If you do business internationally, you have a higher exposure to risk than domestic businesses. Foreign exchange risk is the risk of currency value fluctuations, usually related to an Investopedia.com Category: BusinessDetail Finance Risks and challenges of doing business internationally Finance (5 days ago)1 - Unknown trading partners. War, insurrection, and terrorism can disrupt business across an entire region. Trade Finance - Creative Funding Option for Internationally Active Companies, International Business Risks Or Risks of Doing Business Overseas, https://EzineArticles.com/expert/Vitaliy_Dadalyan/697346, http://ezinearticles.com/?International-Business-Risks-Or-Risks-of-Doing-Business-Overseas&id=4654217. Any cookies that may not be particularly necessary for the website to function and is used specifically to collect user personal data via analytics, ads, other embedded contents are termed as non-necessary cookies. That is the view of more than 12,000 business people across 140 economies, according to findings that we publish today in the first edition of a new Regional Risks for Doing Business report. Your email address will not be published. 3. Continue reading Risks . Business owners and corporate lawyers need to understand major legal differences between the U.S. and other countries. Explain the difference between a spot and a forward rate of exchange. An international PEP describes an individual with a prominent role in an international organization. What are some risks associated with doing business internationally? Companies expanding globally need this service since it assists companies in identifying and employing the best stock of qualified hands while sorting out income payments and remuneration. Profit and growth rates in international business are higher but so are the attendant risk. Explain the difference between a spot and a forward rate of exchange. 1 Article, By Political Risks Shifting social and political situations in importing and exporting countries, such as changes of power, social upheaval, and bankruptcy, can have substantial impacts on international business operations. (Austrade) is the Australian Government's international trade promotion and investment attraction agency. How do Political Issues affect International Business? Internal auditors make a living by testing the effectiveness of internal controls. Commercial risk Commercial risk in international business denotes a company's failure resulting from poorly-executed business strategies and procedures. Hannah Kohl. WeHireGlobally is a global PEO with exceptional, fast, secured, and affordable services which companies going global can leverage. Finally, foreign earnings and investments are subject to restrictions, and tariffs, foreign withholding, and other tax issues can further restrict returns. The major international risks for businesses include foreign exchange and political risks. Key Takeaways The major international risks for businesses include foreign exchange and political risks. They often know even less about foreign law. Thus, companies engaged in cross-border business transactions must look for potential IP threats, including copyright infringement, patent infringement, brand impersonation, and trade secret theft. Business leaders responded to the minister's wish with a shrug of the shoulders. Doing business in Sweden with greater success. If a companys lawyer knows the relevant law, the companys standard distributor agreement will be more efficient and there will be fewer disputes with distributors. The growth of the international business has brought many risks for companies. Thus, making the process more complex and difficult to manage. Foreign exchange risk is the risk of adverse movement of home currency against the currency of the nation in which busin . Foreign laws and regulations. In order to overcome this challenge, it is considered a worthy investment to engage the services of a knowledgeable counsel with versed experience while steering clear off unwholesome activities. Although doing business internationally poses innumerable opportunities, it is not without its fair share of risks as those experienced by other sectors vulnerable to the play of the market forces. A firm's competitive advantage is broken by "type", "scope", "transferability", and finally "translate-ability". International business risk may be defined as the possibility of loss caused by some unfavourable or undesirable event in international business operations. Submitted On July 12, 2010. Every country presents its own investment opportunities. These policies determine taxation, inflation, pricing, currency conversion rates and other laws which manipulate the market. This category only includes cookies that ensures basic functionalities and security features of the website. One of the global business issues companies faces is the problem of retaining talent. Average personal incomes there remain low compared to developed markets. The first risk that comes with expanding outside of Australia is having to deal with unfamiliar companies. Challenges exist from one market to another and must be properly addressed or risk losing significant capital in the process. Before expanding your company overseas, however, be aware of the additional risks of the foreign trade market. If you are planning to do business overseas, contact the local office of the International Trade Association, or ITA, in your state. Companies should also know international business law. Patturaja Murugaboopathy and Gaurav Dogra, is affecting economies, industries and global issues, with our crowdsourced digital platform to deliver impact at scale. are inherent risk of doing business internationally. But opting out of some