zakir -politics and country risks

8/8/2019 Zakir -Politics and Country Risks

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POLITICAL &COUNTRY

RISKS ININTERNATIONAL

BUSINESS


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STRUCTUREINTRODUCTION

DEFINITION

TYPES OF POLITICAL AND COUNTRY RISKS

ANALYSIS

MANAGEMENT OF POLITICAL AND COUNTRY RISKS

CONCLUSION


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introduction

When companies are operating their businessactivities in overseas market they are alwaysexposed to different kind of political andcountry risks. In order to establish & operate asuccessful business overseas the

management should identify, analyze andmeasure these potential risks and thanprescribe an effective strategy to managethem.


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POLITICAL & COUNTRY

RISKSDefinition

Risks that arises out of either an act of host

government or from other political events thataffects the performance and profitability of foreign

businesses in overseas market.

It means the likelihood that the foreign investment ofan enterprise will be restrained by the policies of

host government.


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Nationalization:-A processes whereby a host government takeover

privately owned industries, corporations and resourceswith or without compensation.

Expropriation:-Host government makes policies that Gradually removes

property rights of foreign companies by way of selectivediscrimination, tax increase on profit & property, changein the proportion of ownership that must be held by localnationals and refusing licence etc.

TYPES OF POLITICAL &TYPES OF POLITICAL &

COUNTTRY RISKSCOUNTTRY RISKS


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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 bythe host government to divest its business operation.


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Terminationoffuel supplyagreements:-When the agreement either with host government orwith a host company is terminated.

Confiscation:-

Forced transfer of assets from a company to thegovernment without compensation.

Transfer:-

Imposition of limitation by host government onremittance of profits or repatriation of capital,

production,technology and people in & out of country.


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Politicalinstability & 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.


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ANALYSIS OF POLITICAL RISKS

Macropoliticalrisk:-

An analysis of major political decisions affecting

all businesses

Macro risk factors include freezing the movement ofassets out of the host country, limitations on the

repatriation of capital, non-discriminatory measuressuch as changes in tax laws, currency devaluation,price controls,political disorder and governmentcorruption.


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Micropoliticalrisk 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.


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MANAGEMENT OF POLITICAL

RISKS

Diversification:-

To diversify & extend business operation in

other countries

Avoidance:-

Simple strategy is not to invest. Its a pre-commitment strategy.


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Subscribinginsurancepolicy:-

Political risks can be insured but is an expensive

strategy.

Lobbying:-

Very useful in influencing their position in political

matters for enacting favorable legislation.


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Conclusion

As mentioned earlier When companies areoperating their business activities in foreigncountries they are always exposed todifferent kind of political and country risks.In order to establish & operate a successfulbusiness overseas the managementshould identify, analyze and measure thesepotential risks and than prescribe aneffective strategy to manage them.


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Bibliography

Wild. J. J. et al (2008) International business the challenges of globalization, 4thedition, Prentice Hall, New Jersey p 97

Shenkar. O., Luo. Y (2008) International Business. Second edition. SagePublications, London. P524-526

Catherine Rampell,

When G

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in Tr

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http://www.nytimes.com/2009/01/22/business/worldbusiness/22poundbox.html

Caracas, Chavez to nationalize strategic sectors, The Washington Times,Tuesday, January 9, 2007: Availablehttp://washingtontimes.com/news/2007/jan/09/20070109-122511-8759r

Venezuelan President Hugo Chavez threatens to nationalize banks, The Times ofIndia, International Business, 30 November 2009: Available

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John OConnell. Creeping Expropriation, the Blackwell Encyclopedia ofManagement. Blackwell Publishing,. Blackwell Reference Online. 22 December2009: Availablehttp://www.blackwellreference.com/public/tocnode?id=g9780631233176_chunk_g97806312349376_ss1-156#citation

Dr. Leonard. M (2004), China, Country Briefing, June 7, 2004, CreepingExpropriation, Threats to Property Rights, And Rising Economic Risk: RememberCommunism? AON Trade Credit Inc: Available

http://www.offshoregroup.com/newsfiles/chinabriefing.pdf


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Bibliography

Tecinicas Medioambientales Tecmed S.A. V. The United Mexican States,International Centre for Settlementof InvestmentofDisputes (May 29, 2003) CaseNo. ARB (AF)/00/2: Availablehttp://icsid.worldbank.org/ICSID/FrontServlet?requestType=CasesRH&actionVal=showDoc&docId=DC602_En&caseId=C186

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zakir -politics and country risks

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