Managing Political Risk - International Comparative Management - Lecture Slides, Slides of International Management

Download Managing Political Risk - International Comparative Management - Lecture Slides and more Slides International Management in PDF only on Docsity! Managing Political Risk, Government Relations, and Alliances 1. EXAMINE how MNCs evaluate political risk. 2. PRESENT some common methods used for managing and reducing political risk. 3. DISCUSS strategies to mitigate political risk and develop productive relations with governments. 4. DESCRIBE challenges to and strategies for effectively managing alliances. The specific objectives of this chapter are: docsity.com The Nature and Analysis of Political Risk  Political risk  The likelihood that a business’s foreign investment will be constrained by a host government’s policy  Macro political risk analysis  Analysis that reviews major political decisions likely to affect all enterprises in the country  Micro political risk analysis  Analysis directed toward government policies and actions that influence selected sectors of the economy or specific foreign businesses in the country docsity.com Perceptions of International Corruption Adapted from Table 10–1: The 2003 Transparency International Corruption Perceptions Index docsity.com Perceptions of International Corruption Adapted from Table 10–1: The 2003 Transparency International Corruption Perceptions Index docsity.com Micro Risk Factors  “Some MNCs are treated differently than others”  Industry regulation  Taxes on specific types of business activity  Restrictive local laws  Impact of WTO and EU regulations on American MNCs  Government policies that promote exports and discourage imports docsity.com Operational Profitability  Most MNCs are more concerned with operational profitability than expropriation  Will they be able to make the desired return on investment?  Requiring MNCs to use domestic suppliers vs. using supplies from other company-owned facilities or purchasing them in the world market  Restricting the amount of profit that can be taken out of the country  Wages and salaries that must be paid to the employees docsity.com Managing Political Risk and Government Relations  Transfer risks  Government policies that limit the transfer of capital, payments, production, people, and technology in and out of the country  Tariffs on exports and imports  Restrictions on exports  Dividend remittance  Capital repatriation Transfer risks Political risks docsity.com Managing Political Risk and Government Relations  Operational risks  Government policies and procedures that directly constrain management and performance of local operations  Price controls  Financing restrictions  Export commitments  Taxes  Local sourcing requirements Transfer risks Operational risks Political risks docsity.com General Nature of Investment  Conglomerate investment  A type of high-risk investment in which goods or services produced are not similar to those produced at home  Vertical investment  The production of raw materials or intermediate goods that are to be processed into final products  Horizontal investment  An MNC investment in foreign operations to produce the same goods or services as those produced at home Click here to see slide 15 docsity.com Special Nature of Investment  Three sectors of economic activity  Primary sector, which consists of agriculture, forestry, and mineral exploration and extraction  Industrial sector, consisting of manufacturing operations  Service sector, which includes transportation, finance, insurance, and related industries docsity.com Special Nature of Investment  Special nature of foreign direct investments can be categorized as one of five types (see slide 15)  Type I is the highest-risk venture; type V is the lowest-risk  Risk factor is assigned based on sector, technology, and ownership  Primary sector industries usually have the highest risk factor, service sector industries have the next highest, and industrial sector industries have the lowest  Firms with technology that is not available to the government should the firm be taken over have lower risk than those with technology that is easily acquired  Wholly owned subsidiaries have higher risk than partially owned subsidiaries Click here to see slide 15 docsity.com Formulating and Implementing Responses to Political Risk  Three related corporate political strategies  Relative bargaining power analysis  The MNC works to maintain a bargaining power position stronger than that of the host country  Integrative, protective, and defensive techniques  Integrative techniques help the overseas operation become a part of the host country’s infrastructure  Developing good relations with the host government and other local political groups  Producing as much of the product locally as possible with the use of in-country suppliers and subcontractors  Creating joint ventures and hiring local people to manage and run the operation docsity.com Formulating and Implementing Responses to Political Risk  Doing as much local research and development as possible  Developing effective labor–management relations  Protective and defensive techniques discourage the host government from interfering in operations  Doing as little local manufacturing as possible and conducting all research and development outside the country  Limiting the responsibility of local personnel and hiring only those who are vital to the operation  Raising capital from local banks and the host government as well as outside sources  Diversifying production of the product among a number of countries docsity.com Formulating and Implementing Responses to Political Risk  Proactive political strategies  Lobbying, campaign financing, a oraxy and other political interventions designed to shape and influence the political decisions prior to their impact on the firm  Formal lobbying  Campaign financing  Seeking advocacy through the embassy and consulates of the home country  Formal public relations and public affairs activities such as grassroots campaigning and advertising docsity.com