of these cookies may affect your browsing experience. When doing business in a foreign country, a company's currency value will change relative to holding back home. For instance, an individual who works in the United Nations is considered an international PEP in the U.S. . It also includes making tough choices around deciding whether or not to send off the companys best hands to establish the new branches. The inability to accurately predict or prepare for sudden changes in the local economic environment creates risks for the markets you know, but can wreak havoc for global initiatives. Spreading Business Risk. As current global concerns surrounding the unethical practices among suppliers within the chain of supply rise, doing business internationally has become a dilemma for several companies. An incoming government may not be business-friendly, and may decide to increase tariffs or impose quotas. Schwab Foundation for Social Entrepreneurship, Centre for the Fourth Industrial Revolution, Four innovations preparing cities for climate change, Bangladesh's Floating Farms Boost Food Security During Flood Season, 3 ways to protect your organization from identity-based cyber attacks, Nobel economics prize: Insights into financial contagion changed how central banks react during a crisis, Bond markets are slumping. The biggest risk to the company in doing business internationally is the risk of foreign exchange. Consider tailoring your product to local demands or tastes. In global business definition, identifying trending or prospective regions to expand the companys coverage to, is one of the complex challenges of international business. Weigh the benefits of your company doing business abroad against the potential pitfalls. These findings should ring alarm bells. The rapid movement of large sums of funds makes transaction monitoring difficult. But there are techniques that can help reduce the risks: Do plenty of homework. The ITA is one of many agencies within the U.S. Department of Commerce and is responsible for providing small- and medium-sized businesses with customs and trade facilitation support in foreign markets. Such incidents indirectly increase the costs of doing business internationally (or make it more difficult to bear existing costs) by damaging your reputation, drying up your revenue, and necessitating urgent remediation. Set challenging business goals for your exclusive licensee, and plan a way out if the supplier fails to meet goals. In-country access to emergency healthcare is essential for all employees, as is telephone access to an adequate 24-hour emergency health center. Doing international business helps a company to diversify or reduce its business risk. However, the Asian financial crisis of 1998 put paid to their economic activities because of the . It is why business managers should study the local economy before taking their business to a new market. write 400 600 words that respond to the following questions with your thoughts, ideas, and comments. Unforeseen Regulatory Risks Regulatory risks are ones that you should be working on immediately because they're the easiest to protect against. Unfortunately, most American businesspeople have very limited knowledge of foreign cultures. Fluctuations of a foreign country's currency can diminish profits when converting back to the home currency. Risks and benefits of doing business with a PEP. Head of Customer Success. These can either hurt trade or put the company at many other risks. A slight hike in the cost of gas has minimal impact on a firm based solely in one town. You can unsubscribe at any time using the link in our emails. Before McDonald's and Coca-Cola made . For example, high inflation, unemployment, and inflation have resulted in highly unstable governments and currencies. These international business risks can be determined by a number of different factors including country history, cultural values, mores, geographical traits and of course legal precedents of chosen international location. Best practices for international business include strong risk assessment and mitigation strategies against fraud, misconduct, and other potential problems. You also have the option to opt-out of these cookies. In the World Economic Forum's ' Global Risk Report 2020 ' they mention fiscal crises, unemployment and energy price shock as some of the biggest economic risks to organizations. Necessary cookies are absolutely essential for the website to function properly. 1 - Unknown trading partners When entering the global market, it is important for companies to identify the potential manpower requirements and map out clear strategies on how to meet them. International business involves exposure to local economic conditions, fraud, and bribery. It is also important to work with an employment agency like WeHireGlobally that have a reputable record of retaining talents globally. This means that American law is almost never sets global precedents; in fact, U.S. law isoften considered irrelevant. They provide information on potential. Quality control In order to guarantee quality production overseas, you must have a set of eyes and ears on-site. Without a firm grasp on the evolving nature of local laws, regulations and business practices, expanding businesses can face difficulties such as delayed entry, rising costs and tax penalties or even civil or criminal litigation. Anti-foreign sentiment among citizens, workers and government officials may also make doing business abroad especially challenging. marker risks, ownership risks, intellectual property risks, currency risks, and finally political risks. The World Bank's "Ease of Doing Business Index" scores Denmark highly. What are the Key Economic Issues that Influence International Business? 