Assessing Internal Political Risk

The Political and Legal Environment for International Business
Introduction
Both the political system of a country and its accompanying legal system are national institutions: they spring from the nation state as an autonomous entity, which governs its population and enacts law to carry out its public tasks.
For businesses, these institutions play a continuing role. They regulate its formation, its governance, its business activities, its relations with stakeholder and its duties to communicate with regulatory authorities and the public.
When a business embarks on international expansion, far from leaving national institutions behind, it encounters new political and legal frameworks in each country it enters. Although the patchwork of national authorities might well seem dated in a globalized world, it remains an essential reality for international managers.
International business has consistently emphasized the need to both understand the political dimension regarding the management of overseas activities and include inter country differences and changes in political environments when researching strategic initiatives and expansion activities of international firm.
Politics and political interest are powerful forces in every country throughout the world, and their ability to support or disrupt business operations is of major interest to the global manager.
Only through an understanding of the fundamental elements and dynamics of political systems can one adequately appreciate their effects on the multiple operating environments facing the global firm and properly assess the degree of politically imposed risk involved in commencing or continuing operations in each. Policymakers and managers must have the tools to assess the extent of political and regulatory risk faced by a given investment project in a given country.
The political system
The political system consists of a set of “players” each with its own unique set of aspirations and goals, which are often in