Table of Contents PAGES

1. Introduction 1

2. Economic Risks 2

Political and Legal Risks 4

3. Cultural and Social Risks 5

4. Operational and Strategic Risks 7

5. Technological Risks 9

6. Conclusion 10

7. References 11
 THE RISKS OF ENTERING INTERNATIONAL MARKETS FOR MALAYSIAN
COMPANIES

Introduction

In the current globalized economy, Malaysian companies are increasingly seeking to expand
their market presence internationally to harness new growth opportunities 1. While international
expansion offers significant potential benefits such as increased revenue streams,
diversification of markets, and enhanced brand recognition, it also comes with a multitude of
risks 2. These risks, if not managed properly, can undermine the potential gains from
international ventures 3. The growing trend of Malaysian companies expanding internationally
reflects the increasingly interconnected nature of the global economy 4. With the rapid
advancement of technology and the gradual dismantling of trade barriers, venturing into
international markets has become an appealing prospect for companies aiming to drive growth
and tap into new consumer segments 5. However, the allure of international expansion is
coupled with a myriad of risks that necessitate careful consideration and strategic
management 6.

1
Nurul, Ashykin, Abd, Aziz., Mohamad, Rohieszan, Ramdan., Nik, Syuhailah, Nik, Hussin., Zuraimi, Abdul, Aziz.,
Juliana, Osman., Hasif, Rafidee, Hasbollah. (2021). The Determinants of Global Expansion: A Study on Food and
Beverage Franchisors in Malaysia. Sustainability, doi: 10.3390/SU131810328

2
Ana-Maria, Dinu. (2016). Interna�onal Expansion through Joint Venture – Risks and Benefits. Knowledge
Horizons - Economics,

3
Mariia, Nezhyva., Olha, Zaremba., Viktoriia, Mysiuk. (2021). Interna�onal trade risk management under the
impact of globaliza�on. doi: 10.1051/SHSCONF/202111101016

4
Khondaker, Mizanur, Rahman., Rafiuddin, Ahmed. (2014). Globaliza�on of Malaysian economy: with special
focus on the role of growth enclaves. Interna�onal Journal of Economics and Empirical Research,

5
Donna, Roberts., Timothy, E., Josling., David, Orden. (2018). A Framework for Analyzing Technical Trade Barriers
in Agricultural Markets.

6
Evangelia, Fragouli., Zoi, Nikolaidou. (2019). A Case Study Approach for Managing Risks & Challenges When
Expanding to Emerging Markets. doi: 10.30560/RFM.V1N1P44

1
Economic Risks

Entering international markets exposes companies to economic risks that can significantly
impact their financial performance 7. These include exchange rate fluctuations, which can affect
the profitability of an overseas venture by altering the cost structure and pricing strategies 8. For
example, a depreciation in the home currency relative to the currency of the target market can
make exports more competitive but can also increase the cost of imported inputs 9. Additionally,
inflationary pressures in foreign markets can erode purchasing power, which in turn can reduce
consumer demand for imported goods 10. Furthermore, economic instability, such as that caused
by recessions or financial crises, can lead to sudden and unpredictable changes in market
conditions, affecting sales and profitability 11.

Managing Economic Risks in International Markets

To effectively manage economic risks when entering international markets, Malaysian
companies must adopt a proactive approach that accounts for the dynamic nature of global
economies. One of the key strategies to mitigate exchange rate fluctuations is through hedging,
which involves using financial instruments to protect against adverse movements in exchange
rates 12. By employing hedging mechanisms such as forward contracts or options, companies
can shield themselves from potential losses due to unfavorable currency movements, thereby
stabilizing their cost structure and pricing strategies.

7
Nada, Petrusheva. (2016). Management of financial risks in interna�onal trade financing. doi:
10.7251/EMC16081P

8
Emmanouil, Pateros. (2015). Exchange Rate Fluctua�ons Forecas�ng.

9
Joaquin, Blaum. (2017). Impor�ng, Expor�ng and Aggregate Produc�vity in Large Devalua�ons. Research Papers
in Economics,

10
Aniela, Bălăcescu., Marian, Zaharia. (2011). The impact of infla�on on the size of the domes�c demand for
consumer goods and services. Annals of the University of Petrosani: Economics,

