Political Risks in International Business - Assignment Example

Student’s Name: Grade course: Tutor’s Name: 28 May 2012 International Business Essay 1: Globalisation in a business context Generally, globalisation refers to a process where the traditional regional or natural boundaries are transcended by technologically-enabled, politically-mediated and socially-instigated factors (Cojocaru 993). Consequently, the effects of globalisation are evident in such areas as the rise of international businesses, the formation of global economic systems and the formation of business and management systems of a global scale. Although a recent phenomenon, analysts believe that globalisation has been happening for centuries now based on human interaction where cultures were exported and imported into different regions hence bringing about convergence, but was only accelerated recently due to the increased use of sophisticated technology (Giddens 64). It is worth noting that globalisation is a complex term that has generated much debate in literature. Among the things that different authors seem to agree on is that the business world is now more intertwined globally courtesy of the globalization concept (Giddens 727). The traditional national and regional barriers are now more cumbersome to business as they are Among factors that have contributed to globalisation include technology e.g. the internet; transnational regulatory and monetary bodies such as the International Monetary Fund and the World Bank; and political unification such as the formation of the European Union. Technology has especially played a critical role in globalisation since it has removed the limitations of time and distance from the global business arena. As a result, business people in New York and London, Sydney and elsewhere in the world can communicate in real time courtesy of information technology. Institutions such as the World Trade Organisation have also played a key role in mediating the business environment in order to make it viable for different countries. By so doing, such organisations make it possible for different countries to conduct trade on a global scale. Finally, the political function in different countries has contributed significantly towards globalisation. As indicated by Tomlison, the distribution of power and the supremacy of specific countries such as the United States, has affected trends in the globalisation process (175). Works cited Cojocaru, Monica. Cultural Globalization in the Context of International Business. Review of International Comparative Management. 12.5(2011): 993-999. Giddens, Anthony. Sociology. Cambridge: Polity Press, 1991. Print. Tomlison, John. Cultural Imperialism: A Critical Introduction. London: Pinter, 1991. Print. Essay 2: Political risks in International business According to Ross (279), there are four major types of political risks in international business. They include general political instability; ownership risk; operations risk; and transfer risk. General political instability poses a threat to the investor assets, and may also reduce the amount of revenues an international business is likely to generate in the affected market. Ownership risk on the other hand is associated with the nationalisation or protectionism of businesses by host government. In such cases, international businesses are at risk of losing their offshore properties to expropriation or government takeover. Operations risks are associated with prevailing policies by the host government. Such policies may hinder business operations such as marketing and financing among others. The transfer risk on the other hand is related to the fiscal and monetary policies maintained by the host government. Such policies affect the currency exchange rates, and in turn affect the businesses’ ability to transfer capital from the host country. In addition, some countries have specific policies on repatriation of earnings. Different risks affect international business differently; for example, terrorism can drive away the international business community from the host country meaning that the international businesses that remain have a reduced market, and an even reduced potential funding based on the perceived high risk of doing business. Conflict and violence on the other hand destabilises the business environment hence meaning that the labour pool is equally affected. Additionally, the civil instability places international businesses at an increased risk of loosing their assets. Insurance related risks often means that less insurance companies are willing to insure high-risk business, and even the willing usually charge very high premiums for the same. Effectively, this adds to the cost of doing business because business people either have to choose between paying the high premiums and self-insuring their business (Globerman 8-9). Local content requirement forces business to venture beyond their initial business objectives and /or strategies and this may translate into extra expenses and resource utilisation as international businesses oblige by laid down local rules. Works Cited Globerman, Steven. Risk and uncertainty in International Business. Lecture Notes. MBA 515 (Winter 2012): 1-10. Ross, Kathleen. Political and Economic Factors affecting International Business. 