Managing a business in international countries is a wide approach. Every country has different culture, religion, beliefs, environment, values, and politics. If few countries are developing and developed, some countries have different communication styles. Thus, before engaging in business with any international country, a tradesman should be aware of all potential risks involved. Above all, if they are ready to face all challenges with a cross-cultural team.
Most tradesmen take political risk insurance before starting international trade. Political risk insurance provides financial protection to businesses, investors and financial institution that faces hardship due to any political events. It protects businessmen who may face financial challenges because the government took some political action. Once the tradie takes up political risk insurance he/she can do national and global business comfortably.
You can contact Niche Trade Credit if you want to take help with political risk insurance for your business. NTC has 30 years of experience in their field which makes them a trustworthy credit insurance broker in Sydney, Australia. NTC offers full protection for export clients and provides financial backup to those tradesmen who are facing challenges because of some of their default clients.
Types of Political Risks
We have listed down some of the political risks for better understanding. These risks can also impact a businessman financially –
When for no reason the international government confiscates or seizes a company’s investment. The foreign government can list series of rules without any justification. This can lead to financial loss for the foreign business. They may have to face loss in overseas investment or assets.
Example: 2016, contract with the Chinese company Beijing National Railway Research and Design Institute of Signal and Communication Group was terminated by Indian railway in 2020. The company was founded by the World Bank. The project was worth millions of dollars. However, the decision was nothing to do with the LAC. It was a random decision made by the Indian Railways.
Transfer and Conversion
If there is an economic crisis in the country, the government can restrict the floating of hard currency into a different country, or they can prohibit local currency conversion. This law is imposed by the foreign government and central bank together. Non-convertible currencies are often seen in nations that face economic instability.
Example: in various events, currencies like North Korean won, or the Angolan kwanza, and the Chilean peso were blocked. These happened several decades ago. Now the situation has changed and such events rarely happen. This is because more nations are flexible and free about foreign trade.
War, terrorism, etc., and various other forms of political violence can restrict international trade with the country that is involved in the violence. It damages and destroys the company’s assets and prevents the business to conduct important trading.
Example: In 2017, when violence erupted in Ethiopia and all protestors were targeting international companies, the government had to declare multiple states of emergencies. The violence had erupted due to the government showing favouritism to certain international companies. This impacted international businesses largely.
Many companies try to reduce the chances of these risks by getting involved in various strategies. One strategy is political risk insurance which saves the tradesman from any financial hit.