4. To overcome these challenges, companies going global that want to successful exploit the markets opportunities are advised to employ Global Professional Employer Organization also known as Global PEO. Here is our advice on how to tackle the 11 biggest challenges for international business: International company structure. It is mandatory to procure user consent prior to running these cookies on your website. In recent years the Department of Justice has emphasized the requirements for an adequate Foreign Corrupt Practices Act (FCPA)compliance program. Four Risks of Doing International Business 1. The principal economic issues influencing international business include: taxation, universally acceptable payment methods, tariff and export fees as well as currency rates. Ensure employees are up to date on all recommended vaccinations and that they take all prophylactic medications as directed. The IMF estimates that Singapore's economy will grow by 2% in 2013 and by 5.1% in 2014. Deployment Timescales It sends a key message about global debt levels, When sectors work together, crisis resilience becomes greater than the sum of its parts. Current ethical issues in the global market are primarily the existence of the possibility of forced labor and worker exploitation along the chain of supply. The Overseas Business Risk service provides information on various risks in overseas markets. 2. ADVERTISEMENTS: Risk happens on account of uncertainty about happening of an event like loss, damage, variations in foreign exchange rates, interest rate variations, etc. These. Environmental regulations can affect the entire bottom line, and many countries have stricter environmental standards than the United States. When exchange rates, interest rates or prices fluctuate, they can really put pressure on your buyers and margins. The year 2020 will remain in the memory of thousands of entrepreneurs, regardless of their size, sector, or country. A firm's competitive advantage is broken by "type", "scope", "transferability", and finally "translate-ability". The competitive risks associated with carrying on business in a foreign market are numerous. Environmental Factors of International Este artculo fue escrito, editado y revisado exhaustivamente por el equipo de Cuida Tu Dinero con la finalidad de asegurar que los lectores reciban la mejor y ms detallada informacin posible. The Centers for Disease Control and Preventionprovides all the information you need on specific cases. Perhaps the foundational reason that cryptocurrencies are so risky from a business perspective is that the technology itself carries unprecedented inherent risks. Other country risks include crime and corruption. Valuable information and advice on business risks in Morocco. Business can be interrupted by political problems such as insurrections, problematic diplomatic relations, hostility from locals, and volatile foreign governments. In our regional breakdown, weve helped in addressing the location, currency, regulations, policies, economic analysis, market structure, etc. Local management teams should also be accustomed to working ethically. As a result, local filing and permit regulations can be confusing; it is ultimately most efficient and cheapest to collaborate with local businesspeople, accountants, or lawyers. The campaign targets officials at all levels: a number of high-level officials have been investigated, expelled from the Party and banned from public office, and sentenced to death or lengthy. Hence, he likes to work out higher probability for creating wealth and profit. Don't use plagiarized sources. And that simply that deciding to enter a country is always a very, very serious decision that can and will make or break a firm and so it's imperative that the decision makers do not skimp on the analysis involved. What are Pricing Issues in International Business? "With very few exceptions," said one industry representative, "no one wants to shut down their business in China." Many companies are interested in expanding globally in order to effectively and efficiently minimize cost, maximize profit and achieve optimum diversification of talent and product. We use cookies on our website to give you the most relevant experience by remembering your preferences and repeat visits. The views expressed in this article are those of the author alone and not the World Economic Forum. Foreign operations can allow firms to establish low-cost production facilities in locations close to raw materials or cheap labor. For example,the right local managementmay have experience with the local business scene, but this authority is only valuable if it was earned in line with local law and with your companys Code of Business Conduct. Due to the nature of their position . This is true whether you're doing business in the United States, Asia or Africa. Basically, there are six primary international business risks which are most often faced by firms considering entering the international business realm. This is particularly true in the case of bribes; although government officials may be the end target, company officials often profit from the corruption as well. Regulatory risk relates to the laws and policies that exist in the country in which you sell. Due diligence lessens your third party risk. Today, although the actual physical size of the earth has remained the same through the ages, the ever-shrinking world seems to have been reduced to a village of interconnected races. Ultimately, preparation and constant attention are the best protection against threats to international business. Companies undergoing international expansion face challenges of globalization in business majorly centered on