Discuss the impact of the credit crunch (the last financial crisis) and the Arab spring on the opportunities and risks faced international companies - Term Paper Example

Introduction: The 2007-2008 financial crises is one of the largest economic crises to hit the worldafter the 1930s great depression. This crisis led to a near collapse of large financial institutions, and a fall in the share prices of companies at various stock markets in the world. This crisis led to an increase in unemployment, and a collapse of the housing market in United States of America. Due to this crisis, many businesses failed to achieve their objectives. The crises led to the 2008-2012 global economic recessions, and an increase to the debts of the European Union (Bordo and Haubrich, 2012).

The crises began in United States of America. The main reasons for its occurrence were the over-valuation of sub-prime mortgages. This occurred because of the misguided belief that the value of property will always accelerate. Other reasons were lack of enough capital holdings by insurance and banking organizations to back their economic commitments they were making (Gorton, 2012). This paper discusses the impact of these financial crises, on the opportunities and risks that international companies faced.

Another international issue that had an effect on the manner in which international companies conducted their businesses is the Arab spring. The Arab spring was a revolutionary wave of protest that occurred in the Arab world. The aim of the protests was to change the dictatorial regimes, and some of these protests were successful (McCaffrey, 2012). For example, protesters were able to change the regimes of Egypt, Tunisia, and Libya. In Libya, it took the intervention of the European Union and America to depose off Muammar Gaddafi, through the protesters.

This is because the Libyan government used extreme force to quell the demonstrations, prompting the intervention of the outside world. Due to these crises, economies of the Arab world had a negative growth. This paper analyzes the impact of the Arab Spring in presenting opportunities to International companies and the risks they face. The 2007-2008 Financial Crises: Due to the failures of the financial markets, and banking system to prevent the crises, there was an opportunity of developing new financial products.

For example, financial institutions began to issue mortgage backed securities (MBSs). This type of securities is secured by mortgages (Roselli, 2012). On this basis, financial institutions are not worried of the inability of a person to produce an asset to cover the loan. On this note, they financial institutions are not worried of making losses due to defaults of payments by people taking the security. The company will manage to pay dividends to their shareholders from the principle payments that emanate from the mortgages.

Trading in these new kinds of securities was not only in mortgages, but also in other securities backed by assets such as credit cards, student and car loans. These financial products made financial and credit companies to make huge profits (Gorton, 2012). Companies offering these services experienced low levels of risks that might emanate from a customer defaulting to pay the costs of acquiring the securities, or the financial products. These products were rolled all over Europe and America by multi-national financial companies such as AIG insurance company.

However, there were numerous risks that these companies faced by issuing such kind of complex securities. The first risk is that customers are not knowledgeable on these complex securities which were backed by assets (Roselli, 2012). They only relied on information from credit rating agencies, which on most occasions might provide inaccurate information. On this basis, a customer might purchase a security with higher expectations, only to realize that what he really wanted is not what he is getting from the security.

Because these financial securities are complex, there is always a risk of selling them below the required price. This is also based on the fact that the financial companies will want to sale a large volume of these securities for purposes of making a profit. The Arab Spring: The Arab Spring led to an overthrow of dictatorial regimes, in favor of democratic regimes elected by people. Democratic governments usually advocate for an open and capitalistic economy. This presents an opportunity to international companies to invest in the region.

For instance in Egypt, a radical Islamic group called the Muslim brotherhood began to change their images before assuming power in Egypt. The group became an advocate of the free market economy, and a promoter of social justice (Brynen, 2012). Opening up an economy will attract investors, and this includes multi-national companies in the country. On this basis, the Arab was an opportunity for multi-national companies to find new markets for their products. However, despite this emerging opportunity, the risks of doing business in the areas affected by the revolution are great.

For instance, in countries that had the revolution, Islamic groups took power. These groups advocate for an Islamic economic system that does not advocate for price as a method of distributing goods (McCaffrey, 2012). The system advocates for the distribution of goods in a manner that benefits the entire citizen of the state. These groups therefore strive to create a business environment that satisfies the requirements of a sharia law, and the principles of capitalism. This is very risky for multinational companies because they will not margin to make good profits, and the uncertainty in the manner in which the principles of capitalism and those of sharia law shall interact.

On this basis therefore, it is highly risky to invest in the region. This is because of the political uncertainties, and the inability of the Western countries to influence the political and economic situation in the countries (Roselli, 2012). Their inability emanate from the recessions of their economy brought about by the 2007-2008 financial crises. Conclusion: In conclusion, the financial crises of the 2007-2008 brought about by the credit crunch made many financial institutions to change the manner in which they did business.

This is also facilitated by the fact that the United States government brought in bills whose main aim was to regulate the financial sector of the country. This was for purposes of preventing a financial crisis of such a magnitude from happening again. A change in the style of doing business opened many trading opportunities for these companies. This paper manages to effectively highlight those opportunities. The Arab Spring on the other hand created uncertainties on the political and economic future of countries within the region.

It is never prudent for business organizations to invest in areas where they are uncertain of the politics of the region. This is because business organizations will experience losses. References: Bordo, M. D., & Haubrich, J. G. (2012). Deep recessions, fast recoveries, and financial crises: evidence from the American record. Cambridge, Mass.: National Bureau of Economic Research. Brynen, R. (2012). Beyond the Arab spring: authoritarianism & democratization in the Arab world. Boulder, Colo.

: Lynne Rienner Publishers. Gorton, G. (2012). Misunderstanding financial crises: why we dont see them coming. New York: Oxford University Press. McCaffrey, P. (2012). The Arab Spring. Ipswich, Mass.: H.W. Wilson. Roselli, A. (2012). Financial structures and regulation: a comparison of crises in the UK, USA and Italy. Houndmills, Basingstoke, Hampshire: Palgrave Macmillan.