11
(2022). Financial Systems and Economic Crises. doi: 10.3726/b19738

12
Gyula, Főglein., Zoltan, Zeman., László, Pataki. (2022). A compara�ve study of strategies suitable for hedging
the foreign exchange rate risk of a big company. Economy & finance, doi: 10.33908/ef.2022.3.1

2
Moreover, to address the impact of inflation in foreign markets, companies can implement
pricing strategies that factor in potential shifts in purchasing power 13. This may involve
conducting thorough market research to understand consumer behavior and preferences in
response to inflationary pressures, and adjusting pricing strategies accordingly. Additionally,
diversifying sourcing and production activities across different countries and regions can help
mitigate the impact of economic instability in specific markets, thereby reducing overall
exposure to unpredictable market conditions 14.

Furthermore, establishing strategic partnerships and alliances with local businesses in the target
market can provide valuable insights and risk-sharing mechanisms to navigate economic
challenges. Collaborating with local entities can facilitate access to resources, market
knowledge, and networks, while also distributing financial and operational risks associated
with international expansion 15.

Finally, conducting thorough and ongoing risk assessments, incorporating economic indicators
and market developments, is essential to ensure proactive and informed decision-making. By
continuously monitoring economic conditions and regulatory changes in target markets,
Malaysian companies can adapt their strategies in a timely manner, thereby mitigating the
impact of economic risks on their international ventures 16.

As Malaysian companies continue to expand internationally, understanding and proactively

managing economic risks will be crucial in ensuring the long-term success and sustainability
of their ventures in foreign markets. By implementing sound risk management practices,
companies can navigate economic uncertainties and capitalise on the potential growth
opportunities offered by international expansion.

13
Rudolf, R., Sinkovics. (2015). International Pricing Policy. doi: 10.1002/9781118785317.WEOM090488

14
Denise, L., Stanley. (2013). Export Diversifica�on as a Stabiliza�on Strategy: The Central American Case
Revisited.

15
Albert, N., Link. (2013). Strategic alliances: leveraging economic growth and development. Economics of
Innova�on and New Technology, doi: 10.1080/10438599.2013.804776

16
Boris, A., Matveev. (2023). Spectral indicators of economic risk. Na�onal Interests: Priori�es and Security, doi:
10.24891/ni.19.3.544

3
Political and Legal Risks

Political and legal environments vary significantly across countries and can present substantial
risks to foreign investors 17. Political instability, including changes in government, civil unrest,
or corruption, can result in abrupt changes in the business environment and regulatory
framework. Additionally, legal risks encompass the challenges associated with navigating
foreign legal systems, which may involve bureaucratic red tape, stringent compliance
requirements, and protectionist policies such as trade barriers and tariffs 18. For Malaysian
companies, understanding and adapting to these political and legal nuances is crucial to avoid
operational hiccups and potential legal battles.

With regards to political risks, it is imperative for Malaysian companies to thoroughly analyze
the political landscape of their target markets 19. This involves assessing factors such as
geopolitical stability, trade disputes, and regulatory complexities 20. By understanding the
political dynamics in each market, companies can proactively develop strategies to navigate
potential hurdles and ensure compliance with local laws and regulations. Furthermore,
establishing strong relationships with government authorities and local partners can provide
valuable insights and support in managing political risks 21. This includes staying informed of
any changes in government policies or regulations that may impact the business environment
and adapting strategies accordingly 22.

17
Carolina, Moehlecke., Rachel, L., Wellhausen. (2022). Poli�cal Risk and Interna�onal Investment Law. Annual
Review of Poli�cal Science, doi: 10.1146/annurev-polisci-051120-014429

Luyuan, Yang. (2021). The Evalua�on Model of Legal Risk of Enterprises’ Foreign Investment Based on Data
18

Mining. doi: 10.1088/1742-6596/1744/3/032175

19
Alice, Chin., Ooi, Chin, Lye., Khakan, Najaf. (2022). The corporate risk-taking and performance of poli�cally
connected firms: evidence from Malaysia. Asia-pacific Journal of Business Administra�on, doi: 10.1108/apjba-
07-2021-0315

20
Leif, Cocq-Rasmussen. (2015). An Analysis of Geopoli�cal Considera�ons of Investor State Dispute Setlement
and the Pursuit of Impar�al Jus�ce. doi: 10.37974/ALF.274

