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A risk is an unforeseeable circumstance that potentially stands as a loss. Every risk is different from each other and some are more risky while others are less risky. Most of these risks can be avoided if certain measure is taken but natural risks arising from natural disasters are rarely unavoidable. The determinant factor for a risk to be higher or lower is reliant on many factors of business environment. To start with we shall look at risks emerging from contracts (Page, 1990),
A contract is an agreement which legally 'ties' two or more parties and is enforceable in a court of law. It can be formulated in many ways. These may include a proposition, a direct or indirect offer, mutual acceptance, agreement and consideration. All the above ways have to be formally put under obligation. In the execution of an obligation, all the parties should ensure that there is capability of contracting, consenting, lawful object and cause of consideration. Under those circumstances, a company should output the most suitable structure of a contract (Dekesha Else &Nortje2009).
Before you agree on a contract, one should consider a few things that may prevent embarrassments thereafter. A company should be in a position to understand its obligations in a contract, the underlying clauses and what risks they stand if there is a breach of contract. Most preferably, all factors leading to a breach of contract should be dealt with. This is through inclusion clauses in the contract that obliges the other party from breaching the contract. Otherwise, no deal should be made if there is uncertainty of the other party's future. Most international companies find themselves in embarrassing situation after deals go sour although they had made the best consideration in a contract.
Instability and influence arising from political reasons is likely to increase chances of risk levels rising to greater and unexpected heights. Therefore while structuring a contract for international deals a proper structure should be put in place. Since most of the politically influenced risks are unavoidable, only a few guidelines can influence an unlikeness of emergence of these risks. Before a company comes up with a proper contract, they should consider reviewing the background of the other party or nation. After a thorough check, the company should be in a position to know which clauses they should include in the contract to 'tie' the other party. Most likely, these clauses should include putting the other party in a position that makes them not think of breaching the contract at any one time at all. Various methods can be used to prevent breach of contracts (Bloom, 1987).
A company should understand and discuss ambiguity in the contract. This will prevent future declarations that the language used was ambiguous. Once every word is understood by all the parties, then the parties can contract.
The management should consider a thorough research on the good co-existing relationship between the two parties' parent nations. Some countries don't relate well with others and have no records of respecting other nations. Therefore, such nations should be avoided. There should be proper drafting of the contract in the perspective of laying out the necessary remedies and tough penalties when any party fails to meet the set obligations in the contract. The management also, should be in a position to investigate and put informers on the ground to investigate the moods and future plans of the other party. Despite working hard to ensure that the other party doesn't breach the contract, the management should also ensure that things are running properly on their.