Risk Involved in Foreign Direct Investment - Essay Example

Telecommunications Regulatory Commission (TRC) is responsible in regulating the telecommunications sector. The political aspect is also explored as it is the political system that drafts the rules that outline how business operations are run. In conclusion, I argue that multinational companies need to strike a consensus with the Sri Lanka government in reference to regulatory conditions. As it will become clear in this paper, the role of multinational corporations in the development of economies cannot be underestimated.

However, some risks for example those related to the political aspect of governance may prove to be a big obstacle to multinational corporations seeking to invest in Sri Lanka. It is on this basis that this paper comes up to consider the response options available to multinational corporations that operate in the country. Through the use of questionnaires, data relating to the operation of multinational corporations and the risks involved is collected. Through the use of statistical means the data is compiled and analysed.

The study finds out that indeed there are political and regulation risks that define operations of multinational corporations in Sri Lanka. This regulation becomes a critical aspect as the rules and regulations are not applied across the board. Through the use of econometric analysis, it is found that political and regulation risks are statistically significant as they influence investing patterns. The small inflow of FDI indicates the response by MNCs towards such regulation. It is however proposed in this paper that the firms should respond by negotiating with governments rather than such withdrawals.

It is concluded on the basis of the findings that there indeed exist a connection between political and regulation risks and operations of MNCs in Sri Lanka (Akram 2003).