Domestic economy declines the more nationalistic it

This preview shows page 10 - 12 out of 22 pages.

domestic economy declines, the more nationalistic it becomes in protecting itself against intrusions.C.Targeted Fear and/or AntimosityD.Trade DisputesIII.Political Risks of Global BusinessA.Confiscation, Expropriation, and DomesticationConfiscation - the seizing of a company’s assets without payment and the most severe political riskConfiscation was most prevalent in the 1950s and 1960s when many underdeveloped countries saw confiscation, albeit ineffective, as a means of economic growth. Expropriation - the host government seizes a company's property but some reimbursement for the assets is made. When the expropriated investment is nationalized, it becomes a government-run entity.Domestication - the host country gradually causes the transfer of foreign investments to national control and ownership through a series of government decrees by mandating local ownership and greater national involvement in a company’s management. The ultimate goal of domestication is to force foreign investors to share more of the ownership, use local content, enter into labor and management agreements, and share participation in export sales as a condition of entry; in effect, the company has to become domesticated as a condition for investment.Expropriation and nationalization have often led to nationalized businesses that were inefficient, technologically weak, and noncompetitive in world markets.Risks of confiscation and expropriation appear to have lessened over the last two decades (with exceptions in Latin America, particularly Venezuela) because experience has shown that few of the desired benefits materialize after government takeover. Today, countries often require prospective investors to agree to share ownership, use local content, enter into labor and management agreements, and share participation in export sales as a condition of entry; in effect, the company has to become domesticated as a condition for investment.B.Economic Risks1. Exchange Controls: established by a country in order to maintain a specific level of foreign exchange. They are used especially during periods when the country faces shortages of foreign currency. When a nation faces shortages of foreign exchange and/or a substantial amount of capital is leaving the country, controls may be levied over all movements of capital or selectively against the most politically vulnerablecompanies to conserve the supply of foreign exchange.
.
2.Local-Content Laws: Countries often require a portion of any product sold within the country to havelocal content, that is, to contain locally made parts. For example: In Thailand, it is required that any milk products sold in the country must contain at least 50 percent milkfrom Thai dairy farmers.The United States required that 50 percent of all parts used in an automobile constructed in the United States must contain parts that were manufactured in the United States.3.Import Restrictions: restrictions on the import of raw materials, machines, and spare parts are

  • Left Quote Icon

    Student Picture

  • Left Quote Icon

    Student Picture

  • Left Quote Icon

    Student Picture