8 political risks

8/14/2019 8 Political Risks

1/17

Political RiskPolitical RiskManagementManagement

Political Risk


2/17

EQ

UIL

IBR

IUM

Restraining forces Driving forces

Need for foreign investment

Investor govt influence

Strength of law and order

Anti-foreign ideology

Political violence

Economic problems

Environmental issues

Unstable polity, active

military

Anger over recent events

Border disputes; War

Risk transfer activities

Integrated local business

community

Political risks

emerge where

drivers are notmitigated by

restrainers

Causes of political risk to MNCs


3/17

Descriptor Area

Yesterdays Risks

Post-colonial expropriations Indonesia

Nationalization by left-wing regimes Cuba

Violent revolution Iran

Hatred towards those who are different Anti Sikh riots, 1984


4/17

Descriptor Area

Todays Risks- research yourself!

Economic crises Argentina (repatriation restrictions) Indonesia (contract abrogation)

Armenia (licence revocation)

Creeping expropriation

Ukraine (output quota restatement) Dysfunctional legal/regulatory systems

Russia (abuse of minority shareholders)

Ethnic, religious and separatist conflicts-

World wide Terrorism

Al-Qaida, Hezbolla, Tamil tigers Dictator interests

Pakistan, North Korea, Afghanistan


5/17

Descriptor Area

Tomorrows Risks?

Transitional regimes Central Asia

World wide Terrorism Online

recruitments, Nuclear wars

Pakistan, IranTargeting US, Modern symbols

Ahmedijinad, Zarqawi

Shifting global relations

Economic crises

..and?


6/17

Descriptor Area

Political Risk screening areas

Economic factors

Size of GNP and growth rateNature of development plans

Resistance to recession

Forex methods

etc

Political factors

Government stabilityConflict between social

groups

Attitude towards foreign

investment

Nationalisation threats

etc

Governmental factors

Fiscal and monetary policies

Competence of bureaucracy

Fairness of courts

etc

Geographical factors

InfrastructureRaw materials

Distance to markets

etc

Labour factors

Availability of qualified staffLabour climate

Social costs

etc

Tax factors

Rates

Morality

Incentives

etc

Capital factors

Local availabilityBanking system

Home country attitudes

etc

Business methods

General ethics

Marketing systemProfit structure

Firm-specific factors


7/17Descriptor Area

Controlling the risks: buffering

InvestorHost

country

Home

government

Integration Borrow locallyForm JVsEmploy local staff

Avoid

exposure

Borrow at home/elsewhereR&D outside hostDecision-making outside

hostControl IPLicensing, franchising

Influence

Transfer

Risk takers


8/17Descriptor Area

Information sources

Online providers Convenient, consistent, wide range but issues of depth and cost

Management consultancies

Focussed, relevant but issues of knowledge and cost

Academics

Detailed, accurate butissues of business focus Ex-diplomats

Network and influence butissues of business focus, consistency, depth, cost and range

Business consultants

Business focus butissues of knowledge, relevance, depth

Government Range, convenience butissues of political bias


9/17Descriptor Area


10/17Descriptor Area Foreign Terrorist GroupsCranks and Criminals

Activists / PressureGroups

International

Domestic

Cranks & Criminals

Terrorism- Biggest threat to MNCstoday

TYPES:


11/17Descriptor Area

International: Terrorism

International terrorism is

a real danger because:

Its members have no borders

Iconic targeting

Suicide methods

the CNN factor

Al-Qaeda is a constant

and real danger

Afghanistan (Taliban)

India (Kashmir)

Iraq

Saudi Arabia


12/17

Descriptor Area

Targeting

The key point:AlQaedas aim is to

foment a conflict

between the West

and the Islamic world.

So targets are:

Symbolic

Large scale

Guaranteed to generatemedia coverage

Huge numbers of

deaths and destruction


13/17

Descriptor Area

Domestic

Mindless violence based

on religion, language etc.

- Gujarat massacre

Nationalism / separatism

Thackeray, Sri Lankan

rebels

Occupation

Iraq

Gaza Strip & West Bank


14/17

Descriptor Area

International

Taking domesticterrorism elsewhere

Kurdish separatists in

Europe

Algerians in France

Chechens rebels

Palestinians

Iraq?


15/17

Descriptor Area

Moscow theatre hostage crisis

The infamous Moscow theater hostage

crisis,also known as the 2002 Nord Est siege,was the seizure of a crowded Moscow theatre Oct23, 2002 by about 40 armed Chechen militantswho claimed allegiance to the separatistmovement in Chechnya. They took 850hostages and demanded the withdrawal ofRussian forces from Chechnya. The siege was led

by Movsar Barayey, 22 years old.

After a two-and-a-half day siege, Russianforces pumped an unknown chemical agent(classified) into the building's ventilation systemand raided it. Officially, 39 of the terrorists werekilled by Russian forces, along with at least 129

of the hostages (nine of them foreigners).Some estimates have put the civilian death toll atmore than 200.
http://en.wikipedia.org/wiki/Moscow_hostage_crisis_chemical_agenthttp://en.wikipedia.org/wiki/Image:Nordost-dubrovka.jpghttp://en.wikipedia.org/wiki/Image:Nordost-dubrovka.jpghttp://en.wikipedia.org/wiki/Moscow_hostage_crisis_chemical_agent


16/17

Descriptor Area

Activists / Single Issue Groups

Animal rights

Anti-abortionists

Anti-hunting

Anti-GMO

NGOs eg. Cola war


17/17

Descriptor Area

Cranks and criminals

Loners

Kids

Extortionists

Snipers

Racists

Can produce disruptionas big as real terrorism!

8 political risks

Documents