THE PERILS OF DOING BUSINESS ACROSS BORDERS

Abstract

The reestablishment of the world’s economic center to Asia (China was the world’s largest economy until around 1870) has many positives. In addition to lifting hundreds of millions of people out of poverty in China and the neighboring region, growth in Asia helped mitigate the effects of the global financial crisis in 2008. Today, China and India are key drivers of the global economy with over a hundred countries listing the middle kingdom as their most important trading partner. Along with the economic revival in Asia, unprecedented global interconnectedness has also raised the level of risk exposure to virtually all businesses around the world. One example is North Korea: while an unpredictable hermit kingdom on the other side of the world would hardly have concerned Brazil’s Embraer and Vale in the early 1990s, Kim Jong Un’s current nuclear overture could have the potential to create geopolitical instability in North-east Asia, including China, an essential market to both companies. Country risk, which analyzes risk when conducting business across borders, also seems to be on the rise in developed countries. The rise of xenophobia and nationalist politics in Europe, Brexit, and the possibility of Donald Trump winning the U.S. presidential election all represent potential and important risks for investors in the global economy. Larry Summers recently wrote,