Macro and Micro Political Risk

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Compare and contrast macro political risk with micro political risk. Discuss policies to combat their impacts on international business activities.
Strategic planning is essential prior to any individual or company deciding to engage in international business whether as direct/indirect investment or through trade. An evaluation of risks should be considered and strategies developed accordingly prior to any potential investment in a foreign country. One such risk which requires consideration is political risk i.e. "governmental or societal actions and policies, originating either within or outside the host country, and negatively affecting either a select group of, or the majority of, foreign business operations and investments." (Simon, 1982). This can be broken down in ‘macro political risk’ i.e. a risk which affects all foreign enterprise at all levels and ‘micro political risk’, risk which affects only specific industries or certain companies. According to Rugman (2009) types of political risk can be categorised into two i.e. “legal/governmental” and “non-legal/extra-governmental”. Below is an in-depth discussion addressing these risks and the approaches which can be adopted in order to succeed as a foreign investor.
A significant factor to acknowledge when considering macro political risk is that of government. If a country demonstrates political stability and an agreeable policy towards foreign investment then investors may be more inclined to invest in a country where the risk of changes government and legislation is low. One such risk at a macro level which is difficult to predict is ‘expropriation’ i.e. the confiscation of foreign property with little no compensation. In 1938 the American Oil Fields were expropriated by the Mexican government (Mises, 2006) and more recently in after program of “indigenization” (Rugman, 2008) Zimbabwe seized farms and private businesses without giving any compensation to the owners (www.mg.co.za).
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