International Risk: KBR

Introduction

KBR is a servicing, engineering and construction company, supporting the hydrocarbon, energy, minerals, power, civil infrastructure, government services, industrial and minerals sectors. KBR provides procurement, engineering, design and construction, program and project management, maintenance and operations, and logistics backup. It has 10 business units; gas monetization, downstream, minerals and infrastructure, defense and international government, gas and oil, technological ventures, industrial and power services, defense and North American government.

KBR has its operations stretched in Europe, Americas and Asia. The headquarters are in Houston, Texas. It is providing employment to approximately 35,000 people. The company managed to notch up revenues of US S 10,099 million during the last fiscal year that ended in December 2010. The net profit attained is US $ 327 million in the same year, fiscal year 2010.

Discussion

Business risk is the proportional distribution (variance) in a firm's anticipated income before taxes and interest. The shocks or changes to overall income level of firm results in negative consequences for the firm, depicted in a percentage alteration in earning of the firm. Hence, any event inducing a variation forecasted and budgeted sales will impact a business risk of the firm and its ensuing income before taxes and interests (Royal College, pp. 78-89). The business risk by nature is dynamic and international, and is influenced by a number of factors, including (1) the demand sensitivity of the firm's product in relation to general prevailing economic conditions, (2) the extent of firm's exposure to the competition, (3) diversification of product, (4) possibility and potential for growth, and (5) production output and international sales volume.

The natural starting place for any business wishing to manage its risks is to identify and assess the risks to which it is exposed. An important objective here is to capture risks from across all risk environments the firm is facing. With all identified risks recorded in a comprehensive risk register, each one can be analyzed and evaluated and a treatment strategy is defined. The analysis of the risk is crucial to ensuring that insurance cover is operative under the terms of the policy, i.e. relevant causes and circumstances of concern are covered in the policy wording (Bluhm, pp. 34-56).

The growth of emerging markets is attracting many developed-market companies looking for growth opportunities. Yet the risks companies encounter in these markets can pose major threats to success. Board directors are challenged to help their companies appropriately plan for and address the new strategic, operational, compliance-related, and political risks that international growth entails (Williams, pp.197-208). Although, international business can reduce Multinational Corporation's exposure to its home country's economic conditions, it usually increases a Multinational Corporation's exposure to (1) exchange rate movements, (2) foreign economic conditions, and (3) political risk.

Exposure to Exchange Rate Movements

Most international business results in the exchange of one currency for another to make the payment. Since exchange rates fluctuate on a daily basis, the cash outflows required to make payments change accordingly (Songer, pp.377-82). Consequently, the number of units of a firm's home currency ...