Plenty of firms neglect considering these risks.
Even the most recognized companies have made the mistake and failed.
Get an in-depth knowledge of these unusual risks with examples to make things clearer and easier.
Planning to enter a new market? Are you aware of the risks and uncertainties associated with it? Here are three unusual threats that can completely mess your business diversification, if you are unprepared.
1. Weather change massively impacts the performance of your business
A change in weather significantly influences the production and financial performance of a business. Weather shift can certainly affect the demand and supply of a product both positively and negatively.
For example, deep freezing weather in the beginning of 2018 increased the sales of boots and mittens in the east coast area of USA.
However, the number of restaurant visitors in that area significantly plunged, resulting in poor sales amidst a steady economic condition.
Here is a list of the type of businesses that are directly affected by an unexpected change in the weather conditions:
• Hospitality and tourism
• Agriculture
• Transportation and logistics
• Construction and development
• Aviation
• Farming
• Retails and supermarkets
• Event management
• Power generation
• Film industry
Be aware of the consumer purchasing behaviours
You need to carry out extensive research in order to know the consumer’s behavioural trends during different times of the year. The purchasing habit of consumers changes with varying weather patterns.
For example, an ice cream shop might sell persistently during the summer season, however, by winter the sales might drop melodramatically. Since fewer people fancy an ice cream during cold winter.
2.Foreign exchange rates can heavily influence the performance of a business
Otherwise, known as currency risk, fluctuating foreign exchange rates mostly affect a business that exports and imports their products, services and supplies from another country.
The currency rate of a country is constantly changing due to its overall economic performances. This has a significant effect on the operation of the business. There are two major types of currency risks and they are transaction risk and translation risk.
• Transaction risk
A company is exposed to transaction risks when the receivables and payables are directly affected by the currency rates.
For example, if an American firm imports their products and supplies from India, the payables will vary based on the rates of fluctuation.
One US dollar has a conversion rate of 63.87 rupees. However, if the rate increases to 70 or 80, the cost of purchasing supplies will increase. This will impact the firm’s cost of production and the pricing of the products will be altered.
• Translation risk
This is an interesting issue that does not affect the cash flow of a firm, however influences the stock prices of a firm. When a firm prepares the financial statements, the multinational partners are provided with an annual report.
For their convenience, the performance report is translated according to the exchange rates, if the rates are fluctuating, the financial details can appear weaker or stronger according to the domestic currency rates.
This can have a significant impact on the stock prices in their specific domestic markets.
3. Cultural issues can make or break your business
An organisation needs to adapt to the sociocultural changes in order to stay relevant and step ahead of their competitors. Any marketing expert in Melbourne area will say that. Here are 3 sociocultural issues that can heavily influence a business operation.
• Customer penchant
The preferences of customers are changing constantly in terms of fashion, trends and needs. Popular products such as disc man, PSP and VCR players that were popular decades ago are not prioritised anymore. Due to the accessibility of Android phones and mp4 players, the aforementioned products are irrelevant.
• Demographics
The demographic factors range from religion, societal development, ethnicity and location. Depending on the position of the business and the country or place of operation, the performance of a business will vary.
Suppose, a renowned company like McDonald’s decides to include hamburgers in their menu in Saudi Arabia. Regardless of their success and popularity, they will possibly fail and ruin their impression, since the majority of the population is Muslim.
• Promotional Activities
Advertising certainly helps promote a brand or product by uncovering them towards their targeted audiences. However, addressing the wrong viewers and the methods used to promote can definitely affect the success or failure of the business.
For example, McDonald’s made a mistake of targeting millennials as a homogenous group. This had a significant effect on their targeted audiences since millennials consist of a much diverse group of people. Their business performances have been gradually dipping since then.
Presence in the virtual world
Mishandling the virtual marketplace can put forward substantial risks to a business. Social networking sites such as Facebook, Twitter and Instagram have become a crucial platform for businesses to communicate with their customers and offer their products.
The interactive marketing provides an additional control that cannot be replicated with other forms of marketing.
Conclusion
Therefore, it is mandatory for any business to be active in the social media alongside promoting their products in a positive way. Otherwise, the company will miss out on the opportunity to spread brand awareness.
If you are planning to diversify your business by entering a new market, do not avoid consulting a business consultant in Melbourne area. Otherwise, your business may suffer from lack of proven counter-effective planning.
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