8 political risks
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8/14/2019 8 Political Risks
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Political RiskPolitical RiskManagementManagement
Political Risk
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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
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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
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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
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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?
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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
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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
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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
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10/17Descriptor Area Foreign Terrorist GroupsCranks and Criminals
Activists / PressureGroups
International
Domestic
Cranks & Criminals
Terrorism- Biggest threat to MNCstoday
TYPES:
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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
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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
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Descriptor Area
Domestic
Mindless violence based
on religion, language etc.
- Gujarat massacre
Nationalism / separatism
Thackeray, Sri Lankan
rebels
Occupation
Iraq
Gaza Strip & West Bank
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Descriptor Area
International
Taking domesticterrorism elsewhere
Kurdish separatists in
Europe
Algerians in France
Chechens rebels
Palestinians
Iraq?
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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 -
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Descriptor Area
Activists / Single Issue Groups
Animal rights
Anti-abortionists
Anti-hunting
Anti-GMO
NGOs eg. Cola war
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Descriptor Area
Cranks and criminals
Loners
Kids
Extortionists
Snipers
Racists
Can produce disruptionas big as real terrorism!
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