Managing risks is essential for corporations and has a tremendous impact on their performance. However, doing it sufficiently can be challenging, especially in Emerging Markets (EMs). Due to its underdeveloped environment, corporations often face enormous difficulties while managing risk in these countries.
The purpose of this paper is to outline the issues and differences of corporate risk management in emerging economies compared to Developed Markets (DMs). After a short introduction, the second chapter describes risk management in DMs and gives an overview of common corporate risks.
The third chapter characterizes EMs and details its risk management. In that connection, the focus lies on (1) the risk management process, (2) the measurement of risk and (3) the tools and techniques to mitigate risks in EMs. Conclusively, the paper summarizes the main factors for corporations that are fundamental for managing risks in EMs effectively.
Table of Contents
1. Introduction
2. Conventional Corporate Risk Management
2.1 General Definition of Corporate Risk Management
2.2 The Concept of Enterprise Risk
2.3 Types of Corporate Risks
2.3.1 Financial Risks
2.3.2 Non - Financial Risks
2.4 Tools and Techniques of Corporate Risk Management
2.4.1 The Corporate Risk Management Process
2.4.2 Measurements for Corporate Risks
2.4.3 Mitigation of Corporate Risks
3. Corporate Risk Management in Emerging Markets
3.1 An introduction of Emerging Markets
3.1.1 Definition of Emerging Markets
3.1.2 Emerging Markets’ Characteristics
3.1.3 Corporate Risk Types in Emerging Markets
3.2 Corporate Risk Management in Emerging Markets & Developed Markets
3.2.1 The Corporate Risk Management Process
3.2.2 Measurements for Corporate Risks
3.2.3 Mitigation of Corporate Risks
4. Conclusion
Objectives and Core Themes
This bachelor thesis examines the complexities of corporate risk management within Emerging Markets (EMs) by contrasting them with the practices in Developed Markets (DMs). The primary research objective is to outline the specific issues, risk profiles, and management challenges that multinational enterprises face when operating in volatile, developing economic environments.
- Comparison of risk management frameworks between EMs and DMs
- Identification and categorization of financial and non-financial risks
- Evaluation of risk assessment and mitigation processes in EMs
- Impact of institutional, cultural, and political environments on business stability
- Development of recommendations for effective risk management strategies
Excerpt from the Book
3.1.3 Corporate Risk Types in Emerging Markets
As stated in the chapter above, there are several causes for a higher volatility and unpredictability of EMs. They are different from developed countries, which “gives a new rise to risks” (Olsson, 2002, p. 209) [66]. In that connection, Broadman (2012, p. 44) [7] states that many companies which are EM-based or trying to enter the market from a developed country, have “significant misconceptions about the challenges” of establishing a successful business. “In many cases, the risks are either highly understated or grossly overstated” (Broadman, 2012, p. 44) [7]. The following paragraph will outline which corporate risks enterprises usually face in EMs.
Political risk is a rare exposure in DMs (Hida, 2015, p. 48) [33]. Nevertheless, according to a survey of Ernst & Young (2007, pp. 18-19) [21], political risk is one of the biggest threats for companies operating in EMs. Notably, DM-based companies see in politics an even higher risk than EM-based enterprises, which shows their high awareness for instable politics. The result goes in line with a research published by the Harvard Business Review, where the authors state that the top exposures for organizations were in “developing countries with immature or volatile political systems” (Zelner & Henisz, 2010, p. 2) [95].
Furthermore, security risk is one exposure that is not named as a key risk in DMs (Allianz SE et al., 2016, p. 1) [1]. The survey by Ernst & Young (2007, pp. 18-19) [21] shows that DM corporations in particular give awareness to security risk. In fact, security standards are lower in EMs than in DMs and corporations face threats through physical exposure as well as terrorism in some cases (Allianz SE et al., 2016, p. 4) [1].
Summary of Chapters
1. Introduction: Outlines the scope of the thesis, focusing on the challenges of managing corporate risks in emerging economies compared to developed markets.
2. Conventional Corporate Risk Management: Provides a theoretical foundation by defining Enterprise Risk Management (ERM), categorizing risks, and detailing standard management processes and mitigation techniques used in developed economies.
3. Corporate Risk Management in Emerging Markets: Analyzes the unique environmental characteristics of EMs, identifies specific risk profiles, and investigates the application and adaptation of risk management processes and tools in these volatile contexts.
4. Conclusion: Synthesizes the findings, highlighting the necessity for localized, flexible, and adaptive risk management strategies to effectively mitigate the inherent uncertainties of emerging market business operations.
Keywords
Corporate Risk Management, Emerging Markets, Enterprise Risk Management, Risk Mitigation, Financial Risks, Political Instability, Operational Risks, Value at Risk, Emerging Economies, Risk Assessment, Business Strategy, Global Corporations, Market Volatility, Currency Risk, Risk-Aware Culture.
Frequently Asked Questions
What is the core focus of this bachelor thesis?
The thesis focuses on outlining the issues and differences in corporate risk management when comparing Emerging Markets to Developed Markets, specifically addressing how companies can improve their risk management performance.
What are the central themes discussed in the paper?
The paper covers the definition of corporate risk, the categorization of financial and non-financial exposures, the structured risk management process, and the specific environmental challenges like political, economic, and infrastructural instability in EMs.
What is the primary research goal?
The primary goal is to provide a comprehensive overview of how corporations should adapt their risk management strategies to successfully navigate the high-volatility environments characteristic of emerging economies.
Which scientific methods are utilized?
The research is based on a comprehensive literature review, synthesizing findings from organizational studies, academic research, and surveys by business consultancies and international organizations regarding enterprise risk management.
What content does the main body address?
The main body is divided into a theoretical section on conventional risk management and an applied section that examines the EM environment, specific risk types (e.g., political and security risks), and the necessary adaptations for managing these risks locally.
Which keywords characterize this study?
Key terms include Emerging Markets, Enterprise Risk Management (ERM), Risk Mitigation, Political Risk, Operational Risk, and Business Strategy.
How does the risk management process differ in EMs?
Unlike in DMs, where risk management is often handled centrally in a holistic manner, the paper argues that in EMs, risk management must be decentralized, requiring local expertise and strong local presence to be effective.
Why is data acquisition challenging in Emerging Markets?
Data acquisition is problematic in EMs due to a lack of historical data, poor transparency, inconsistent quality management, and potential reluctance from local entities to publish or share accurate business and financial information.
What role does the local culture play in risk mitigation?
Local culture significantly impacts negotiation processes and the efficacy of risk mitigation strategies, making it essential for DM-based corporations to seek local advice to avoid barriers and better understand the specific market dynamics.
- Citar trabajo
- Marvin Arras (Autor), 2016, Corporate Risk Management in Emerging Markets, Múnich, GRIN Verlag, https://www.grin.com/document/339623
