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