Page 213 - GLOBAL STRATEGIC MARKETING

2. Competitive risk
3. Market portfolio risk

• Transaction risk means that changes in the value of the foreign
currency may diminish the financial results of the firm.

• Competitive risk means that the company’s manufacturing and sales
configuration, when compared with the key competitors, can cause

competitive risk to arise from the company’s export markets as
compared with the market portfolio risk of its global competitors

The other issue that faces international companies is transformation of the

price. According to Burca et al. (2004, p. 382) this applies to goods sold
within the corporate family from an operation in one country to an

operation in another, which means maximising the profit of the corporation
as whole. The motives behind the price transfer are as follows:

• International companies may try to avoid the drawback of price
transfer by arranging corporate affairs so that profits are brought to
account in the country with the lowest taxation regime. This is affected
by reducing the prices of goods shipped from a subsidiary in a high-

tax country to a subsidiary in a low-tax country

• Despite the fact that this strategy is good practice as tax avoidance,
it leads to major problems because it denies the high-tax country

return on activities undertaken within its borders. This results in issues
such as accusations that the company is not a good corporate citizen,

and bad public relations, especially with the media and the press

• Liquidating frozen assets: that is, when restrictions on foreign
currency transfer prevent a firm extracting its profits from a country

with a foreign exchange problem by under-invoicing goods to a
subsidiary in another country

• Maintaining or creating a competitive position in another country:
companies can transfer their profit from one country to another. This
results in dumping, and that could be contrary to regulations in the
host country