21
(2022). Role of governmental regulatory controlling procedures between poli�cal hazards and risk
management. European Project Management Journal, doi: 10.56889/owua8196

22
C., G., E., Salami., Sunday, E., Ekaki�e. (2023). Impact of government policy on entrepreneurship growth and
development of small-scale business. Journal of Global Social Sciences, doi: 10.58934/jgss.v4i14.154

4
In addition, cultural differences play a significant role in international expansion 23. It is
essential for Malaysian companies to conduct in-depth cultural analysis and tailor their
business approach to align with the cultural norms and values of the target market 24. By doing
so, companies can bridge the gap and effectively communicate with local stakeholders,
customers, and partners, thus fostering stronger relationships and reducing the risk of
misunderstandings or misinterpretations.

Cultural and Social Risks

Cultural and social differences pose significant risks when entering foreign markets 25.
Misunderstandings arising from language barriers, differing business etiquettes, negotiation
styles, and decision-making processes can lead to conflicts and misinterpretations 26. Moreover,
consumer behavior varies widely across cultures, influencing product preferences, marketing
strategies, and consumption patterns. For instance, a marketing campaign that resonates with
Malaysian consumers may not necessarily appeal to consumers in Middle Eastern or Western
markets due to different cultural values and norms 27. Thus, a deep understanding of the cultural
context is essential for tailoring products and marketing messages to local tastes and
preferences.

In addition to the aforementioned strategies for mitigating economic risks in international

markets, Malaysian companies should also consider establishing a robust financial risk
management framework. This framework may include leveraging financial instruments such
as currency hedging to minimize the impact of exchange rate fluctuations and protect against

23
Paris, Bayias., Vassilis, Assimakopoulos. (2011). About the significance of na�onal culture differences for
domes�c companies that expand to the interna�onal environment. The Interna�onal Journal of Business and
Management,

24
(2022). Adapta�on Strategy in Interna�onal Brands. doi: 10.4018/978-1-7998-9672-2.ch008

25
Anusha, Thakur. (2021). Cultural Impact on Global Trade. doi: 10.4018/978-1-7998-7568-0.CH010

26
Shartriya, Collier. (2011). Nego�a�ng Business, Nego�a�ng Self: Crossing Cultural Borders in Bilingual
Entrepreneurial Contexts.. Journal of Language Iden�ty and Educa�on, doi: 10.1080/15348458.2011.539965

27
(2022). Adapta�on Strategy in Interna�onal Brands. doi: 10.4018/978-1-7998-9672-2.ch008

5
potential losses 28. Furthermore, diversifying financing sources and maintaining healthy cash
reserves can provide a buffer against financial shocks and liquidity constraints that may arise
from economic instability in foreign markets.

Moreover, maintaining a flexible pricing strategy that accounts for local economic conditions
and consumer purchasing power can help Malaysian companies navigate inflationary pressures
in foreign markets. By aligning pricing with the local market dynamics, companies can enhance
their competitiveness and adapt to changing economic environments more effectively.

In response to geopolitical and regulatory complexities, Malaysian companies should prioritize

building strong government and stakeholder relationships in target markets. This involves
proactive engagement with local authorities, industry associations, and legal advisors to stay
informed about regulatory changes and potential political developments that may impact
business operations. Additionally, investing in legal expertise and industry-specific compliance
measures can help navigate legal intricacies and mitigate the risk of non-compliance with
foreign regulations.

On the cultural and social front, Malaysian companies should emphasize cultural intelligence
and cross-cultural training for their personnel involved in international expansion.
Understanding cultural nuances, communication styles, and societal norms in target markets
can facilitate smoother interactions with local stakeholders and consumers, fostering stronger
relationships and reducing the risk of cultural misunderstandings.

By integrating these additional strategies into their risk management approach, Malaysian
companies can enhance their resilience to economic, political, cultural, and social risks,
ultimately strengthening their position for sustainable growth and success in international
markets.

28
Laura, Alfaro., Mauricio, Calani., Liliana, Varela. (2021). Currency Hedging: Managing Cash Flow Exposure.
Research Papers in Economics, doi: 10.3386/W28910

6
Operational and Strategic Risks

Operational risks in international expansion can encompass a wide range of challenges, from
managing complex supply chains and ensuring consistent quality control to coordinating
logistics and effectively managing human resources across different geographical locations 29.
Malaysian companies venturing into global markets must carefully assess and address these
operational intricacies to mitigate potential risks and ensure smooth operations.

