Risk management is crucial for international businesses due to various risks like local insurance regulations, currency fluctuations, and political instability. Firms must choose between admitted local policies or non-admitted global programs. A centralized multinational enterprise is best suited for a global non-admitted program, while a decentralized one uses local admitted policies with global guidelines. Political risks can be mitigated through joint ventures, limited investment, and political risk insurance. Careful risk assessment and management strategies are essential for sustainable international business growth.

1. Risk Management in International
Business
Course: International Business
Indian Institute of Plantation Management
presented by: Group- 04(PGDM2011-13)
BIDHU BHUSHAN BINIT
YOGESH
AMIT PANDIT
ANUDEEP
CYRIAC DOMINIQ

2. “If you are never scared embarrassed or hurt, it means
you never take any chances.”
-Julia Sorel
“No risk ;No gain.”
- anonymous

4. Some Major Issues
 Local insurance regulations and practices
 Prohibitions against non-admitted coverage
 Centralization vs. decentralization of risk management
(global vs. local coverage)
 Local support for risk management
 Valuation of property for coverage purposes
 Foreign currency fluctuations
 Local legal environment (due process)
 Impact of language on coverage issues
 Cultural differences: religious beliefs, gender roles, work
attitudes, etc.
 Political structure

5. Types of coverage
 Local/Admitted
 Non-admitted

6. Admitted Non-admitted
 Local  International
 Adhered to local  Not complied to local
administrative regulations
regulations  Broad coverage
 Often needed for local  Easier with centralized
financing MNE
 Difficult to manage for  Claim payment taxable
centralized MNE
 Claim payment not
taxable

7. Global Insurance Program
 A global insurance program is purchased
centrally, with a master contract covering all the
MNE’s risks.
 Negotiated in the MNE’s home country
 Combines benefits of non-admitted and admitted
coverage
 Combines coverage of both the MNE’s domestic and
foreign exposures

8. Global Insurance program
 Advantage :-
One obvious advantage is the potential economy from
centralized buying .
 Disadvantage :-
One potential difficulty is finding an insurer with a global
network of engineers, claim adjusters, and other service
personnel.

9. The Global Master Policy
 A global master policy is issued on a non-admitted
basis.
 The global underwriter instructs local affiliates what
policies to issue (subject to local regulations).
 The master policy provides excess and DIC over
local/admitted policies.
 Increased limits may be needed if there is a
possibility of liability in a country other than where
damage occurred.

10. Global Insurers
 Leading U.S. insurers with a significant presence in
the international market include
AIG, CIGNA, Ace, and Chubb.
 Non-U.S. insurers with a significant presence include
Zurich, Winterthur, Swiss Re, Gerling, Allianz, XL, et
al.
 Buyers usually can access global programs through
New York, London, or other major financial centers.

11. Global Brokers
 Several leaders have emerged from a
combination of U.S., U.K., and other international
brokers:
 Marsh, Inc. (MMC)
 Aon
 Willis
 IRMG
 These international brokerage/consulting firms
are present in most countries, maintaining
contacts with local admitted insurers, and
capable of creating global programs.

12. Admitted or Non-admitted
?..?...?
Strategic option for MNEs

13. Admitted or Nonadmitted?
It depends on the structure of the MNE.
 Centralized:
mostly organization goes with
international(nonadmitted) option.
 Decentralised:
goes with admitted insurance policies, but with
guidelines and strict performance standards.

14. Decentralized MNE
 In cases where a foreign affiliate was acquired by an
MNE, the affiliate may have long-term relationships
with local insurers.
 Business advantages may be gained from local
purchase of insurance.
 Sometimes, risk managers purchase the minimum
permissible amount of insurance locally, and cover the
bulk of exposures under a non-admitted difference-in-
conditions policy.

15. Risks for MNEs & approaches to
deal with
Export-import risk
Foreign exchange risk
Political risk

16. Risk Management in Export-import Business
 Risk Assessment and the Firm’s Foreign Market Entry Strategy:
 Managing Distance and Communications
 Special Transactions Risks in Contracts for the Sale of Goods:
Payment or Credit Risk, Property or Marine Risk, Delivery
Risk, Pilferage and Theft Risk
 Risks of Foreign Laws and Courts
 Commercial Risks : Lack of Knowledge, Inability to adapt to the
environment, Different kinds of situations to be dealt
with, Greater transit time involved

17. Foreign Exchange Risks
 One of the most significant risks facing an MNE involves
variations in foreign exchange rates.
 An exchange rate represents the number of units of one
currency that can be exchanged for another.
 When a foreign currency declines in value relative to the
dollar, a U.S. company suffers a loss from any assets
payable in that currency.
 Hedging, Swaps, Arbitrage od currency market

18. Approaches to Dealing with Foreign
Exchange Risks
 Minimize holding of foreign currencies
 Retain currency risks internally.
 Hedge in the options/futures market for foreign
currencies.

19. Political Risk
 MNEs are frequently exposed to political risks.
 These are caused by any local government’s action (or
failure to act) that diminishes the value of a firm
operating within its borders.
 nationalization of assets of a local subsidiary/affiliate
without sufficient compensation.
 Damage to property or personnel by anti-government
activity
 War, insurrection, terrorism
 Study thy doing business indicators/understand the geo-
political issues

20. Managing Political Risks
 Shared ownership reduces both the likelihood and
the potential severity of loss.
 Enter into a joint venture with local investors:
 to establish local support for the firm, and
 to provide better information on the country’s
political/economic conditions.
 Limit the amount of capital invested in the local
subsidiary/affiliate.

21. Political Risk Insurance
Sources of political risk insurance are extremely
limited:
1. OPIC and MIGA
2. AIG, Chubb, ACE, Zurich
3. Lloyds of London

22. Conclusion
 Doing business internationally is strategically good
option to sustain and increase the revenue
profoundly. But the greater risks are involved. Risk
management must be the integral part of decision
making process keeping international business
environment in mind.
 Selection of type of coverage depends on many
factors like structure of organization, political
condition..etc. So all factors should be kept in mind.

23. THANK YOU !