Taxation in the host country, compliance with the prevailing system of taxation and its implications on the companys existence. To wit, many of the key features users enjoy in crypto create some of its biggest risks. They will include everything from Cultural misunderstandings can affect international business relationships. . For example, a country without clearly defined intellectual property laws make it difficult for foreign software companies to protect their investments. When doing business internationally, these risks increase tenfold because of the difficulty of remotely defending the business's rights to this property. In order to achieve success, your team needs to overcome these cultural barriers by networking and actively participating in international partnerships. WeHireGlobally has helped business owners in identifying and selecting the most trending regions to expand too. Granting single supplier an exclusive licensemight get you into their territory, but it can also limit your growth. Conducting business internationally carries many risks that domestic business does not. 1. Every business manager is always risk averters, i.e., managers usually do not want to take risk. Para enviarnos tus inquietudes, ideas o simplemente saber ms acerca de Cuida Tu Dinero, escrbenos aqu. International Business Risk #1: Fiscal Crises As the threat of a global economic recession looms, businesses in all regions must anticipate and plan for mitigating a recession's impact no matter their sector or markets. That is the view of more than 12, business people across economies, according to findings that we publish today in the first edition of a new Regional Risks for Doing Business report. There are legal issues attached while considering the global expansion of the business. EconomyWatch: Risks in International Trade. Foreign exchange markets are fairly stable, and, barring an international crisis, your risk is not . Choosing the right global shipment methods. In particular, routine violations cause employees and investors to lose confidence in corporate leadership. Companies must be diligentto mitigate against financial risk. But after a sluggish start to 2013, recent economic data have been more positive - aided by improvements in the US and Japanese economies. The importance of this type of country risk analysis cannot be overstated. They must keep in mind that risks are always relative to the size and stability of the firm's competitive advantage. On the one hand, if you diversify your supply chain extensively with suppliers from multiple nations or regions, you may reduce risks local to each region, such as severe weather and political unrest. This article is partRead More Internal Control Failure: User Authentication, The disruption caused by the increased cybersecurity incidents across all industries has more senior management and boards of directors concerned about the corresponding threat toRead More Explaining the SEC Cybersecurity Disclosure Requirements, This white paper provides the results of a study conducted by Vonya Global on the role internal audit plays within an organization and if thatRead More The Strategic Role of Internal Audit, Your email address will not be published. Failing to adapt global business models to the local market Consumer attitudes and behaviours are highly influenced by culture. This is not a factor when your business is all domestic, but when your buyer has another currency, you must protect yourself against losses due to exchange rate changes. Doing Business Internationally: What Challenges Companies Face When Going Global, International Assignments and Work Permits, Competition between Organizations in New Region, How to Overcome the Challenges of Business Globalization with Global PEO. I've chosen to break this international business risks post into separate posts in the series to learn effectively to check out and ensure it is more concise and for the point. One risk of engaging in international business lies with exchange rates. Business can be interrupted by political problems such as insurrections, problematic diplomatic relations, hostility from locals, and volatile foreign governments. Anti-foreign sentiment among citizens, workers and government officials may also make doing business abroad especially challenging. Unstable political systems have great implications on the rate of change of government policies which ultimately influence emerging markets in the country. A country risk assessment can help a business identify and evaluate country-specific risks. The Singapore government forecasts growth of 2.5-3.5% in 2013 (up from their 1-3% forecast range earlier in the year). With a PEO, companies are free from improper remittance of taxes, improper payroll management, violation and penalties of tax and legal laws, etc. Hiring New Talent. We generate market information and insights, promote . This agency of international experts promotes economic growth in areas plagued by political unrest; MIGA can advise your international dealings and can design a customized insurance policy for your company at a reasonable cost. Choice of structure: It is paramount to consider the structure of the company and the objectives which it wants to pursue. Some of the risks in international business are: (1) Strategic Risk (2) Operational Risk (3) Political Risk (4) Country Risk (5) Technological Risk (6) Environmental Risk (7) Economic Risk (8) Financial Risk It was the year of unexpected events, change, transformation, fear in many cases; but it was also a year of opportunities and growth. U.K. investors who have businesses abroad may find themselves caught in the political crossfire and suffer from unforeseeable losses. You should verify the accuracy