A Stranger in a Strange Land Micro Political Risk and the Multinational Firm Ilan Alon

Topics: Political risk, Risk, Risk management Pages: 22 (7268 words) Published: April 7, 2012
Business Horizons (2009) 52, 127—137


A stranger in a strange land: Micro political risk and the multinational firm Ilan Alon, Theodore T. Herbert *
Crummer Graduate School of Business, Rollins College, 1000 Holt Avenue - 2722, Winter Park, FL 32789, U.S.A.

Micro political risk; Risk assessment; Environmental analysis; Multinational corporation

Abstract When a firm chooses to enter or continue business in a foreign market, it becomes exposed to associated political risks which should be assessed and managed. Help is available for becoming aware of the level of macro political risk; that is, the political risk across industries or all businesses in entire countries or geographic regions. Yet, surprisingly little guidance exists by which to identify and assess firmspecific political risks, termed micro political risk. Herein, we offer some new perspectives on the nature of micro political risk within a host country, illustrating how it stems from economic, societal, and governmental forces. We have compiled a number of firm-specific variables which can affect the firm’s micro political risk profile, and advance an innovative methodology by which executives can address these variables and develop an assessment of their firm’s micro political risk. Examples of micro political risk situations are provided, along with discussion of implementing the proposed methodology. # 2008 Kelley School of Business, Indiana University. All rights reserved.

1. Micro political risk: An overview
International commerce has grown incredibly, yet much of it is susceptible to diverse types of risks. One major risk is political risk, which encompasses political events and processes that can negatively affect doing business. This risk has both a macro perspective, affecting all firms in a country, and a micro perspective, affecting only select industries, firms, or projects. Simply put, micro political risk is * Corresponding author. E-mail addresses: ialon@rollins.edu (I. Alon), therbert@rollins.edu (T.T. Herbert).

the political risk affecting a particular firm, project, or industry. At this level of specificity, the unit of analysis is not only the target country (as in macro political risk) but also the firm’s nationality, industry, and particular project characteristics and their relationship to the country. Macro and micro political risks overlap, sharing some of the same determinants; depending on the firm’s nationality, industry, and particular situation, micro and macro risks can intersect to varying degrees (see Figure 1). Micro political risk is similar to macro political risk in that it, too, emanates from internal and external as well as economic, societal, and governmental forces. The two types of risks are different in that

0007-6813/$ — see front matter # 2008 Kelley School of Business, Indiana University. All rights reserved. doi:10.1016/j.bushor.2008.09.004

Figure 1. Micro vs. macro political risk

I. Alon, T.T. Herbert

specific aspects of the firm either increase or decrease its political risk exposure. Micro political risk is thus important to the international firm because of its higher level of relevance and specificity. Academic research on micro political risk is still in its infancy. Most of the research to date has focused on macro political risk, yielding broadly-based insights about specific countries or regions. The paucity of research on micro political risk is probably due to the difficulty in generalizing about risk that is particular. Previous attempts to develop micro political risk assessment models have ended in conceptualization of the concept (e.g., Alon, Gurumoorthy, Mitchell, & Steen, 2006) or delineation of some of its components (e.g., de la Torre & Neckar, 1988). Herein, we build on the scant literature of micro political risk to provide a more comprehensive and systematic analysis of factors affecting a particular firm. As knowledge matures by which to...
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