The Chaos theory began in meteorology and quickly spread to other areas, influencing businesses and their management as well.

According to Hills, “chaos is a kind of order in disorder; “disorder is because the results are unpredictably accurate and regular because it has a certain certainty. Its certainty, however, is because chaos has internal causes and does not occur due to external disorders; therefore, by correctly identifying the internal factors, more reliable predictions can be achieved.

International trade also makes it problematic to predict, given the various risks that are continually changing in nature. The risks are unfortunate events that may occur when foreign trade takes place and have a serious impact on the rate of return on investment.

Types of international trade risks include:

  • Political risk
  • Legal risk
  • Quarantine compliance risk
  • Exchange rate risk
  • Non-payment risk
  • Logistic risk

The nature and nature of these risks vary from country to country.

Thanks to Chaos Theory, the new risk management methods examine non-measurable uncertainties and try to reduce the risk by using the results obtained.

Characteristics of Chaos Theory

To use this theory, one must be familiar with its features. For Chaos Theory, four main features are the butterfly effect, dynamic adaptation, self-awareness, and bizarre attractions.

Butterfly effect:

This means that in all phenomena, there are points where a small change in them will cause huge changes in the whole system. As the political events of the Arab Spring 2011 showed, developments in a country can emit strong waves beyond its borders.

Dynamic adaptation:

creating dynamic adaptation between oneself and the environment; this means that one can absorb information from the environment in a chaotic environment and be able to communicate this information and operations; likewise, be aware of deviations and could make the necessary corrections. Citibank was one of the first institutions to develop a national risk calculation approach to help reduce investment and foreign trade risks.

Self-awareness:

Along these lines, all components move in the same direction and towards a single goal; because a kind of similarity can be recognized in the part and whole pattern.

Individual countries active in international trade, as a small part of this system, seek to achieve greater profits and increase the welfare of their people; just as international trade as a larger system seeks to increase the welfare of the public around the world.

Bizarre Attractions:

Although existing factors and events may seem chaotic and unrelated, the relationships and interactions between them allow us to arrive at regular patterns. In 2011, the Greek government-debt crisis caused the collapse of the Cypriot banking sector, and its consequences were visible in the increase in global trade risks. Several factors contributed to this event; however, the purchase of large volumes of Greek bonds by these banks was highlighted among them.

Major decision-making requirements in turbulent businesses

Rather than focusing on long-term decision-making; in today’s unstable world, however, short-term, flexible decision-making should be considered, since the speed and depth of change are very high.

Innovative approaches that are commensurate with the speed and depth of change should be given more importance. Incidentally, the creation of short-term structures and systems has become more important. One of the most important requirements for calculating multiple risks and making decisions in such spaces is to have a comprehensive set of accurate, valid, extensive, and comprehensive information. Because the most detailed information seems irrelevant, can have a great impact in such an environment. By accessing this collection of information, one would:

  • Identify the key points of the business and make enormous changes by changing them.
  • Discover the connection between information and the operations that take place to create adaptation to the existing space.
  • Organize all the components in the process to achieve a specific goal.
  • Identify the prevailing order and used it to make more reliable predictions.
  • Quickly adapted to the sudden changes that might occur and developed tailored strategies.