Risk mitigation in business activities on emerging markets

Abstract

PURPOSE: The aim of the publication is to present and classify forms of risk in foreign trade. Risk in international business is a common and objective phenomenon, but it is particularly intense on the emerging markets. Unpredictability is usually the main reason that restrains companies from doing business in developing countries. There is a significant demand for the business tools which can mitigate risk in foreign trade, particularly on emerging markets.

DESIGN/METHODOLOGY/APPROACH: The methodology used in the publication is based on the analysis of business literature, empirical studies and international reports relating to the problem of risk in foreign trade.

FINDINGS: Emerging countries are undoubtedly the most attractive places in the world to invest capital and to obtain above average rates of return. Their explosive economic and demographic development guarantees growing demand for goods and services, and thus virtually unlimited opportunities in business activities. However, the key problem for business in these markets is their high economic instability, political unpredictability and social immaturity. This constant volatility can be described as a state of permanent risk, which is an immanent feature of emerging markets. The most important scientific problem included in the paper concerns the effectiveness of particular forms of risk mitigation in business practice. The study also presents the major financial and trade tools to increase safeness of investments.

PRACTICAL IMPLICATIONS: The present publication undoubtedly has a practical aspect and its conclusions may be applied in formulating business strategies of companies operating in emerging countries.