Current “success stories” of globalisation: two economies that have apparently benefited.
Political risk Political risk is the likelihood that political forces will cause unexpected and drastic changes in a country’s environment that significantly affect the opportunities and operations of a business enterprise.
23 Political Risk
Types of political risk Country-Specific Is manifested in the mutual hostility between countries. For example, Israel and Syria. One would expect that Israeli companies would find little support in Syria, and the same would apply for Syrian companies in Israel Company-Specific Invokes either a favorable or unfavorable response aimed at a particular company Project-Specific Involves special treatment bestowed on a certain type of project
Types of political risk (contd.) Transfer risk (foreign exchange controls, tariffs imposed on imports) Operational risk (new environmental protection legislation, change in minimum-wage laws, Interference in managerial decision making) Ownership risk (expropriation, nationalisation and barriers to repatriation of funds) Terrorism Dishonesty by government officials, including canceling or altering contractual agreements, extortion demands, and so forth Risk of kidnapping Loss of technology or other intellectual property (such as patents, trademarks, or trade names).
Corruption and international management Transparency International Report 2015 Many developing countries and emerging economies categorised as corrupt Corruption video - shows/1697914.html https:// ptions_index_2016
Special Nature of Investment Three sectors of economic activity Primary sector, which consists of agriculture, forestry, and mineral exploration and extraction Industrial sector, consisting of manufacturing operations Service sector, which includes transportation, finance, insurance, and related industries
Risk factors for MNCs Risk factor is assigned based on sector, technology, and ownership Primary sector industries usually have the highest risk factor, service sector industries have the next highest, and industrial sector industries have the lowest Firms with technology that is not available to the government should the firm be taken over have lower risk than those with technology that is easily acquired Wholly-owned subsidiaries have higher risk than partially owned subsidiaries
Managing Political Risk 1. Integrative, protective, and defensive techniques: Integrative techniques help the overseas operation become a part of the host country’s infrastructure, less foreign Developing relationships with local government; Behaving like a ‘local’ – product, R&D, workforce, etc.
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