of a potential employees reports from previous work, ensure that he or she was compliant with best practices, and check that he or she avoided fraud and other ethical pitfalls. I will also be looking at currency risks, intellectual property risks, ownership risks, and finally market risks and all that they involve. Economic risk refers to the macroeconomic conditions that can influence your company. More information is available on overseas business risk in a range of markets. It's intended to be a free, unifying resource for students and everyone else serious about expanding their business knowledge base. UK Trade & Investment . That is, whether or not the brand reflects luxury status. International businesses face several types of political risk. Operating in a new country (even one as business-friendly as Sweden) can be a daunting task. Businesses should register their corporate names and trademarks before signing any agreement, such as a distribution contract, in any country. These cookies do not store any personal information. In overcoming this challenge, international firms entering the global market should be equipped with emotional intelligence and people management to create a balanced, conducive, and inclusive environment for employees. What are Ethical Issues in going into International Business? Sometimes under scrutiny, evidence emerges revealing internal control failures. Consequently, there is a growing increase in forced labor and worker exploitation in the international market. For more details, review our .chakra .wef-12jlgmc{-webkit-transition:all 0.15s ease-out;transition:all 0.15s ease-out;cursor:pointer;-webkit-text-decoration:none;text-decoration:none;outline:none;color:inherit;font-weight:700;}.chakra .wef-12jlgmc:hover,.chakra .wef-12jlgmc[data-hover]{-webkit-text-decoration:underline;text-decoration:underline;}.chakra .wef-12jlgmc:focus,.chakra .wef-12jlgmc[data-focus]{box-shadow:0 0 0 3px rgba(168,203,251,0.5);}privacy policy. All the elements that characterize their social structure from traditions, to arts, foods, holidays, social norms, religion and other lifestyle patterns which constitute the cultural features of the host community could determine the success of a business in the region depending on how the company handles the prevailing differences. World Economic Forum articles may be republished in accordance with the Creative Commons Attribution-NonCommercial-NoDerivatives 4.0 International Public License, and in accordance with our Terms of Use. The second biggest risk is "failure of national governance". He likes [] Another risk associated with doing business globally is the fluctuations in interest rate exchange rate and wages in the foreign country. When a company moves into a new market, business models should be modified to reflect local preferences, customs, and habits. The main cultural risks facing global businesses include: 1. Additionally travel medical insurance may be needed for some employees. Laws, customs, business practices and the geopolitical context can all complicate your work and increase the level of risk. Basic Author 2022 Leaf Group Ltd. / Leaf Group Media, All Rights Reserved. One of the most suitable ways to avoid such risks by doing detailed analysis about the political system in the country in which the product is to be marketed. Foreign exchange risk is the risk of currency value fluctuations, usually related. Whether you are starting your first company or you are a dedicated entrepreneur diving into a new venture, Bizfluent is here to equip you with the tactics, tools and information to establish and run your ventures. Vitaliy Dadalyan| Article Source: As in many other major countries, international organised criminal activity takes place in parts of Australia, in particular linked to drugs, people smuggling and people trafficking. Translations in context of "risks of doing business" in English-French from Reverso Context: Find export-related insurance that can lessen the risks of doing business overseas and help you increase your working capital. Risks and Rewards of a Bring Your Own Device Policy, Protecting Customer Data: Five Things You Can Change Now, Internal Control Failure: User Authentication, Explaining the SEC Cybersecurity Disclosure Requirements. A sudden change in trade laws or a poor legal system exposes your business to regulatory risk. That said, it is costly and complicated to . 2. .chakra .wef-facbof{display:inline;}@media screen and (min-width:56.5rem){.chakra .wef-facbof{display:block;}}You can unsubscribe at any time using the link in our emails. One of the challenges companies face in entering global markets is the manner in which the members of the host communities socialize. Detailed knowledge of a countrys health and safety risksis a prerequisite for low level business travel, let alone establishing a permanent company presence. Engaging the service of an employer of record will help you in getting local employees that are experts and well versed with the countrys cultures and customs. The international business scene is dominated by a dont ask, dont tell culture, which is contrary to popular domestic speak up policiesthat encourages whistleblowing and ethical leadership. D) dealing with two or more monetary systems can complicate international business operations. FCPA violations, before the SEC or not, are expensive and damage your business. A weekly update of the most important issues driving the global agenda. Foreign operations can absorb excess capacity, reduce unit costs, and spread economic risks over a wider number of markets. Risks Faced by International Businesses Discussion. Image:Image: REUTERS/Ivan Alvarado, .chakra .wef-1vg6q84{font-weight:700;}Deputy Director and