Country Risk and Strategic Planning Analysis In business, as well as in life, there will always be unforeseen events that occur. In order for a company to be successful and to be prepared, strategic planning must be utilized. Identifying and analyzing business risks are vital to a company, especially when entering a foreign market, such as India. There are many angles to examine when speaking in terms of risks, because many different factors can influence a business; such as cultural, economic, political, legal, ethical, and information technology risks.
Cultural Risks The business culture in India can be confusing and often frustrating to Westerners because trust is often gained by developing personal relationships rather than through legal contracts. Sharing information about family, hobbies, and interests is not a common practice in other nations, nor is spending time with business associates outside the business environment. (Bowling, 2014). There are three other factors that could cause misunderstandings or issues.
1. Indirect Communication Style- Indians use an indirect style of communication to convey negative messages or to say no to something. The practice comes from a desire to maintain harmony. They may use responses such as, “yes, but it will be difficult” (Bowling, 2014)
2. Hierarchy- Indian culture centers around a hierarchal system, therefore many businesses operate from the top down.
3. Adapting versus Planning- Successful businesses are skillful at adaptation and improvisation versus the implementation of exact planning.
Economic Risks Exchange rates can strongly affect an international company’s profitability and operations. There are also three other economic risks businesses should be aware of. Transaction exposure is the effect exchange rate fluctuations have on a company's obligation to make or receive future payments in a foreign currency. Translation exposure is the effect currency fluctuations have on the company’s consolidated financial statements. Economic exposure is the third risk that happens when currency fluctuations happen unexpectedly, affecting the company’s future cash flows and market value. (Hill, 2013) Since the 1990s, India's economy has grown and continues to grow faster than others due to the dismantling of trade barriers. Changes created huge impacts on the financial sector by increasing the quantity of inflows and outflows in different currencies. The current exchange rate is 1 INR is equivalent to 0.016th of a dollar. The Ruppe has continued to appreciate because of the strong capital flow. This means the economy is growing faster than before. A technique to avoid such risks is a known as hedging the risks by using foward contracts, which gives an agreed fixed rate to be paid at a later date up to 60 days of protection against fluctuation (India Is World's Fastest Growing Economy, 2015). Repatriation of funds refers to the process of converting a foreign currency into the currency of one's own country. Exchange rates can fluctuate the ending results of a settlement (India Is World's Fastest Growing Economy, 2015).
Political risks occur when there are political changes. They can also occur when there is instability in a country. Instability can have an effect on investment returns from a changing government, lawmaking bodies, other foreign relations, and military. There are political risks that come when owning a business in India. Political risks can be one of the business risks that a company may come across when working in a foreign country. One of the leading business risks for companies entering India is lack of preparation. When going into a foreign country to do business companies have to be familiar with the culture, laws, land, and people. The second risk for doing business in India is assuming India is like another Asian country. Every country functions differently than