Implementing robust supply chain management strategies tailored to the specific market
conditions and local infrastructure can help companies navigate logistical challenges and
ensure the efficient flow of goods and services 30. This may involve working closely with local
partners and suppliers to adapt to regional nuances and overcome logistical hurdles effectively.
Quality control measures should also be optimized to meet the standards and expectations of
each market, taking into account local regulations and consumer preferences. By maintaining
stringent quality standards and implementing effective monitoring processes, Malaysian
companies can mitigate the risk of product non-compliance and safeguard their brand
reputation in international markets.

Furthermore, managing human resources across diverse geographical locations requires

strategic planning and cultural sensitivity. Adopting policies and practices that respect and
integrate diverse cultural norms and work dynamics can foster a harmonious and productive
multinational workforce. Providing cross-cultural training and support can help mitigate the
risks associated with misunderstandings or conflicts arising from cultural differences, thus
promoting a cohesive and well-integrated international team.

Strategic risks in international expansion involve the complexities of making crucial decisions
around market entry modes, timing, and the scale of investment 31. Malaysian companies must
carefully evaluate the potential risks and rewards associated with various entry modes, such as

29
Marinoiu, Ana, Maria. (2009). Opera�onal risk in interna�onal business: taxonomy and assessment methods.
Annals of Faculty of Economics,

30
Olga, V., Fonotova. (2023). Supply Chains in Interna�onal Business Prac�ces: Legal Characteris�cs. Aktualʹnye
problemy rossijskogo prava, doi: 10.17803/1994-1471.2023.148.3.157-165

31
Rhyne,, D.B.A.,, William, J.. (2009). Entering the Global Market Place of the 21st Century: Strategies, Risks, and
Modes for Interna�onal Expansion of Chinese Businesses. Social Science Research Network, doi:
10.2139/SSRN.1373935

7
joint ventures, acquisitions, or greenfield investments, to determine the most suitable approach
for each target market.

Timing is another critical consideration, and entering a market prematurely or belatedly can
present significant strategic risks. Companies should conduct thorough market assessments and
feasibility studies to identify the optimal timing for expansion, taking into account market
conditions, competitive landscape, and consumer trends.

Choosing the right local partners or alliances is integral to successful international expansion,
and companies must conduct thorough due diligence to mitigate the risks of partnering with
incompatible or unreliable entities. By selecting the right partners and alliances, Malaysian
companies can leverage local expertise, resources, and networks to navigate market dynamics
more effectively.

Additionally, misjudging the scale of investment can pose strategic risks, leading to either
underinvestment or overcommitment of resources. Implementing comprehensive financial
analysis and scenario planning can help mitigate these risks and inform informed investment
decisions that align with the company's long-term strategic objectives.

Coordinating multinational operations to align with the company's overall strategic objectives
requires sophisticated integration capabilities and strategic foresight. Establishing clear
communication channels, regular performance evaluations, and robust governance structures
can help align overseas operations with the company's overarching strategic direction,
minimizing the risk of divergence and fostering cohesive global growth 32.

By addressing these operational and strategic risks with comprehensive planning and adaptive
strategies, Malaysian companies can position themselves for sustainable success and resilience
in international markets.

32
Andrew, Jarvis. (2019). Power and coordina�on in the mul�na�onal company : a post-heterarchical
perspec�ve. doi: 10.17635/LANCASTER/THESIS/621

8
Technological Risks

In today's technology-driven world, staying abreast of technological advancements is crucial.

Technological risks include the challenges of integrating new technologies into existing
operations and the threat of technological obsolescence 33. Additionally, cybersecurity risks are
heightened in international operations, where data protection laws and enforcement
mechanisms may vary significantly between countries. Malaysian companies must invest in
robust IT systems and cybersecurity measures to protect sensitive data and intellectual property
across their international operations 34. Malaysian companies must prioritize staying updated
on the latest technological advancements and trends to remain competitive in international
markets. Integrating new technologies into existing operations can pose challenges, and
companies need to carefully assess the impact on their business processes, productivity, and
customer experiences.

