Global perspectives on Risk

Running head: GLOBAL PERSPECTIVES ON RISK
Global perspectives on Risk
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Global perspectives on Risk
Introduction
Risks or uncertainties are major challenges to business entities, individuals, global markets, and institutions. A lot of business organizations have been exposed to certain risk factors making it hard or inappropriate for them to prosper in global markets. To deal with the problem appropriately it has become of essence for different entities and individuals to come up with measures necessary to curb such problems for prosperity. The global markets consider it necessary for business entities to come up with strategies necessary to keep organizations, businesses, and institutions competitive. Insurance is one of the major important strategies considered by global markets, organizations, and institutions. However, insurance and insurance markets that deal with risks are said to be problematic. Despite various problems associated with such institutions, global or international markets consider it appropriate to use insurance as an important part of risk financing strategy. To critically evaluate this particular area of concern adequately it is important to understand the meaning of risk and insurance.
Carris, 1995 p 324 asserts that, a risk in respect to business refers to certain circumstances which have negative impact in relation to operation of an organization, business entity or institution. A business risk results due to internal factors as well as external conditions. The major outstanding risk influenced by external factor is change of demand for goods and services. It is hard to deal with external factors as they occur due to forces of demand and supply in the wider market. Internal factors on the other hand, result due to development of various measures that lead to expansion of business by an investor.
Internal conditions that result to a business can be identified and corrected in an efficient manner. A business risk thus means to the probability of loss which is inherent in a firm’s operation and its environment. Major considerations in this respect refer to competition, natural disasters, or adverse economic conditions. These conditions are usually very uncertain in that they impair the ability of an entity to get returns on its investment. In the wide global perspective it is important to note that entities are entitled to come up with the necessary measures that promote its survival in the competitive world of uncertainties. According to Kasperson, 2001 pp78, the main categories of business risk include strategic, financial, operational, and compliance.
The most critical issue in relation to business operation is the aspect of developing various mechanisms through which the risks can be dealt with effectively. Through consideration of insurance policies it has become of essence for organizations to take up insurance cover in the wide scope of global markets so as to avoid any future uncertainty. According to Buys, Dilley, Agwe 2005 pp 123-125, insurance refers to a form of risk management used by organizations, individuals, and business entities with the view of safeguarding their operations from certain risks. Insurance thus means that the insured person transfers the cost of potential loss to another organization after payment of premiums.
Insurance is very critical in relation to business operations as it aims at protecting individuals and their investments against financial hardships and loss. It is an important consideration for individuals, entities and business against any considerable monetary loss. Insurance has been a major consideration in the current global markets influenced by uncertainties. Weiner, 2006 p 98 argues that the main reason for taking an insurance cover by business owners and entities is to deal with any possible risks which may happen in future. In business world, the future is usually uncertain and this makes it important for organizations to get well prepared for any eventuality. In this respect global markets and business owners have the capacity to buy insurance policies with the intention of hedging out any possible risks which may or may not happen in future. It is a measure which ensures that in the event of eventualities especially exposure of business to certain risks then the business does not suffer financially or in any other measure which is risky. Considering this factor it becomes quite relevant to note that international businesses decide to utilize insurance as an important part of risk financing strategy.
Importance of insurance
The benefits associated with insurance thus are important considerations by international businesses. The main objective of any form of business entity is to make profits and survive during times f economic hardships. However, certain instances which are not planed for usually occur making it hard for the entity to prosper. Major considerations in this case include financial calamities which strike unexpectedly due to economic recession, competition, or natural calamities. These unexpected future occurrences to business pose major challenges to an entity as they result to massive loss.
It has become of great concern thus for global business owners to take the initiative of dealing with such occurrences. Insurance is thus considered to be a major strategic plan which protects companies, individuals, and entities against unforeseen loss. In addition, an organization or business entity constitutes of several activities which involves workers and other stakeholders. The organization as a big entity is thus responsible for any happening of such employees. In this respect it means that a business owner is supposed to be prepared to deal with employee’s injuries, business interruptions due to strikes or any form of accident, and financial failure. According to Ford, 2003 p 187, these are usually major expectations by international business as they interact with different entities from other geographical regions.
International businesses usually interact with different clients from different regions. The manner in which international businesses operate requires involvement of strategic plans that lead to protection of such entities from unseen loss. A major threat in this kind of business is compliance with particular trade laws that govern different countries. This means that each country has its own category of laws that govern the manner in which entities are supposed to trade. This being the case international businesses incurs a lot of loss which results from exposure to different trade tariffs which are expensive for their operations. There are other unforeseen occurrences associated with international businesses which results to lose. Frieden, 2000 p 56, asserts that a common observable aspect in relation t international businesses is the presence of several entities in the market.
Currently there has been quite significant concentration of businesses in the global markets. This is because various entities are seeking to acquire e bigger share in the global economies which are considered to be effective in respect t profitability. Exploring a variety of customers is another major considerable factor which has led to existence of several markets in international businesses. According to Hummer, 2002 p 154, the objective of profitability is also a major consideration for international businesses. These attributes are basically necessarily considerations that shape the structure of international markets. Competition thus has been a major concern by international businesses as they try to venture in different localities. There are specific problems or challenges that result from competition especially for international businesses. One major threat is the loss of customers to other competitors due to existence of few markets. Once customers are lost, the profitability of international business is put at risk. It is thus the reason that has made international businesses to consider insurance as a major risk financing strategy.
In the modern world major insurance companies have established their offices in specific cities around the world. To serve international businesses well insurance companies have developed a good relationship with financial institutions. The reason for existence of a good relationship between financial institutions and insurance companies is that banks act as intermediaries in international markets through buying and selling of products. Turner, 2003 p 245 asserts that international businesses usually transact with foreign currency which needs to be exchanged. Individual banks are responsible for provision of services such as traveler’s check, foreign exchange, and electronic transfers. These services are basically necessary to enhance the success of international businesses.
According to Luo, 1999 p 147, the financial intermediaries play a very vital role of trusty agent through provision of services such as letter of credit and documentary collection. Considering this factor it has become of great concern for international businesses to actively engage in matters that promote the smooth flow of goods and services across the border. In this context, insurance companies are deemed to play the role of promoting trust in respect to international businesses. Lack of trust is one of the major problems faced by international businesses. This leads to poor performance in global markets as buyers and sellers have no trust in each other. With the help of financial devices, banks through insurance entities help to create a bond between international buyers and sellers. This is enhanced through consideration of commercial methods such as letter of credit and commercial collection.
The financial institutions through establishment of a good relationship with insurance companies help international businesses as they handle important documents as well as payments. For instance, the letter of credit is one of the most widely acceptable methods used for international transactions. According to Pope, 2008 p 78, various governments in collaboration with banks play a very important role of providing export credit insurance. It is a major consideration in relation to promotion of i...