Answer: International companies benefit from monitoring and attempting to predict political changes that
can negatively affect their activities. When an international business opportunity arises in an environment plagued by extremely high risk, simply not investing in the location may be the wisest course of action. Yet when risk levels are moderate and the local market is attractive, international companies find other ways to manage political risks, including:
1. ADAPTATION Adaptation means incorporating risk into business strategies, often with the help of local officials. Companies can incorporate risk by means of four strategies:
Partnerships help companies leverage expansion plans. They can be informal arrangements or include joint ventures, strategic alliances, and cross-holdings of company stock. Partnering helps a company to share the risk of loss, which is especially important in emerging markets.
Localization entails modifying operations, the product mix, or some other business element—even the company name—to suit local tastes and culture.
Development assistance lets an international business assist the host country or region in improving the quality of life for locals.
Insurance against political risk can be essential to companies entering risky business environments. The Overseas Private Investment Corporation insures U.S. companies that invest abroad against loss and can provide project financing.
2. INFORMATION GATHERING International firms attempt to gather information that will help them predict and manage political risk. Two sources that companies use to conduct accurate political risk forecasting are Current Employees with Relevant Information and Agencies Specializing in Political-Risk Services.
3. POLITICAL INFLUENCE Managers must work within the established rules and regulations of each national business environment. Business law in most nations undergoes frequent change, with new laws being enacted and existing ones modified. Influencing local politics means dealing with local lawmakers and politicians directly or through lobbyists. Lobbying is the policy of hiring people to represent a company's views on political matters. Bribes often represent attempts to gain political influence.
AACSB: Dynamics of the global economy
Skill: Concept
Objective: 1, 2
Difficulty: Easy
Course LO: Describe how differences in political economy influence economic development
Answer: International companies benefit from monitoring and attempting to predict political changes thatcan negatively affect their activities. When an international business opportunity arises in an environment plagued by extremely high risk, simply not investing in the location may be the wisest course of action. Yet when risk levels are moderate and the local market is attractive, international companies find other ways to manage political risks, including: 1. ADAPTATION Adaptation means incorporating risk into business strategies, often with the help of local officials. Companies can incorporate risk by means of four strategies: Partnerships help companies leverage expansion plans. They can be informal arrangements or include joint ventures, strategic alliances, and cross-holdings of company stock. Partnering helps a company to share the risk of loss, which is especially important in emerging markets. Localization entails modifying operations, the product mix, or some other business element—even the company name—to suit local tastes and culture. Development assistance lets an international business assist the host country or region in improving the quality of life for locals. Insurance against political risk can be essential to companies entering risky business environments. The Overseas Private Investment Corporation insures U.S. companies that invest abroad against loss and can provide project financing. 2. INFORMATION GATHERING International firms attempt to gather information that will help them predict and manage political risk. Two sources that companies use to conduct accurate political risk forecasting are Current Employees with Relevant Information and Agencies Specializing in Political-Risk Services. 3. POLITICAL INFLUENCE Managers must work within the established rules and regulations of each national business environment. Business law in most nations undergoes frequent change, with new laws being enacted and existing ones modified. Influencing local politics means dealing with local lawmakers and politicians directly or through lobbyists. Lobbying is the policy of hiring people to represent a company's views on political matters. Bribes often represent attempts to gain political influence.AACSB: Dynamics of the global economySkill: ConceptObjective: 1, 2Difficulty: EasyCourse LO: Describe how differences in political economy influence economic development
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