Moreover, the threat of technological obsolescence is a significant concern. To mitigate this

risk, Malaysian companies should continuously evaluate and update their technology
infrastructure and systems to ensure they remain aligned with industry standards and market
demands. This may involve investing in research and development initiatives to innovate and
adapt to evolving technological landscapes.

Cybersecurity risks are particularly heightened in international operations due to variations in

data protection laws and enforcement mechanisms across different countries 35. Malaysian
companies should prioritize robust cybersecurity measures to safeguard sensitive data and
intellectual property. This may include implementing data encryption protocols, regular
security audits, and training programs to educate employees about cyber threats and best
practices for data protection.

33
Agus, Adriyanto. (2023). Challenges and Cybersecurity Threats in Digital Economic Transforma�on.
Interna�onal Journal of Humani�es Educa�on and Social Sciences, doi: 10.55227/ijhess.v2i6.515

34
Valerii, Lakhno., Liubov, Plyska. (2020). Analysis of Models for Selec�on of Investment Strategies. doi:
10.1109/PICST51311.2020.9468024

35
(2023). Cyber Security and Data Collec�on. Security Science Journal, doi: 10.37458/ssj.4.1.7

9
Furthermore, investing in secure IT systems and establishing clear policies and procedures for
data handling and privacy can help mitigate the risks associated with cyber threats and ensure
compliance with diverse international regulations 36.

By actively addressing these technological risks and embracing digital advancements,

Malaysian companies can leverage technology as a strategic enabler for sustainable growth and
competitive advantage in global markets.

Conclusion

For Malaysian companies, the decision to enter international markets should be accompanied
by a thorough risk assessment and the development of robust risk management strategies.
Economic, political, cultural, operational, and technological risks each require specific
attention and strategies to mitigate their potential negative impacts. By understanding and
preparing for these risks, companies can better position themselves to capitalize on the
opportunities presented by international markets while minimizing the downsides.

Ponnuru, Viswanath., Sinha, Prasoon, Kumar., Silveira, Alaric, Joaquim, Narcissius. (2019). Automated workflow
36

management and monitoring of datacenter it security compliance.

10
References
1. Nurul, Ashykin, Abd, Aziz., Mohamad, Rohieszan, Ramdan., Nik, Syuhailah, Nik, Hussin.,
Zuraimi, Abdul, Aziz., Juliana, Osman., Hasif, Rafidee, Hasbollah. (2021). The Determinants
of Global Expansion: A Study on Food and Beverage Franchisors in Malaysia. Sustainability,
doi: 10.3390/SU131810328

2. Ana-Maria, Dinu. (2016). International Expansion through Joint Venture – Risks and Benefits.
Knowledge Horizons - Economics,

3. Mariia, Nezhyva., Olha, Zaremba., Viktoriia, Mysiuk. (2021). International trade risk
management under the impact of globalization. doi: 10.1051/SHSCONF/202111101016

4. Khondaker, Mizanur, Rahman., Rafiuddin, Ahmed. (2014). Globalization of Malaysian

economy: with special focus on the role of growth enclaves. International Journal of Economics
and Empirical Research,

5. Donna, Roberts., Timothy, E., Josling., David, Orden. (2018). A Framework for Analyzing
Technical Trade Barriers in Agricultural Markets.

6. Evangelia, Fragouli., Zoi, Nikolaidou. (2019). A Case Study Approach for Managing Risks &
Challenges When Expanding to Emerging Markets. doi: 10.30560/RFM.V1N1P44

7. Nada, Petrusheva. (2016). Management of financial risks in international trade financing. doi:
10.7251/EMC16081P

8. Emmanouil, Pateros. (2015). Exchange Rate Fluctuations Forecasting.

9. Joaquin, Blaum. (2017). Importing, Exporting and Aggregate Productivity in Large

Devaluations. Research Papers in Economics,

10. Aniela, Bălăcescu., Marian, Zaharia. (2011). The impact of inflation on the size of the domestic
demand for consumer goods and services. Annals of the University of Petrosani: Economics,

11. (2022). Financial Systems and Economic Crises. doi: 10.3726/b19738

12. Gyula, Főglein., Zoltan, Zeman., László, Pataki. (2022). A comparative study of strategies
suitable for hedging the foreign exchange rate risk of a big company. Economy & finance, doi:
10.33908/ef.2022.3.1

13. Rudolf, R., Sinkovics. (2015). International Pricing Policy. doi:

10.1002/9781118785317.WEOM090488

14. Denise, L., Stanley. (2013). Export Diversification as a Stabilization Strategy: The Central
American Case Revisited.

