In what Ways Can Political Risk Impact on the Operations of an International Company - Essay Example

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In what ways can political risk impact on the operations of an international company? With reference to a company of your choice, evaluate the different methods for quantifying the level of political risk that the company might face. 1. Introduction The development of business activities in the international market is related to a series of risks…
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In what Ways Can Political Risk Impact on the Operations of an International Company
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Download file to see previous pages As in its context, political risk is described as ‘the risk of loss of assets, earning power or managerial control due to politically based events or actions by host governments’ (Daft 116). From a similar view, Sharan (2011) notes that political risk is a term used in order to show the response of international companies to ‘political scenarios developed in host countries’ (Sharan 229). The aspects of political risk that international companies are likely to face are presented and analyzed in this paper. Reference is made to a specific company, Shell, which is well established in the global market. The political risk that Shell faces in Nigeria is used as an example in order to show that the specific type of risk is inevitable for firms operating around the world. Moreover, under certain terms this risk can severely threaten organizational activities in the host country, unless appropriate measures are developed in advance. 2. Political risk as a factor influencing the operations of international companies The political environment of a particular country can highly affect business operations in all its industries. Foreign firms operating in this country are also likely to be influenced by changes or turbulences in the local political environment. ...
Moreover, there are countries, which are most likely to face such problems, compared to others where political instability is rather low. For example, in ‘Indonesia and Sri Lanka’ (Daft and Marcic 88) social conflicts are quite common, increasing the political risk for foreign firms operating in these countries. Moreover, Aswathappa (2010) notes that political risk can affect business activities ‘in different ways’ (Aswathappa 131). For example, in the context of political risk, an international firm may have to face the following problems: ‘a) expropriation of its assets, b) barriers to repatriation of profits, c) loss of technology, d) campaigns against foreign goods’ (Aswathappa 131). The above risks are described as macro – risks, being differentiated from micro – political risks, such as: a) ‘the kidnappings of employees, the increase of taxation or terrorism’ (Aswathappa 131). Moreover, Aswathappa (2010) notes that political risk can affect business activities ‘in different ways’ (Aswathappa 131). For example, in the context of political risk, an international firm may have to face the following problems: ‘a) expropriation of its assets, b) barriers to repatriation of profits, c) loss of technology, d) campaigns against foreign goods’ (Aswathappa 131). The above risks are described as macro – risks, being differentiated from micro – political risks, such as: a) ‘the kidnappings of employees, the increase of taxation or terrorism’ (Aswathappa 131). On the other hand, Mckellar (2010) notes that important information on the political environment of a particular country can be retrieved through the international organizations, usually non-for-profit organizations, operating within this country. In any case, political risk ...Download file to see next pagesRead More
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