Preview

How Managing Political Risk Improves Global Business Perfromance

Good Essays
Open Document
Open Document
436 Words
Grammar
Grammar
Plagiarism
Plagiarism
Writing
Writing
Score
Score
How Managing Political Risk Improves Global Business Perfromance
Risk as defined in Wikipedia is a concept that denotes a potential negative impact to some characteristic of value that may arise from a future event. We can say it is nothing more than uncertainty about the decisions that other human beings are going to make and how we can respond to those decisions. It makes sense to consider political risk as the uncertainty which originates from the exercise of power by government and perhaps non-government people. Investors, corporations and even the government itself face this kind of risk that can be understood and managed with proper contemplation and investment. Businesses are faced with this threat especially if there are complications in the political structure like tax laws and tariffs. The risk of loss that an industry in a given country will face usually results from what we frequently hear as political decisions which are changes that basically alter the expected outcome of firms achieving their business objectives. In effect investors may face financial losses and for a business it would complicate its pursuit of earnings thereby reducing the desirability of that investment. As mentioned in the article, multinational companies are the ones making efforts to manage political risk since they know foreign environments add risk and complexity to their business performance. I myself believe that investing in developing countries like the Philippines is a political risk. If we try to look how disorganized our government system is -- there is endemic corruption, incompetent political leaders, approval rating of our president is already negative and our legislative body has its own delaying tactics. With this kind of political chaos, these events that we have pose foreign investment risks that can change the overall suitability of the Philippines as a destination for investment. In today’s increasingly global marketplace every investor has to consider all the risks involved in expanding its operations. It is

You May Also Find These Documents Helpful

  • Better Essays

    Mba/540 Risk Analysis

    • 862 Words
    • 4 Pages

    This paper will discuss techniques to external investment strategies, techniques to internal investment strategies, and analyze risks associated with investment decisions.…

    • 862 Words
    • 4 Pages
    Better Essays
  • Powerful Essays

    Political, legal, regulatory risks, exchange and repatriation of funds risk, competitive risk assessment as well as tax and double taxation must be considered with a business plan, especially when going international .…

    • 1963 Words
    • 8 Pages
    Powerful Essays
  • Better Essays

    General Motors and Risk

    • 2232 Words
    • 9 Pages

    In the fast moving business world, companies and firms are increasingly confronted with risk, risks that are complex and global. Emergence of new technology has made it possible for organizations and consumers to be exposed to the whole world on a scale that has not been seen before and at faster rates, hence exposing organizations to various risks; risks that may or may not be able to be anticipated or speculated or at times an organization might not be able to create solutions fast enough for these threats. Each organization is unique and operates in many areas of the world and will have risks that are both similar and different and each company may choose to mitigate the risks that may arise from vast operations differently. Organizations may choose to use one or more techniques to offset their risks, such as buying forward contracts, options, using tax incentives, etc. General Motors (GM) is a multinational organization, where they operate in countless countries over the world with assets, liabilities and sales; which is also vulnerable to risks associated with operating globally.…

    • 2232 Words
    • 9 Pages
    Better Essays
  • Good Essays

    Political risk happens when a country’s government unexpectedly changes its policies, which now negatively affect the foreign company. These policy changes can include trade barriers which serve to limit or prevent trade. Some governments will have tariffs in exchange for the right to export item into their country. (Investopedia) A foreign government could come and nationalize and seize control of a company’s assets. Obviously the seizure of a company is extreme but not unheard of.…

    • 672 Words
    • 3 Pages
    Good Essays
  • Powerful Essays

    Fins3616 Answers Homework

    • 36973 Words
    • 148 Pages

    Political risk is the risk that a sovereign host government will unexpectedly change the rules of the game under which businesses operate.…

    • 36973 Words
    • 148 Pages
    Powerful Essays
  • Good Essays

    Political risk is the likelihood that the outside speculation of a business will be controlled by a mass of the administration's strategies. The suggestion to purchase out a Venezuelan soda pop maker and bottler Zip-6 in Venezuela will represent a potential hazard because of the Venezuelan economy that uses an administration process made up of trade controls, sponsorships and value controls. The political tension between the two nations is also due to the recent expulsion of senior U.S. diplomats by the Venezuelan government.…

