Question

(i) “When residents in China use Google to conduct online searchers of information and some results. The suggested Web sites are blocked by the Chinese government. Hence Google’s popularity in China might be limited by these restrictions, and this restricts Google’s ability to attract advertisers in China.” Justify the risk that have been facing by Google. (5 POINTS)

(iI) International political risks for businesses are first and foremost economic threats caused by events like terrorism, war, sanctions, and other disagreements between heads of two or more states. Discuss several features of political risk on MNC.(10POINTS) WITH EXPLANTION

Answer 1

1. Google is facing increasing risk arising from the geopolitical ambition of US and China and technological ambition of China driving China to protectism. This twin problem leads to drain of oppourtunities and the Company is not able access world's largest market to expand its footprint. This affects effective deployment of resources for more growth and new market access.

2. International political risks are the first risk a MNC faces in terms of economic risk. In the event of declaration of war between two countries, any investment by companies in one another leads to freeze of asset and declaration of alien fund and seizure. Political war of 1960's led to higher than usual price of crude oil in those years and again during Arab Spring of 2010. oil prices reached its peak of more than $110 per barrel. This affected the input cost of several MNC's operating globally and dependent on the oils.

Further, cost of capital increases when a country faces political risk because economy goes in tailwind leading to increasing inflation and central banks applying tight monetary policy e.g. In Pakistan presently inflation has reached double digit leading to increasing rate of interest and affecting the MNC's in Pakistan.