Question

What means can managers use to assess political risk? What do you think is the relative effectiveness of these different methods? At the time you are reading this, what countries or areas do you feel pose political risk sufficient to discourage you from doing business there?

Answer 1

Answer -

Political risk is the risk which occurs when a business is moving to another country and the rules - regulations and political conditions and events of that country affect the operations of that business .

Some Political risks -

1. expropriation - If govt seizes the foreign company or business with inadequate compensation

2. forceing for equity selling to local nationals

3. Troublesome citing rules and regulations and discrimination in the interest of local company

4. Not allowing for repatriation of funds

5. Theft of technology or intellectual property

6. Interference in operations, management and decisions of company

7. Dishonesty by officials, cancelling or altering contactual agreements, extortion demand

Countries which have High Political risks -

Iraq , afaganistan , sudan , pakistan , north korea , hati etc

For Assessment of political risk

1. Consult with experts or consultants familiar with that country and political conditions there
2. Research on political and cultural conditions of the company itself
3. Considerating many indexes like ease of doing business etc
4.Development of In-house Local staffs

Means to manage political risks -

1) With Equity and share marketing - The sale of equity and shares will increase the share and interest of local peoples in the company. Thus, being a joint venture will reduce political risk.

2) By Increasing Participation - The company should actively involve local nationals and labor organizations, business organizations and government officials in its management.

3) Localisation - The company should promote itself as a national company instead of a foreign company, making changes according to the culture of the host country.

4) Development Works - The company should cooperate in the development plans of the host country such as infrastructure development etc. so that the government and people there can get connected with the company.

5) Insurance - Insurance plays crucial role in any kind of risk .