At the advent of modernization and globalization, international businesses are exposed to a variety of risks. Such risks are related to the marketing strategies especially in the sense that globalization has exposed international business to international market competition. This is to suggest that a business management should be well acquainted with the right strategies in order to achieve competence in terms of business risk management (Choi & Powers 2002). The risk to be managed is the fact that the international businesses face market risk of failure and the risk of competition from other related businesses.
This may otherwise translate to the discontinuity of the business as well as the reduced sales and the fact that the business may not enjoy the maximum rewards of the new market. It is therefore of importance, to provide the definition for the risk management. It is in actual sense defined as the technique that is used to measure up, monitor and control the financial or operational risk on the balance sheet of a company or a firm (Choi & Powers 2002). This is from a corporate point of view.
Also, risk management can be viewed as the recognition, evaluation and prioritization of risks. It is then accompanied by dexterity and applications of resources on the economy. This is done with the sole aim of minimizing, monitoring and controlling the occurrence and/ or impact of inopportune events. Additionally, it can be done in order to realize opportunities.
In any company or business, business risk management is essential if the business is going to survive in the ever changing environment of business.
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In connection to this, risk management has the advantage of creating a value and therefore important part of the processes of the organization. In the same line of thought, business risk management helps in an overtly way of addressing uncertainty (Wieczorek, Naujoks & Bartlett 2002). So to speak, these happen to be some of the advantages of risk management among others as such. In the management of risks, avoidance, sharing, retention and reduction of the risks play a great role in the carrying out of the whole aspect of management. It is from the point of view of risk management that the issue of the use of wholly -owned subsidiary companies are brought into view.
In consistent with this, there has been the ongoing argument that, in order to maximize their potential rewards, international businesses should only enter in the new markets in the form of a wholly-owned subsidiary companies (Wieczorek, Naujoks & Bartlett 2002). Since risk management is an important part of an organization or company, the practice in itself entails the cost effective approaches that the business embarks on in order to minimize the effect of the threat realization to the organization. In order that risk management may work for international businesses that wish and are in actuality aiming at remaining competent in the market, risk management is prerequisite.
In such a case, the businesses should seek to make the identification of the risks, quantify them in terms of potential loss of income, reputation caused by the actual loss and such like related losses. This should then be followed by a formulation of strategies that would aid in the aspect of containing the risks that have been identified. Following this point, should be the implementation of the strategies in order to see the benefits they bring. In accordance to this, there should be a continuous monitoring of the containment of the risk tasks. In connection to this, many risk management strategies tend to be inclined to control mechanisms used to keep the continuity of the business.
In the face of the new markets ready to be explored by the international businesses, careful thought should be applied in order to maximize their potential rewards. This is to suggest that, a business can either maximize the potential rewards if the right risk management as a control mechanism is applied or else may suffer from loss of income, reputation and may be discontinued. Risk management is a form of control mechanisms that is used by a company of a business in order to maintain its grip in the market (Lecher & Platzer 1998).
For a business to realize its maximum reward in the market that it is exposed to, competence should be a key factor in all aspects. This means that, a business should possess the ability to sell exceptionally, have quality goods compared to others, possess the best strategies of marketing and operate within the standards of the business marketing strategies and regulation in the new market. In the same line of thought, such a business should seek to retain a good reputation and trust as well as the trust by the customers and the people it serves. Additionally, a business that is able to sell exceptionally and survive in the current type of market, exceptional strategies of marketing and managing as well as control mechanism should be competitive.
With modernization and globalization, the markets have become international. This is to mean that international businesses are able to operate internationally. So to speak, new markets that are in the country of interest of a foreign investor are presented with new culture of marketing since all countries are different in culture (Lecher & Platzer 1998). In order to integrate in the new market culture, one should familiarize with the host country culture. Otherwise, the marketing may fail and thus the risk of failure realized. Culture defines a set of values and norms that a certain group of people are governed by it. The government offered by culture, however, does not exclude the marketing and business sector.
Therefore, it is valid to state that culture differences can be a potential risk to a business success. Since international market covers all the countries in the world, how well a business is able to integrate in a culture that it is not familiar with is a determinant of how much the business can maximize the potential rewards of the new market. The strategies that lead to higher sales in one country may not be applicable in another one and as such international businesses should learn this limitation and develop strategies that will make it possible for them to sell and remain competent in the new markets in other countries.
New markets that are provided by the perpetuation of globalization are presented with eminent risks. Such risks are made possible by the fact that cultures are different and as such culture is an important component worth of consideration while marketing. In line with this, venturing in a new market especially in a country that one is not familiar with, calls for a concrete strategy that will allow for competence in the market place.
