Political and country risks can negatively impact foreign businesses operating overseas. These risks include nationalization, expropriation, currency inconvertibility, forced divestiture, termination of agreements, confiscation, transfer restrictions, political instability, and more. Companies must identify and analyze macro political risks from national policies and micro risks specific to their sectors. Management strategies include diversification, avoidance, political risk insurance, and lobbying host governments to influence favorable legislation. Proper risk assessment and mitigation are necessary for establishing successful international operations.
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Political and country risks can negatively impact foreign businesses operating overseas. These risks include nationalization, expropriation, currency inconvertibility, forced divestiture, termination of agreements, confiscation, transfer restrictions, political instability, and more. Companies must identify and analyze macro political risks from national policies and micro risks specific to their sectors. Management strategies include diversification, avoidance, political risk insurance, and lobbying host governments to influence favorable legislation. Proper risk assessment and mitigation are necessary for establishing successful international operations.
Political and country risks can negatively impact foreign businesses operating overseas. These risks include nationalization, expropriation, currency inconvertibility, forced divestiture, termination of agreements, confiscation, transfer restrictions, political instability, and more. Companies must identify and analyze macro political risks from national policies and micro risks specific to their sectors. Management strategies include diversification, avoidance, political risk insurance, and lobbying host governments to influence favorable legislation. Proper risk assessment and mitigation are necessary for establishing successful international operations.
Copyright:
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Download as PPT, PDF, TXT or read online from Scribd
Political and country risks can negatively impact foreign businesses operating overseas. These risks include nationalization, expropriation, currency inconvertibility, forced divestiture, termination of agreements, confiscation, transfer restrictions, political instability, and more. Companies must identify and analyze macro political risks from national policies and micro risks specific to their sectors. Management strategies include diversification, avoidance, political risk insurance, and lobbying host governments to influence favorable legislation. Proper risk assessment and mitigation are necessary for establishing successful international operations.
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POLITICAL & COUNTRY
RISKS IN INTERNATIONAL BUSINESS STRUCTURE INTRODUCTION
DEFINITION
TYPES OF POLITICAL AND COUNTRY RISKS
ANALYSIS
MANAGEMENT OF POLITICAL AND COUNTRY RISKS
CONCLUSION introduction When companies are operating their business activities in overseas market they are always exposed to different kind of political and country risks. In order to establish & operate a successful business overseas the management should identify, analyze and measure these potential risks and than prescribe an effective strategy to manage them. POLITICAL & COUNTRY RISKS Definition Risks that arises out of either an act of host government or from other political events that affects the performance and profitability of foreign businesses in overseas market.
It means the likelihood that the foreign investment of
an enterprise will be restrained by the policies of host government. TYPES OF POLITICAL & COUNTTRY RISKS Nationalization:- A processes whereby a host government takeover privately owned industries, corporations and resources with or without compensation.
Expropriation:- Host government makes policies that Gradually removes property rights of foreign companies by way of selective discrimination, tax increase on profit & property, change in the proportion of ownership that must be held by local nationals and refusing licence etc. Currency inconvertibility :- Could be caused by new legislation & administrative delays to prevent foreign companies from repatriating their capital or remitting their profits.
Forced divestiture:- In this type of situation a foreign company is forced by the host government to divest its business operation. Termination of fuel supply agreements:- When the agreement either with host government or with a host company is terminated.
Confiscation:- Forced transfer of assets from a company to the government without compensation.
Transfer:- Imposition of limitation by host government on remittance of profits or repatriation of capital, production,technology and people in & out of country. Political instability & disorder:- Can be in the form of war, civil unrest, coup, terrorism & kidnapping etc.
Example: 9/11 Attack on WTC, current situation in
Pakistan, Afghanistan, Srilanka etc. ANALYSIS OF POLITICAL RISKS Macro political risk:- An analysis of major political decisions affecting all businesses Macro risk factors include freezing the movement of assets out of the host country, limitations on the repatriation of capital, non-discriminatory measures such as changes in tax laws, currency devaluation, price controls,political disorder and government corruption. Micro political risk analysis:- Analysis of government policies influencing selected sectors or specific foreign businesses. Micro risk factors includes selective discrimination, industry regulation, imposition of taxes on specific types of activity, restrictive local laws and host government policies that promote exports and discourage import. MANAGEMENT OF POLITICAL RISKS
Diversification:- To diversify & extend business operation in other countries Avoidance:- Simple strategy is not to invest. It’s a pre- commitment strategy. Subscribing insurance policy:- Political risks can be insured but is an expensive strategy.
Lobbying:- Very useful in influencing their position in political matters for enacting favorable legislation. Conclusion
As mentioned earlier When companies are
operating their business activities in foreign countries they are always exposed to different kind of political and country risks. In order to establish & operate a successful business overseas the management should identify, analyze and measure these potential risks and than prescribe an effective strategy to manage them. Bibliography Wild. J. J. et al (2008) International business the challenges of globalization, 4th edition, Prentice Hall, New Jersey p 97 Shenkar. O., Luo. Y (2008) International Business. Second edition. Sage Publications, London. P524-526
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