Knowledge Reduces Business Risk Business is about risk and profit
Business is about risk and profit. Generally, the more risk a business accumulates the more profit this business can earn. However, with joint ventures that involves multiple locations, many unknown factors and complexity risk moves upwards significantly. However, on the other hand, risk of stagnation and lack of growth can be significant as well. Some of the risks faced by stock holders and investors are the loss of value.
If an organization expands but profits do not expand along with it the organization may increase its expenses but not increase its profits thereby causing a loss of income. When determining if a joint venture is risky stockholders and investors often require an assessment of risks, operational functioning, and competitive threats (Blaszyk & Hill, 2007). Few if any stock holders or investors would be willing to invest the companies profits or their personal money into a venture whereby it was not know how much risk, how the business would function and what the competitiveness in the market holds. Having information on these aspects of international business helps these stockholders and investors make educated risks and assessments as to the likelihood that they will receive and appropriate return on their money. There are some advantages to firms that move part of their operations overseas or expand to multiple locations. These advantages include a reduction in cost, reduction in risk and sharing of revenue (Broll & Marjit, 2005).
These advantages can easily be outweighed by the risk of unknowns when conducting business in such widespread locations. Before one can truly consider moving operations overseas or merging with another organization they will need to determine their goals and objectives (Duell, 2007). If their goals are to hedge risk versus having the highest profit margins or complementing their business they may have different goals. Having a clear game plan could have a significant impact on how successful the merger, growth or acquisition will be. Organizations should also look at their internal manpower and skill level (O'Sullivan, 2008).
Even though a company may have great managers that can move overseas in only a short span of time that does not mean that the company currently has the knowledge and ability to make such mergers, growth or expansions possible. The strength and abilities of the management team will have a lot to do with how successful the business will be. There are some advantages to firms that move part of their operations overseas or expand to multiple locations. These advantages include a reduction in cost, reduction in risk and sharing of revenue (Broll & Marjit, 2005). These advantages can easily be outweighed by the risk of unknowns when conducting business in such widespread locations.
The answer to the question, "Does moving overseas or merging increase risk?" is not an easy one. The answer depends on many factors such as the amount of profits associated with that risk, risk strategy methods utilized and the knowledge of the parent firm. Any business venture is risky but that risk can be mitigated by proper knowledge and planning.
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