There is an impeding risk that is realized of an international business failing to gain customers in a new market. Another related risk is as a result of the customers' culture dictates as the people would rather buy from the businesses they have a good knowledge about than them those that they have no idea about (Lecher & Platzer 1998). In terms of marketing, the risk of the international business failing to succeed due to the methods of advertisements and management offered is high. Another risk may be as a consequence of attitudinal inclination in the sense that the new market may have a people that despise international companies with international management. Notably, the businesses that have succeeded in the international market have had good and strategic ways of risk management. Risk management as a control mechanism to protect business from collapsing is an effective tool.
For international businesses whose wish is to realize the maximum rewards in the market apply the argument that, international businesses should only enter new markets in the form of a wholly-owned subsidiary company. On one side, this argument may be true but on the other side, it may be not true. At this point, it is important to define a wholly-owned subsidiary company. In this context, a wholly-owned subsidiary company is a company that has its stock being entirely owned by another company. In this context, the owner of the wholly-owned subsidiary is presumably termed as the parent company (Jeyaseeli & Levi 2007).
Moreover, the parent company has a total ownership of the stock along with the control of the wholly-owned subsidiary activities and operations. Consolidation of financial transactions is done with those of the holding or parent company. This covers all types of operations both in procedures and purposes of reporting. A wholly-owned subsidiary company is a separate entity and of which is a separate entity from purposes of law. In such a case, the country whereby the wholly-owned subsidiary is established has its laws being applied on the wholly-owned subsidiary without involving the holding company.
A wholly- owned subsidiary company is a way of risk management especially whereby the international businesses identify a risk of failure due to the lack of knowledge of the market situation in the new market of the new country(Jeyaseeli & Levi 2007). As earlier on highlighted, risk management is done in order to be able to maintain the continuity of the business as well as its success. Once an international business has identified a risk of failure in the new market it should design and develop a strategy to either avoid the risk, reduce it, do retention of it or rather share it. Following the example of an international business that intents to venture in the new markets, there is the risk of failure since the business is not familiar with the market situation in the new country as well as the market trends.
In order to be able to avoid the risk of failure, the international business employs a wholly-owned subsidiary that will perpetuate the parent company's success and competence in the market (Jeyaseeli & Levi 2007). Owing to the fact that the wholly-owned subsidiary company has its management from the people of the country, it will translate to success. This is for the reason that the board of directors and employees who exercise the management have a full knowledge of the market situation and the market trends. Likewise, setting up a wholly-owned subsidiary provides security and protection of the managerial information (Hitt, Ireland &. Hoskisson 2007).
Besides, the secrets of trade of the company, the expertise, and technical knowledge are protected. In combination with this, the technological competence, administrative decisions and trade secrets are well safeguarded. In the same line, the use of wholly- owned subsidiary companies, improve the chances of getting maximum rewards that result from the location economies. As such, it offers a freedom of choice in the sense that location near the favorable area of market is realized. In terms of labor, there is the advantage of the company to both access and make the utilization of cheap local labor. Due to this advantages that are attached to the wholly owned subsidiary companies it stands out that the parent company will enjoy the maximum rewards in the new market.
Despite the many advantages that are given to the setting of wholly-owned subsidiaries, there are challenges that face them. The complaints that there is no transparency in the operations of the wholly- owned subsidiaries threatens the competency of these companies. In accordance to this, there are some of the challenges that are faced when the host country complains that the companies are not able to disclose the financial operations as well as pro-forma board. In this sense, a wholly owned company in a foreign country may face the challenges of laws on regulation and transparency issues. This is due to the fact that wholly-owned companies are in the full control of the parent company (Hitt, Ireland &. Hoskisson 2007).
Risk management is a very essential part of the business as it has many benefits. So to speak, the risks that come as a result of investing in a foreign country are many. As a result, the identification of the various risks is of great importance. Additionally, just as it has been highlighted, it is important to employ strategies that can help eradicate, avoid, share or make retention of the risks. There is no business that can operate without facing risks of loss of income, customers and other related essentials (Hitt, Ireland &. Hoskisson 2007)
In this sense, it is the responsibility of the management to provide the right risk management strategic in order to overcome the causes of the risks. In case that has been brought in the context, among many risks that are realized is the risk of failure in the market that is necessitated by the lack of ground information. In this line of thought, the parent company is given the responsibility of ensuring that the risks are well taken care of (Hill & Jones 2009).
