the full control over Subsidiaries Company will provide enough power to negotiate the host government. And some time the host country try to lure the parents company’s investment and authority so proper control over host help to stop this. Some time parent companies have to cut the extra staff and operating cost to maximize profitability. So without enough power no one can do it. And to explore the employees most talent and to train them the parent company need such power. (Tsurumi, 1977). So the parent companies always try to explore the best of the host country. They can use the natural resources best and can meet the all customers demand in a favorable way.

References

Bailey, G. (2009). Sea transportation. Pleasantville, NY: Gareth Stevens Pub.

Foley, J. (1999). The global entrepreneur. Chicago, IL: Dearborn.

Hall, R. (1984). The international joint venture. New York: Praeger.

Moore, P. (1983). The business of risk. Cambridge [Cambridgeshire]: Cambridge University Press.

Paakkunainen, U. (1992). Joint venture decision. Helsinki: Helsingin Kauppakorkeakoulun Kuvalaitos.

Paul, J. and Aserkar, R. (2008). Export import management. Oxford: Oxford University Press.

Pearson, C. (1987). Multinational corporations, environment, and the Third World. Durham, NC: Duke University Press.

Puffer, C. (1941). Air transportation. Philadelphia: Blakiston Co.

Sherman, A. (1999). Franchising & licensing. New York: AMACOM.

Tsurumi, Y. and Graham, E. (1977). Multinational management. Cambridge, Mass.: Ballinger Pub. Co.


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