As Airbnb plans to expand into China or any other new business environment, the company has to explore the risks that may be faced in such actions. Any business must have plans for risk identification and management. Turner and Keetelaar (2005), report that risk management is an inescapable part of business operations as it is not possible to predict the nature and time of risk occurrence. Risks can be opportunity based as well as uncertainty based. Through expansion into a new environment, the risks that may be faced can be both opportunity based by virtue of the new opportunities presented in the new environment and uncertainty based due to the unpredictable business environments that may be experienced in such new environments. In either case, the risks have to be quantified and qualified for better management and prevention of escalation. At Airbnb, risk identification is the most important part of the risk planning and management process in China as well as in other countries.
For the company’s operations in China, some of the most probable risks that will be faced include: economic risks; organizational risks; legal risks; political risks; natural risks; cultural and technical risks. Although the aforementioned risk categories may comprise the most challenging risks and potentially most detrimental in terms of risk effects, there are many others including management risks, employee retention and project management risks. Risk management strategies have to be developed for the most probable and also the most adverse of all the risks. The others can however be dealt with through effective management and project supervision. Krahn (2013) opines that an effective risk definition has to be outlined prior to risk identification since a concept that is regarded as a risk by one party may not be regarded so by another. In the essay, risk is described as an unexpected occurrence that has the probability of causing harm or danger in an organization. The main objective of risk management is therefore to reduce the severity of the observed risk and subsequently prevent harm from occurring.
The first risk that the company faces in expansion is political risk. A variety of risks can be identified in this category. The Chinese political environment may not provide the stability that other nations’ political systems provide. An unstable political environment does not provide a supportive environment for business growth hence can be a challenge for Airbnb in their efforts to expand. Although this is a major risk to the business, the key challenge comes in the fact that the business has no control over the political environment of the nation. As such, the company has to operate within the political ideals supported by the nationals. As at present, the political risk of China can be categorized as low due to the peaceful coexistence that is prevalent in the country. Similarly, legal risks faced by the company originate from the Chinese law. The law can be a hindrance to smooth business operations, particularly through areas such as labor laws, import and export laws and quality and environmental factors (Shang & Chen, 2012). For effective running of Airbnb, it will be necessary for the company to deeply delve into the Chinese laws.
This will help to recognize areas where the company is most likely to face challenges. Employment cultures and laws can especially be a hindrance to effective performance (Kaplan & mikes, 2012). Evaluating this risk quantitatively shows that it is a low risk area. This is based on the fact that while the law cannot be changed by Airbnb, the company has the capacity to work within the confines of the law due to the prevalence of other factors. For instance, failure to adhere to labor laws will result in high employee turnover and the company will eventually be forced to adhere to the law. As such, it is a self managing risk.
Organizational risk can also be a serious challenge to business operations for Airbnb in its online business. For the business model desired by the organization, authenticity and originality is an essential key to business growth (Kaplan & Mikes, 2012). For this reason, maintaining an operational patent is a goal that the company has to pursue. Without efficient legal protective measures, the company can lose its patents and other intellectual property rights, making its business sound unconvincing and unrealistic. This can be classified as a moderate risk in a new environment where intellectual property laws are not sufficiently understood and where there may be divergences from the conventional laws that the company is used to. As such, the company has to develop strategies for risk management in this area through a comprehensive understanding of the intellectual property laws in China, and how these can affect their business. This must be done prior to the planned expansion.
While organizational risks address the concept of intellectual property rights, other factors can also be linked to the organizational characteristics and to their impacts on the performance of Airbnb. For instance, technical factors may also pose risks to the organization. In areas such as technological advancements, the company can lose customers if the technologies used are not at par with the competition’s developments. For instance, most of the businesses in the hospitality industry are adopting service automation and ease of use and comprehensibility are key factors that determine the preference of particular company interfaces. Airbnb must develop an interface that will be acceptable to the intended customers. The risk is however low considering the fact that Airbnb is way ahead of its key competitors by virtue of its placement on the online platform. The company however has to address the issue of natural risks that may result in technical breakdowns and subsequently hinder operational effectiveness. For instance, factors such as floods and earthquakes have the potential of resulting in communication breakdowns due to the destruction of communication channels. Since the company intends to carry out most of its communication practices via online methods, it is crucial for the company to invest in control measures, including setting up back- up communication centers in case such eventualities arise. Quantitatively, this could result in the incurrence of high initial costs in the purchase of hardware as well as software for the organization’s use.
Risk Management Plan
Risk assessment, control and monitoring are processes that have to be conducted as frequently as every three months. Most of the risks faced by the organization are transient and are bound to change with time (Shang & Chen, 2012). As such, it may be wrong to assume that a one time management process will always be successful. Factors such as change in climatic patterns can result in the escalation of natural risks resulting in their higher quantitative evaluations. As such, risk assessment has to begin with the consideration of all internal factors such as technological application, management practices and adherence to legal requirements. This would then be followed by laying down strategies for addressing the external factors that raise organizational risks including political, economic and natural factors. Once this is done, the organization can then assign the risks quantitative values depending on their degree of severity and potential impacts. The most high severity risks must have explicit management strategies.
Kaplan, R.S. and Mikes, A. (2012). Managing risks: A new framework. Harvard Business Review.
Krahn, M. (2013). Quantitative enterprise risk management (ERM) assessment using @Risk. Palisade 2013 Risk Conference.
Shang, K. and Chen, Z. (2012). Risk appetite: linkage with strategic planning. Society of Actuaries.
Turner, K. and Keetelaar, D. (2005). Risk management guide for small businesses. Department of State and Regional Development.