Although wholly-owned subsidiaries have the potential to ensure that the parent company enjoys the maximum rewards that are brought about by the new markets in the foreign country, there are many underlying challenges. According to the argument, in order to maximize their potential rewards, international businesses should only enter new markets in the form of a wholly-owned subsidiary company. Even though the statement may be sensible but the "word should only" is not necessary. This is because there are other methods and ways that the foreign investors have used to integrate into the market and enjoy maximum rewards of the new market.
For instance, a foreign investor may well integrate in a new market in a country whereby the product has no competing products. Furthermore, the foreign investor may get the maximum rewards of a foreign market if the investor has exceptional methods of marketing. Marketing and its mode in a foreign country is important in the sense that the way it is carried will determine how much the company will enjoy the maximum rewards of a new market (Wieczorek, Naujoks & Bartlett 2002).
It is not the wholly owned subsidiaries that bring about the maximum rewards but an integration of the companies and other marketing strategies. These strategies involve production methods employed, quality of the product, methods of selling and the needs and the wants of the customers. In accordance to the marketing definitions, a product wills sell exceptionally when there is a willing and able customer to buy the product. A wholly-owned subsidiary may not enjoy the rewards of new market owing to the fact that there are risks of poor quality of the product. The managers from the host country may be may seem to have the knowledge of the country but in reality this is not always the case.
Notably, there are companies whose products are good and although they are familiar with the culture of the host country, they may not enjoy the maximum rewards of the new markets. In fact, this may occur due to the fact that they the selling methods may have a problem and the managers may not have a full knowledge of the needs of the customers as well as the wants of the customers. In reality, enjoying a new market's maximum rewards is a combination of several different factors that put it of a requirement that they are collaborative and applied.
By the mere fact that a manager of a company is aware and familiar with the culture as well as the marketing trends of a locality, this does not guarantee that the access and utilization of the new market rewards is automatic. So to speak, to some extent the argument that, in order to maximize their potential rewards, international businesses should only enter new markets in the form of a wholly-owned subsidiary company. The authenticity of this statement has got no empirical support as there are some of the international businesses that have operated and maximized the rewards of new markets without necessarily entering the new markets in the form of wholly-owned subsidiary companies. Of a truth, the competence of a company in a new market is determined by a combination of factors ranging from the nature of the products, the marketing strategies and the cultural characteristics.
Having stated the definition of risk management in connection to wholly-owned subsidiaries, this form of international businesses to enter in the new markets has substantial advantages. As highlighted, they range from the advantage of enjoying the maximum rewards of new markets presented by lack of the knowledge of market situation and market trends (Hill & Jones 2009).
Again, the international businesses are able to integrate in foreign countries by means of wholly-owned subsidiaries as they are able to enjoy the economies of the locality.
Furthermore, the company is able to enjoy the cheap labor offered by the mere fact of being near the market area (Hill & Jones 2009). Following this point, the wholly-owned subsidiary companies are controlled in terms their stock and operations by the holding or rather the parent company. In most cases, the work of the wholly-owned subsidiary companies is to necessitate the integration of the company in the new market. However, there are some of the challenges that face the wholly-owned subsidiary companies in the foreign country owing to the fact that there is no disclosure of the financial information by the company.
It is not always the case for the wholly-owned subsidiary companies that they will realize the maximum rewards offered by the new markets in the new country (Coface 2004). There are a variety of forces in the market place that provide for the realization of maximum rewards of a new market. This statement refutes the position of the argument that, in order to maximize their potential rewards; international businesses should only enter new markets in the form of a wholly-owned subsidiary company. There is no empirical support for the argument that, in order to maximize their potential rewards, international businesses should only enter new markets in the form of a wholly-owned subsidiary company.
Risk management has been applied through wholly owned subsidiary companies. This has been made possible by the mere fact that the international businesses have been able to realize the risk of failure in the new market. Moreover, the risk caused by lack of familiarity with the host country's culture has been identified (Coface 2004). In this line of thought, the risk of failure and not being able to maximize the potential rewards of the new markets has been explored. Having been quantified to lead to reduced sales and difficulties in integrating in the new markets, strategies to mitigate the risk has been made provision of.
In this logic, the importance of risk management in determining the new markets maximum potential rewards for a foreign investment has been proved. Nonetheless, the monitoring of the containment of the risk in the given strategy remains to be a debatable one. The argument that in order to maximize their potential rewards, international businesses should only enter new markets in the form of a wholly-owned subsidiary company, has some truth but thinking of the whole scope of the forces that lead to maximum rewards being realized, the argument falls short. Finally, it is essential to conclude that from the point of view of risk management, the argument is valid only on the market risk of failure but it does not fully explain the forces that determine the maximum rewards that an international business can get from new markets at the age of globalization.
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