Classify Risks in Business Environment

Risks are varied and often change. It evolves according to the changes and evolution of the business environment. There are many ways to classify the type of risk, depending on the field, origin, function, scope, impact, occurrence and severity of harm…

However, we can generalize several common risks in the business environment in Vietnam as follows:

First is financial risk. Financial risk can be defined as the risks in the field of financial management such as credit risk, exchange rate, interest rate, liquidity, investment, asset, liability and cash flow… In recent times, many Vietnam companies are reeling from interest rate risk (interest rate goes up too high) and investment risk (inefficient investment); while banks are reeling from credit risk (bad debt). The risk in exchange rate also caused many hardships to import businesses. After signing the contract to purchase goods in foreign currency, the exchange rate increased unexpectedly. Financial risks could be considered risk that covers all risks because the result of these risks, whether they are non-financial, is more or less led to financial losses.

Second is policy risk. Policy risk is the risks related to Government policy. A new or changed policy can bring business opportunities for this group of enterprises but can cause severe damage to other business groups. The policy to open door or close door to foreign firms may affect the operation of domestic enterprises. A tax policy changes could make many business owners scared.

Next is strategic risk. It is defined as the risks related to the planning and implementation of strategies. A strategy is selected by emotion; lack of careful analysis can potentially lead to failure. The multi-sectoral strategy of many enterprises recently is clear examples of strategic risk when businesses participate in new industries that does not based on its core competences. Even a properly planned strategy also has risk of failure in the implementation process. Also, along the way of a long-term strategy, there may be fluctuations that if businesses do not have the appropriate adjustment steps, the risk of failure is unavoidable.

The fourth type of risk is brand risk, which is the risk related to the image and prestige of the brand. A company that has illegal activities, deceiving consumers, harmful to people’s health and environment could make bad brand image. As a result, customer will boycott, the company may become unprofitable and even bankruptcy. In other case, a company trying to build a brand without protection, it will be imitated by competitors or furthermore will also go bankrupt as a consequence.

The fifth type of risk is technology risk. It can be defined as the risks related to technology. For example, desk phone is almost dead with the development of mobile phone with cheap subscription fees.

Next, the seventh type is legal risk. Legal risk is the risks related to the law. Enterprises can accidentally or intentionally violate the law. On the other hand, law can also vary according to the negative direction for the business. If enterprise does not update legal information and conduct early identification of legal risks, business can easily fall into situation of legal violation or loss of competitiveness when required to comply with the law.

The eighth type of risk is human risk. Human risk is the risks related to the corporate workforce. Talented people and key personnel can leave the enterprise for any reason. The gray matter of the enterprise (often accompanied by technological know-how and trade secrets) can flow to competitors. In contrast, businesses may inadvertently acquire vandals come to work in the enterprise. Incompetence and poor ethics general manager or senior management is capable of making a business to become bankrupt. That is not including other risks related to the strike, shortage or surplus of human resources… In fact, human risk could par with the financial and business risks because since its adverse effects are not inferior.

Ninth is operational risk, which is the risk relating to management and operation capacity of business, including management system, operational process, policies, rules, regulations, operating procedures, the way of management and administration and also the use of human in the operating system. A loose management system can create multiple vulnerabilities, causing loss of property and money; an unreasonable or lacking strict control operating procedure may give rise to violations, leading to malfunction or damage. The flaws in personnel arrangement are not only reducing the working efficiency but also obstructing and even hazardous for the development of enterprises.

Tenth is the market risk, which is defined as the risk related to the movement and changes of the market, including products, customers, consumers, suppliers, partners and competitors. Changes in consumer trends can make it difficult for many businesses. The new competition ways from rivals may directly threat to the normal operations of the business.

Next is the contract risk. Contract risk is the risks related to the signing of the cooperation agreements, economic contracts and contracts of sale… The terms that lacks of clarity are detrimental, leading to damages to the enterprise in case of disputes.

Twelfth is the security risk, which is risk related to information. Technological know-how and trade secrets might be revealed or leaks. At normal levels, businesses may be imitated by competitors. More specifically, the entire plan or strategy can go bankrupt.

In addition, there are other types of risk that could be mentioned as disaster risks (natural disasters, fires, explosions, accidents, war, violence…), relational risk, communication risk and risk in the application of information technology…

Most of these types of risk, enterprises are commonly encounter. If they know how to manage risks, businesses are more likely to evade, disable, minimize negative impacts or at least actively embrace and respond in the most appropriate manner.

Finding the right business partner in Vietnam is also important. We recommend doing research on the reputation of the company and individual shareholders, corporate or individual, gathering publicly available company information, and performing background checks on key personnel to find potential risks in cooperation. Working with a reliable partner can help achieve economic benefits, saving time and money in business.

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