    • 374 Words
    • 2 Pages
    Good Essays
  • Powerful Essays

    Assessing Political Risk

    • 1172 Words
    • 5 Pages

    Wagner stated that “the exercise of political power is the root cause of political risks in international business.” (p. 1) Every country has some type of political risk of doing business in that country; however, every country may not be impacted the same way. The impact of political risk is country specific. Eun and Resnick stated that “political risk that firms face can differ in terms of the incidence as well as the manner in which political events affect them.” (p. 405) Political risk can range from tax increases to briberies and extortions. The key factor for businesses is to have a clear understanding of the political risk of that country and the consequences that could potentially impact its business. The purpose of this paper is to assess the political risk that is associated with doing business in the three foreign countries known as Korea, China, and Japan.…

    • 1172 Words
    • 5 Pages
    Powerful Essays
  • Powerful Essays

    Our global growth is subject to economic and political risks. We conduct our operations in virtually every part of the world. In 2010, approximately 53% of our revenue was attributable to activities outside the United States. Our operations are subject to the effects of global competition. They are also affected by local economic environments, including inflation, recession and currency volatility. Political changes, some of which may be disruptive, can interfere with our supply chain, our customers and all of our activities in a particular location. While some of these risks can be hedged using derivatives or other financial instruments and some are insurable, such attempts to mitigate these risks are costly and not always successful, and our ability to engage in such mitigation has decreased or become even more costly as a result of more volatile market conditions.…

    • 3925 Words
    • 16 Pages
    Powerful Essays
  • Satisfactory Essays

    to go global. Identify possible risks that the company could be facing and how it can…

    • 401 Words
    • 3 Pages
    Satisfactory Essays
  • Good Essays

    Political Unrest

    • 774 Words
    • 4 Pages

    Political risk insurance is a type of insurance that can be taken out by businesses, of any size, against political risk—the risk that revolution or other political conditions will result in a loss. Political risk insurance is available for several different types of political risk, including (among others): Political violence, such as revolution, insurrection, civil unrest, terrorism or war;Governmental expropriation or confiscation of assets;Governmental frustration or repudiation of contracts;Wrongful calling of letters of credit or similar on-demand guarantees;Business Interruption; and Inconvertibility of foreign currency or the inability to repatriate funds.…

    • 774 Words
    • 4 Pages
    Good Essays
  • Better Essays

    At the moment, there is a large number of multinational firms that don’t fully understand or comprehend how to deal with the high political risk in Libya, This is significant since political risk can have a substantial affect on firms, as current events are showing in Libya, Before this paper discusses this, firstly you the reader need to understand what exactly is political risk, in essence political risk is defined as the risk of losing money as a result of unstable governments or regulatory environments, acts of terrorism, wars, and military coups are all extreme examples of political risk, expropriation of resources by the government, or merely the threat can also have a disturbing effect on share prices as seen from the events in Libya, Syria, Egypt, Bahrain and Tunisia.…

    • 1657 Words
    • 7 Pages
    Better Essays
  • Better Essays

    Political Risk

    • 5055 Words
    • 21 Pages

    government is pressing both its agencies and its citizens to adopt open-source software, a policy that could inflict some nasty wounds on Microsoft and other technology companies. These are examples of political risk, broadly defined as the impact of politics on markets. Political risk is influenced by the passage of laws, the foibles of leaders, and the rise of popular movements - in short,…

    • 5055 Words
    • 21 Pages
    Better Essays
  • Satisfactory Essays

    Political Environment

    • 820 Words
    • 3 Pages

    The political environment in a country affects business organizations and could introduce a risk factor that could cause them to suffer a loss. The political environment could change as a result of the actions and policies of governments at all levels, from the local level to the federal level. Businesses need to be prepared to deal with the fallout's of government politics locally and internationally.…

    • 820 Words
    • 3 Pages
    Satisfactory Essays
  • Good Essays

    One way to manage political risk is to buy political risk insurance. Organizations that have international operations use this type of insurance to mitigate their risk exposure as a result of political instability. There are indices that provide an idea of the risk exposure an organization has in certain countries. For instance, an index of economic freedom ranks countries based on how political interference impacts business decisions in each country.…

    • 603 Words
    • 3 Pages
    Good Essays
  • Good Essays

    Macro Economy Elements

    • 1258 Words
    • 6 Pages

    This refers to the potential for instability, corruption and violence in a country or region where business takes place. In regions where political risks are high, it is difficult and costly for entrepreneurs to buy, protect and dispose of resources. Other risks include political and physical violence, extortion and corruption which involve bribes and other forms of unethical payments. These will add to the new ventures.…

    • 1258 Words
    • 6 Pages
    Good Essays