List and briefly discuss the various economic risks that international companies must face when they seek to market abroad.
The text lists six economic risks:
• Exchange controls: When a nation faces shortages of foreign exchange and/or a substantial amount of capital is leaving the country, controls may be levied over all movements of capital or selectively against the most politically vulnerable companies to conserve the supply of foreign exchange for the most essential uses.
• Local-content laws: Countries often require a portion of any product sold within the country to have local content, that is, to contain locally made parts.
• Import restrictions: Selective restrictions on the import of raw materials, machines, and spare parts are fairly common strategies to force foreign industry to purchase more supplies within the host country and thereby create markets for local industry.
• Tax controls: Taxes must be classified as a political risk when used as a means of controlling foreign investments. In such cases, they are raised without warning and in violation of formal agreements.
• Price controls: Controls applied for essential products during inflationary periods can be used to control the cost of living. They also may be used to force foreign companies to sell equity to local interests.
• Labor problems: In many countries, labor unions have strong government support that they use effectively in obtaining special concessions from business. Layoffs may be forbidden, profits may have to be shared, and an extraordinary number of services may have to be provided.
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