The importance of managing international risks has grown as the volume of international activity has increased. Over the past two decades, international transactions have expanded more rapidly than domestic transactions in almost every country. Profits, opportunities for growth, and, indeed, corporate survival have increasingly come to depend on how effectively managers cope with international uncertainties. Yet, relative to the earlier postwar period, the international environment seems to have become less predictable. Over the last decade, exchange rate volatility has increased as have divergences in national rates of growth and inflation. Moreover, economic, social, and political changes, such as the Iranian revolution and the manipulation of oil prices by the Organization of Petroleum Exporting Countries, have reshaped the international environment in dramatic and unexpected ways. The importance of managing international risks has grown even as our ability to anticipate such risks has seemed to diminish.
Inadequate information impedes the effectiveness of all decision makers, but because knowledge about foreign events is especially limited, costly, and uncertain, international managers are particularly hampered. Moreover, managers of international enterprises must cope not only with the hazards that jeopardize the success of ordinary domestic transactions but also with additional perils that do not affect purely domestic transactions.