Multinationals and Corporate Risks

Global trading is part of the reason behind interdependence of countries thus the move towards businesses becoming multinationals via FDIs. This move has encouraged and exploited a lot of businesses both foreign and domestic allowing organisational growth.

With foreign trade, comes the baggage of exposure risks and different investment schemes. Currently due to the recent economical crisis that is making most companies struggle through this recession period has proved that a times the whole aspect of an organisation both domestic and foreign can be adversely affected. Take for example, the article by James Rossiter (The Times, 2008) about Tesco and its joint ventures. As a result of the economic crisis a firm such as Tesco (who strategically expanded their business to cut costs i.e tax) must have suffered from all aspects of its business worldwide due to the effect of the economic climate. Such economic crisis brought about so many risks exposures which firms had to embrace whether it was transactional, translation or economic. In the case of Tesco, all three of these exposures were exercised as these were macro-economic factors that could not be avoided regardless of the provisions made. The economic external environment is one of the main causes of market volatility as it directly affects inflation, tax and exchange rates.

Still using Tesco as an example, i believe the organisation made a great strategic move to spread its business as a multinational via joint ventures.  This has allowed the organisation to  reach some form of economies of scale especially with regards to tax evasion. Businesses with sound focus on achieving profit or shareholder maximisation could adopt the strategies of Tesco enabling them to get the best in terms of foreign investment and global integration helping them to spread their products and services in a manner that is cost effective as a whole.

In general the issue of corporate risks for multinationals is not something that can be avoided but its something that can be dealt with in order to minimise the impact of risk exposures on an entity via better preparations and provisions. Drawing a curtain on the negative part of multinational risks and exposure, the movement of global trade has provided the opportunity for business growth and integration. So whether a company's vision is to maximise profit or provide the shareholders with the best returns, the best way is through FDI enabling cost efficiencies.