Political Risk

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POLITICAL RISK
Abstract
How companies could face political risk?
We decided to investigate many study cases of political risk based on what we have learnt in class and trying to focus in distant regions such as Eastern Europe and Southeast Asia for not being redundant on the already well-known cases of Latin America. To achieve it, we used the data base of ProQuest and we found many articles about it. The references of this investigation are included in the bibliography of this work at the end of the paper.

Key Words:

Political Risk: is what happens when a company or companies face a series of political changes that could threaten its situation in a country. •Political Threat: is a situation when a company would eventually suffer a series of bad conditions on a certain market. •Political Changes: are a series of changes within the government of a country. •Micro Risk: a type of political risk that threatens the activities of a certain industry. •Macro Risk: a type of political risk that threatens all the industries. •Violent Situations: Situations that risk the integrity of the people, the infrastructure, the economy among others in the country. •National Requirements: when a country forces a company to modify its circumstances to stay in the market.

Introduction

We studied the influence of political risk in business all around the world analyzing its definition through it. It is important to take into account that in business it is crucial to know about the political situation of a country because political risk is not always presented in the same way, it depends on the characteristics of the countries involved in the problem. We had a previous knowledge given by the teacher and we also had information obtained from the news we are constantly reading, but we did not have many examples of that because all the cases that could be examples of political risk took place in Latin America; all of them were extremely valid and consonant with the definition we had of political risk, however we concluded that it could be less inspiring for our classmates because those cases are very well-known. That is the main reason we had to search cases that were not part of the public domain in the Colombian context and we decided to focus on cases from different parts of the world and in that order of ideas we could understand how companies face political risk. This study will help us to improve our knowledge in business and politics.

Arguments

First of all is very important to understand the definition of political risk. It is what happens when a company or companies face a series of political changes that could threaten its situation in a country. Any company could be affected by political changes, as well as any country could be affected by political risk situations derivative of political changes. The factors that lead to political risk are revolutions, wars, general elections, political reforms, among others.

There are two types of risks that could affect a company, a market or an industry. Macro risk and micro risk; the first is the one that affects every company in every industry, and the second is the one that affects a specific industry and its companies. Another factor that threatens the development of an industry within a country is violence; it could be classified in three different kinds: terrorism, open-war and kidnapping. The national requirements are also a reason for political risk; this is when a country has a very high and strong protectionism or when the government forces companies to have a determined number of local products.

When companies are victims of political risk there are some ways to fight it. If the company has security problems, the solution would be to contract a security agency and also an insurance agency; if the problem is because of the local or national requirements, the company should get a partner from that region or country; and the last one would be to...
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