15. Albert, N., Link. (2013). Strategic alliances: leveraging economic growth and development.
Economics of Innovation and New Technology, doi: 10.1080/10438599.2013.804776

11
16. Boris, A., Matveev. (2023). Spectral indicators of economic risk. National Interests: Priorities
and Security, doi: 10.24891/ni.19.3.544

17. Carolina, Moehlecke., Rachel, L., Wellhausen. (2022). Political Risk and International
Investment Law. Annual Review of Political Science, doi: 10.1146/annurev-polisci-051120-
014429

18. Luyuan, Yang. (2021). The Evaluation Model of Legal Risk of Enterprises’ Foreign Investment
Based on Data Mining. doi: 10.1088/1742-6596/1744/3/032175

19. Alice, Chin., Ooi, Chin, Lye., Khakan, Najaf. (2022). The corporate risk-taking and
performance of politically connected firms: evidence from Malaysia. Asia-pacific Journal of
Business Administration, doi: 10.1108/apjba-07-2021-0315

20. Leif, Cocq-Rasmussen. (2015). An Analysis of Geopolitical Considerations of Investor State

Dispute Settlement and the Pursuit of Impartial Justice. doi: 10.37974/ALF.274

21. (2022). Role of governmental regulatory controlling procedures between political hazards and
risk management. European Project Management Journal, doi: 10.56889/owua8196

22. C., G., E., Salami., Sunday, E., Ekakitie. (2023). Impact of government policy on
entrepreneurship growth and development of small-scale business. Journal of Global Social
Sciences, doi: 10.58934/jgss.v4i14.154

23. Paris, Bayias., Vassilis, Assimakopoulos. (2011). About the significance of national culture
differences for domestic companies that expand to the international environment. The
International Journal of Business and Management,

24. (2022). Adaptation Strategy in International Brands. doi: 10.4018/978-1-7998-9672-2.ch008

25. Anusha, Thakur. (2021). Cultural Impact on Global Trade. doi: 10.4018/978-1-7998-7568-
0.CH010

26. Shartriya, Collier. (2011). Negotiating Business, Negotiating Self: Crossing Cultural Borders
in Bilingual Entrepreneurial Contexts.. Journal of Language Identity and Education, doi:
10.1080/15348458.2011.539965

27. (2022). Adaptation Strategy in International Brands. doi: 10.4018/978-1-7998-9672-2.ch008

28. Laura, Alfaro., Mauricio, Calani., Liliana, Varela. (2021). Currency Hedging: Managing Cash
Flow Exposure. Research Papers in Economics, doi: 10.3386/W28910

29. Marinoiu, Ana, Maria. (2009). Operational risk in international business: taxonomy and
assessment methods. Annals of Faculty of Economics,

30. Olga, V., Fonotova. (2023). Supply Chains in International Business Practices: Legal
Characteristics. Aktualʹnye problemy rossijskogo prava, doi: 10.17803/1994-
1471.2023.148.3.157-165

12
31. Rhyne,, D.B.A.,, William, J.. (2009). Entering the Global Market Place of the 21st Century:
Strategies, Risks, and Modes for International Expansion of Chinese Businesses. Social Science
Research Network, doi: 10.2139/SSRN.1373935

32. Andrew, Jarvis. (2019). Power and coordination in the multinational company : a post-
heterarchical perspective. doi: 10.17635/LANCASTER/THESIS/621

33. Agus, Adriyanto. (2023). Challenges and Cybersecurity Threats in Digital Economic
Transformation. International Journal of Humanities Education and Social Sciences, doi:
10.55227/ijhess.v2i6.515

34. Valerii, Lakhno., Liubov, Plyska. (2020). Analysis of Models for Selection of Investment
Strategies. doi: 10.1109/PICST51311.2020.9468024

35. (2023). Cyber Security and Data Collection. Security Science Journal, doi: 10.37458/ssj.4.1.7

36. Ponnuru, Viswanath., Sinha, Prasoon, Kumar., Silveira, Alaric, Joaquim, Narcissius. (2019).
Automated workflow management and monitoring of datacenter it security compliance.

13