Assessing Internal Political Risk

Topics: Democracy, Risk, Politics Pages: 6 (1973 words) Published: March 31, 2013
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 conflict with those of other “players” in the system. The government is only one of many players in this system, although a key one, as it alone has the legitimacy to make authoritative decisions and to enforce those decisions by force. The other key players in the system are the various significant groups that exist in a society. Examples of societal groupings are labour unions, environmental activist organisations, special-interest groups, and religious organisations, finally , groups, including various terrorist organizations, exist that conduct illegal activities. Social groupings and organizations of all types accord more power and responsibility to some members than to others. Each of these groups has a certain amount of power it can exert to control and influence the behaviour of other groups and of various host governments. The organisation’s politics consists of the interplay for power and status, which often takes place outside formal structures. The power of each group is derived from the total number of people who are firmly committed to the group’s ideals and goals and from the group’s stockpile of key financial, technical, and human resources. What distinguishes these organisations from politics at the national level is that they are all limited to the organisation itself, whereas national politics concerns the people, goals and structures which govern an entire nation state. The political system of any state consists of the structures and processes by which it is governed. Some are formal such as the way governments are put in place and derive legitimacy, but much is less formal, such as grassroots actions on the part of the citizens. Political Risk

Political risk refers to uncertainties associated with location and exercise of power within a country and from forces outside its borders. Broadly, political risk refers to the complications businesses and governments may face as a result of what are commonly referred to as political decisions—or...
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