How Managing Political Risk Improves Global Business Perfromance

Topics: Risk, Investment, Finance Pages: 2 (436 words) Published: August 8, 2008
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...
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