2010. http://www.dpcdsb.org/NR/rdonlyres/0535EFD9-639D-4D95-B7AA-461E34742340/68681/Chapter_92_NOTES1.pdf> 28 May 2012. Essay 3: Mixed economy vs. neo-liberal market economy As the word suggests, mixed economies are a mixture of free enterprise market systems and socialism market system (Rahman and Andreu 27). The combination of the two systems means that governments in mixed economies play major roles in providing the social and legal framework for markets, enhancing and maintaining competition, redistributing income, providing goods and service to the public, correcting market externalities and stabilising the economy. However, the bulk of private enterprises are still free to make economic decisions regarding their businesses. In neo-liberal market economies on the other hand, governments take a secondary role to market forces. In other words, the market forces guide the market, with the government role focused on the provision of conditions only (Chang 7). In other words, and as argued by Rose, the state plays an enabling role in the neo-liberal market economies (142). The differences between mixed economy and neo-liberal market economy is that while the former balances a mixture of market regulations by the government and market freedoms, the latter maintains that market forces should take precedence to any government intervention. Specifically, the private enterprises in mixed economies have to abide by four principles set by the state, which are: the principle that private ownership is supreme; the freedom to engage in contracts; the “existence of competitive markets”; and the role played by the public sector (Rahman and Andreu 28). In other words, the neoliberal thought works on the premise that markets are supreme and that state intervention mainly leads to the introduction of self-seeking interest groups that “distort the rationality of the market system” (Chang 11). Theoretically neo-liberal market economies therefore are politically independent since the scope of the state is restricted through privatization and deregulation among other approaches (Chang 11). This is rarely the case in reality as noted by Chang. Mixed economies on the other hand contain elements of free enterprise which must work within the dictates and policies set by the state. Works Cited Rose, Nikolas. Powers of Freedom: Reframing Political Thought. Cambridge: Cambridge University Press, 1999. Print. Chang, Ha-Joon. Breaking the Mould- an Institutionalist Political Economy Alternative to the Neoliberal Theory of the Market and the State. Social Policy and Development Programme Paper, 6 (2001): 1-25. Rahman, Rita and Andreu Jose. Responsible Global Governance: A Programme for World Stability and Institutional Reform. New Delhi: Academic Foundation, 2004. Print. Essay 4: Culture shock and ways of minimising it Culture shock is defined as the “psychological disorientation experienced by people who find themselves living and working in radically different cultural environments” from what they are accustomed to (Oberg 142). Notably, the shock occurs when the cultural props that one is used to are missing from one’s new environment. According to Marx, the greatest effect of culture shock is witnessed among people who have ethnocentric tendencies (2). Such people have tendencies to perceive other cultures based on their own culture, often in the belief that their culture is superior. In the international business context, some experiences that may be indicative of culture shock include frustration or feelings of strain owing to others not understanding the business person, anger, depression especially when one feels that nothing is working, and helplessness especially if one feels out of control because of the cultural differences between him and people in the host country. According to Marx (2), international business people usually deal with three different levels of culture shock, which include the emotional side; the thinking side and the social side. On the emotional side, the business person has to cope with mood swings resulting from the different cultural exposure in the host country. On the thinking side, the business person has to cope with understanding the foreign colleagues in order to form effective business relationships. The social side on the other hand calls for the business person to develop “a social and professional network as well as effective social skills” (Marx 2). Minimising culture shock can be attained through several strategies which include doing a background check on the foreign culture where one expects to set up business. By so doing, such a person knows what to expect in the host country, is aware of the “complexities and ambiguity of exchanges in foreign cultures” and tries to change his/her attitudes and thoughts in a manner that finds compromise between their culture and their host culture (Marx 3). Another strategy that Oberg (145) recommends is learning the language used in the host culture. According to Oberg, understanding the host language is one of the most effective ways of understanding cultural meanings, gaining confidence and attaining some sense of power (145). Finally, Oberg recommends that people experiencing culture shock should talk with people who understand them (especially relative and friends from their countries) as another way of overcoming the shock. Overall however, time heals all culture shock-related emotional or psychologically wounds. Works cited Oberg, Kalervo. Culture shock: Adjustment to new cultural environments. Curare. 29. 2+3 (2006) 142-146. Reprint. Marx, Elisabeth. Culture Shock Unwrapped. 2002. . Read More