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Ch16 Mini Case - impression that there may have been some...

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Chief Mistakes Enron Made in India Before investing in a foreign country, it is important for a multi-national company (MNC) to evaluate the effect of political risk. This is important because a sovereign country can take actions that are adverse to the interests of the MNC. When investing in the Dabhol power project, Enron did not do a sufficient job of assessing the political risk in India. One key factor they ignored was the track record of the Bharatiya Janata Party (BJP) and its relative strength. Because the BJP was a nationalist, right-wing party, there was always a chance that they could implement policies that were unfavorable to Enron. If the BJP won in an upcoming election and came into power, there was a possibility that they could reject the contract with Enron because at that time they were leading a coalition against foreign investment in India. Unfortunately, Enron chose to ignore this negative political sentiment. Further, Enron tried to keep the details of the contract confidential. To some, this gave the
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Unformatted text preview: impression that there may have been some sort of corruption involved. Things Enron Might Have Done Differently to Avoid its Predicament in India To avoid its predicament in India, Enron should have done a better job of assessing the political risk there. They should have taken into consideration the possible negative effects to MNCs if the BJP came in to power. If assessed properly, Enron could have taken action to manage the political risk by purchasing an insurance policy. The Overseas Private Investment Corporation (OPIC) provides insurance against the hazards of political risk. There are also other private insurers whom Enron could have purchased a policy from. Enron also could have opted to form a joint venture with a local company. This may have cooled the negative political sentiment of the BJP. At the very least, it may have dissuaded the BJP from cancelling the project since this would have hurt one of their local companies as well....
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