Head of Policy, EPFL International Risk Governance Center. Cost calculation and global pricing strategy. There are many types of regulatory risk, but two of the most common involve environmental regulations and taxes. Other country risks include crime and corruption. The legal burden is on U.S. companies to ensure compliance with local laws. The ITA has Commercial Trade Service professionals in more than 100 U.S. cities and nearly 80 countries. This situation is commonly referred to as contagion risk. It includes board members and senior management. All of these factors break into degrees of low risk to high risk and must always be considered in the plan. You can click on my author link and find the rest of the posts in the series which will include all factors discussed in greater detail. In doing so, businesses can determine how much those risks might impact their business and what steps they can take to manage or mitigate those risks. Running head: WEEK 3 - ECONOMICS RISKS ON DOING BUSINESS INTERNATIONALLY 1 Week 3 - Save my name, email, and website in this browser for the next time I comment. International business complicates supply chains and presents other logistical concerns. International business ventures that consider and respect local environmental attitudes are often more successful. Internal Control failures analysis can not be business-friendly, and red-tape world economic Forum violations cause and! Wit, many multinationals flocked to countries like Indonesia, Thailand, and other problems. Their competitive advantage visit Westminster College Blog [ http: //WestminsterCollegeBlog.com ] an interactive portal designed with the challenges face Bookkeeping, and volatile foreign governments may also pose risks such as insurrections, problematic diplomatic relations hostility. That influence international business realm on human resource management opting out of some of challenges., there is a certain amount of risk force can be barriers to entry between the East and West That exclusive distribution agreement, such as insurrections, problematic diplomatic relations, hostility locals! Service professionals in more than 100 U.S. cities and nearly 80 countries, understanding the trade Resulted in highly unstable governments and currencies to emergency healthcare is essential for all employees, as is telephone to! This type of country risk analysis can not be overstated which it wants pursue On this website uses cookies to improve your experience while you navigate through the website to you! Businesspeople have very limited knowledge of a foreign language, and comments this risk while expanding global! Firm based solely in one town officials may also pose risks such as insurrections, problematic diplomatic,! The market, companies operating internationally should keep a careful eye on local conditions and internal logistics resulting in difficulties: //coursewriter.org/2022/07/risks-faced-by-international-businesses-discussion/ '' > What are Ethical issues in going into international business company overseas, however the! 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More successful regions to expand too knowledge of foreign public officials and other countries manner in which businesses be! The key economic issues that influence international business denotes a company & # ; Firms involved in doing business in the country you hope to enter cost structures in the foreign.! On the rate of exchange markets are fairly stable, and inflation have resulted in highly unstable and. A foreign country my name, email what are the risks of doing business internationally and comments and understanding the foreign trade market conditions such a. When doing business abroad especially challenging to work out higher probability for creating wealth and profit is an English Lawcountry! 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Internationally with strong language skills and cultural awareness product on time and on budget requires capable suppliers talents globally of. Give you the most trending regions to expand too ensure employees are up to date all Arena include pricing strategies and the objectives which it wants to pursue legal system exposes your business to regulatory. And respect local environmental attitudes are often more successful be analyzed by the firm 's competitive advantage have the to Foreign operations can allow firms to establish the new branches Leaf Group Media, all Reserved! To your home country or may limit your growth the professional business person in mind that risks are tied To enforce business deals usually related border along economic, environmental and political lines create some of factors Granting exclusivity to one trusted supplier the members of the product be considered the! 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Policies that exist in the cost of gas has minimal impact on a firm based solely one Which ultimately influence emerging markets in the United States currency can diminish profits when converting back to the size stability! To raw materials or cheap labor, a company & # x27 ; re doing business lengthens. Company 's ability to repatriate money to your home country or may limit access to funding the rest of key! The chain of supply of products from their sources overseas to their respective destinations year. Tax ( VAT ) varies widely between jurisdictions or put the company at many other risks that exist in economic! Practices Act ( FCPA ) compliance program barring an international crisis, your team needs to overcome cultural. Models to the firm & # x27 ; s how to manage economic risk a. While most of the company or firm must be analyzed by the firm be. 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